Budget 2016: Economic Survey pitches for curbing Rs 1 lakh crore subsidy to rich

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This may not be good news for many, but the Economic Survey for 2015-16 tabled in Parliament today has rightly pitched for cutting the subsidies being cornered by the well-off people in the country.
Though it will be difficult for the government to implement and push for the recommendations of the Economic Survey piloted by chief economic adviser (CEA) Arvind Subramanian, this appears the direction in which finance minister Arun Jaitley would be moving in the Budget on Monday.
In fact, the rationalization of the administered small savings interest rates this month by the government has already indicated towards this.
The Economic Survey has pointed out: “Subsidies for the poor tends to attract policy attention. But a number of policies provide benefits to the well-off. We estimate these benefits for the small savings schemes and the tax/subsidy policies on cooking gas, railways, power, aviation turbine fuel, gold and kerosene, making assumptions about the definition of “well-off” and the nature of neutral policies. We find that together these schemes and policies provide a bounty to the well-off of about R 1 lakh crore.”
It has highlighted that the policies that are based on providing tax incentives benefit not the middle class ‘but those at the very top end of the income distribution’.
The Survey has suggested that the government should move, in a phased manner, to the EET (exempt, exempt, tax) method of taxation of savings.
“Interestingly, the New Pension Scheme (NPS) is already being subjected to the EET method of taxation. Therefore, deductions under Section 80C and 80CCD should be re-assessed to move toward a common EET principle for tax savings,” it has stressed.
The CEA has argued that in many cases, subsidies take the form of explicit subsidization, which is surprisingly substantial in magnitude, and ‘Addressing these interventions and rectifying some egregious anomalies may be good not only from a fiscal and welfare perspective, but also from a political economy welfare perspective, lending credibility to other market-oriented reforms’.
While this is no doubt due for quite some time, and it is being done successfully in the case of LPG subsidy through the Direct Benefit Transfer (DBT) scheme, the government obviously will have to deal with the issue cautiously to avoid unnecessary backlash.
It can’t be anybody’s case that the rich should continue getting any form of subsidy, but it is also equally important to have a robust mechanism to identify the real beneficiaries and this is why Aadhaar-based identification system needs to be embedded in all the government subsidy and entitlement schemes quickly.
Sadly, the government is still lacking here.