NEW DELHI, May 8: Industry associations have welcomed the proposals made in the White Paper on reducing subsidies setting the economy back by nearly Rs 1,40,000 crore.

The Associated Chamber of Commerce and Industry (Assocham) said finance minister P Chidambaram's announcement to initiate a national debate on the subsidy regime as well as his indication to cut down `non-merit' subsidies is a step in the right direction.

Assocham has suggested that the government should undertake a comprehensive review of each and every subsidy in terms of its size, cost, duration, transparency, leakages and the reach to the targeted population. The review should cover subsidies, both explicit and implicit, at the central and state levels and suggest a time-bound programme of phasing out at least non-merit subsidies.

The Federation of Indian Chambers of Commerce and Industry (FICCI) has said that the white paper has been brought forth at the most opportune time when there is a mass awareness about the distortionary effect of the fiscal deficit on the economy for which subsidy is a major contributory factor.Assocham, has however cautioned that the review, to be purposeful, should be apolitical and based on strict economic criterion and not be, in any way, influenced by electoral considerations. The Chamber said the time has come to put an end to competitive populism resorted by some state governments in giving subsidies.

FICCI has said that India has to move towards a regime where the subsidy can be availed or directed at the vulnerable section of society. In this regard, the Chamber added, there is a merit in the arguments that public distribution system should not be extended to the better-off layers of society and restructuring of the cross-subsidy on power whereby industry is forced to bear the brunt of heavy subsidy.

Assocham has underlined the need for increasing non-tax revenue through phased reduction of subsidies. This is necessary in the context of the government's commitment to bring down the fiscal deficit to below four per cent in 1998-99 and to usher in a moderate tax regime to encourage savings, stimulate growth and motivate voluntary compliance. Assocham has regretted that subsidies which were expected to go down as part of the economic reform process have in fact gone up substantially as revealed by a National Institute of Public Finance & Policy (NIPFP) study.

The Chamber has said that it is therefore necessary to reduce the growth of subsidies through better targeting and much more systematic application of user charges for government services. For instance, said Assocham, in the context of rising deficit on the oil pool account, there was no economically viable option except to adjust the petroleum prices to reflect the impact of increases in international prices.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.