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PM Modi allows Subsidy Bill Surge, focusing on Crucial Elections

Prime Minister Narendra Modi let subsidy bill. Although he is known for reducing India’s huge subsidy expenditure, it seems he has missed the chance to restrain it.

As PM Modi is busing preparing for state and national elections, subsidy reforms will be more difficult. Subsidy bill is a sensitive issue among much of India’s vast electorate.

Food subsidies in the financial year starting April 1 have almost doubled from last five years, and the decline in oil subsidies is reversing with a hike in crude prices. Meanwhile, fertilizer subsidies have almost remained the same.

For the year 2018-19, Modi’s overall expenditure gone up by 10 percent, but he allocated 15 percent more to three major subsidies- food, fertilizer, and petroleum- against an increase of 12.6 percent a year earlier.

“He is just like any other government before — he is unable to take hard decisions,” said Mohan Guruswamy, a former finance ministry official and chairman at the Centre for Policy Alternatives in New Delhi. “Unless you have capital expenditure, you will not get growth and you will not get jobs. And to increase capital expenditure, you need to reduce subsidies.”

Fiscal Concerns

After becoming PM in 2014, Narendra Modi signaled his administration would cut the subsidy bill to improve the economy and attract investment. Finance Minister Arun Jaitley, proposed to overhaul food and fuel subsidies to cover the fiscal gap just after two months.

As Modi faces eight state assembly polls this year and national election in early 2019, his government is not saying anything about phasing out subsidies.

Playing Safe

PM Modi quite seized the moment when oil prices were falling, and linked the price of diesel to market. He tries to control leakage in the subsidy by adding the biometric registration and directly transferring cash to a bank account. Proposed saving was 57- billion rupees.

Well, doling out subsidies is a time-proven tool to win votes. It worked well for the Congress government when they returned to power in 2009 after announcing a significant increase in subsidies, and waiving loans for small farmers.

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