A decision taken a couple of days ago by the Indian Government will be in headlines at least for the next couple of months !
Which decision?
FDI?
No.
...Think...
Subsidized fuels-High Speed Diesel (HSD)- price hike.
Connect the dots and you will get what the story is.
But this post is not about HSD.
This is not about Motor Spirit (MS).
This is not about Liquefied Petroleum Gas (LPG) either.
This is about a seven letter word which we as Indians have become so used to that many find it hard to imagine a life without it.
The word: S U B S I D Y.
Subsidized petrol, subsidized Diesel, Subsidized Kerosene, Subsidized LPG, Subsidized electricity, Subsidized water, etc etc....
..Rich or poor..
Everyone loves SUBSIDY.
Sab-Needy for SUBSIDY !
Two assumptions upfront:
1) Assume I decide to buy a 1 litre water bottle for Rs 16 can give it for Rs 5 to you.
2) Also assume that you do not know how much did it cost me actually.
Will you be happy getting the bottle for Rs 5?
Chance are that you will be.
Now assume that I have to give water to 5 people.
Will you be happy?
Chances are again that you will be.
But this might make me a little inconvenient. Earlier there was one, now there are five.
Now further assume that I have to give water to 500 people.
What should I do now?
I have many options such as:
a) Continue giving the water for Rs 5.
b) Ask for a price rise, say Rs 8.
c) Ask for the "real" price: Rs 16.
d) Set a limit to how many or who all can get the water for Rs 5.
e) Stop supplying water to all.
Now let us assume I go for option c)
I stop giving it for Rs 5 and ask you for Rs 16.
But there is a problem with this option for you: Since you had been getting water for Rs 5 for so long, you consider Rs 5 as the "real price".
"Real" because you were unaware of the price at which I was purchasing it.
Now when I want to increase the price, you don't like it.
Even I would not like it if I were you.
But is it about our likes and dislikes?
Or is there another context to be considered?
The issue is: if I don't increase the price I charge you, I might go bankrupt (if I have not gone already !), which will make it even more impossible for me to supply you water in the first place.
Now, some may argue that it is not as simple as that in the case of government, and they would not be wrong either.
But the question of providing freebies/subsidies would still remain as it is.
Does it not seem as if everyone appears needy for SUBSIDY?
Sab-Needy for SUBSIDY?
Let us ask a question about SUBSIDY?
Three questions to be precise:
1) What/Who is it meant for?
Is it meant for giving "freebies" to all? Or is it meant to support the sections of society whom the society/government itself considers "vulnerable" or "needy"? But therein lies the catch. The moment such subjective terms are used, everyone lets their imagination define it according to their whims and fancies. So for a particular political party, their entire "vote-bank" might be those needing it the most, while for some other group, the entire country might fall under the category of "needy".
There are other questions also:
Is there a distortion on the consumption pattern because of subsidy? Are people choices being dictated by which items are being subsidized the most? Are such consumption patterns having an undesirable effect on the society/country/economy/environment?
There are lots of related questions.
But is it not high time that we deliberate over this basic question?
What/who is SUBSIDY meant for?
2) Who should receive it?
The "poor"? The "poorest of the poor"? The "middle class"? Who is "poor"? Compared to the richest in the country, I am "poor". Compared to those on the streets, I am "rich". In the name of "poor" should we allow "non-poor" to get all the benefits?
Then there are questions like: how long should the SUBSIDY be granted? Is it perpetual? Is there a time limit beyond which it would be withdrawn? Is there an incentive for people not to call themselves "poor" just for the sake of receiving subsidies?
There are again lots of related questions.
But the basic question remains as it is.
Who should receive SUBSIDY?
3) More importantly, who should not receive it?
One way of answering Question 2) is to answer Question 3). While it is difficult to think of who should receive it, it is equally tought to answer Question 3). Who should not receive subsidy? While there could be little justifications for the "rich" to be subsidized, it could be practically difficult to exclude them for receiving the benefits. Just as in case of "poor", how do we decide who is "rich"? More importantly, how do we decide, who are neither, i.e. who is the "middle class"? Do they require subsidy? How much? How long? Why? If someone can afford to pay, should they not pay?
As was the case with the two questions above, the basic question remains as it is in this case also:
Who should NOT receive SUBSIDY?
Questions are important but difficult.
The search for answers could be tricky.
But should that deter from asking questions?
Should we not make an attempt?
1) India is world's fifth largest consumer of petroleum products and imports close to 70% of her petroleum requirements.
Some stats on India's crude imports:
2) Between 1980-81 and 1990-91, it increased from 16 MT to 22 MT.
3) Between 1990-91 and 1998-99, it increased from 22 MT to 40 MT.
4) Between 1998-99 and 2001-02, it increased from 40 MT to 79 MT.
5) Between 2001-02 and 2010-11, it has gone from 79 MT to 164 MT.
6) Since 2006, import of crude oil has increased by 65% in the country, while the value of imports has increased by 165%. (You may be wondering about the mismatch between the two values. The mismatch is a result of high oil prices, coupled with exchange rate fluctuations.)
Imports start going up.
Oil prices on rise.
Value of Rupees has gone down.
Impact on subsidies?
Upwards: increase in imports and therefore subsidy amount.
In the old times, the consumption was low, and so was the subsidy burden.
Today, the consumption has increased dramatically, and so has the subsidy burden problem.
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