The Survey has called for progress in reforming the existing control systems governing the fertiliser, petroleum and sugar sectors. It has linked subsidies to indirect taxes, as they open a gap between the cost of production and distribution, and the price paid by the subsidised buyer. With the exception of completely inelastic goods, they distort the pattern of consumption, it stated.

An even more serious problem of providing incentives for rent-seeking diversion and corruption afflicts the large subsidies, it added. Larger the unit subsidy, the larger is likely to be the leakage, according to the Survey. It cited a study conducted by the National Institute of Public Finance and Policy which clearly brought out that the indirect cost of subsidies was much greater than the direct budgeted subsidies.

The Survey also called for reducing subsidies, targeting the remaining subsidies on the poor and searching for more efficient mechanisms for protecting the poor. For instance, it said, the fertiliser retention price system was one of the most anachronistic. "Various studies have shown that depending on world prices, anything between 50 per cent to 75 per cent of the fertiliser subsidy goes to the producers", it added. It has endorsed the Hanumantha and the Alagh committees recommendations that the scheme be disbanded.

"The sooner this is done, the quicker will normal market incentives for improvement in productivity of investment and energy efficiency come into operation," it has pointed out.