Fiscal deficit's not the only hole in the budget

Fiscal deficit's not the only hole in the budget
Sunil Jain

New Delhi, February 24: The most irritating thing about the common man, economist Kaushik Basu wrote many years ago, is that despite all these years of `common man's budgets', he still manages to remain so common! Not surprisingly, for much of what is traditionally mouthed (and will be mouthed just a few days from now) as `for the common man' hardly ever reaches him. So, before you clap for Finance Minister Yashwant Sinha when he exhorts you to shell out a bit more for Gujarat, or when he announces a 20 per cent hike in food subsidies for the really poor, the Daridranarayan, just pause to go through some of these figures.

According to the Planning Commission, if you look at all the schemes in the Central Budget, all ministries put together spend roughly Rs 40,000 crore per year on programmes essentially meant to alleviate poverty, either directly or through creation of rural infrastructure. Given that there are around five crore really poor families, that's around Rs 8,000 per family per year. So, assuming these families were completely penniless, they could buy three kg of wheat every day even at prevailing market prices. Given this, there's no question of them remaining poor.

Yet, they do. The reason for that is they get a very small proportion of what they're meant to. According to the Mid-Term Review of the Ninth Five Year Plan, the Planning Commission found that, for the nation as a whole, a whopping 36 per cent of the wheat distributed through the country's ration shops does not reach those whom it is meant for -- the figures for rice and sugar are 31 and 23 per cent.

For most states in the north-east, the diversion averages around 50 per cent, prompting Planning Minister Arun Shourie's comment that if all the development assistance for the north-east was put in a plane and dropped over the area, people would probably get more than they do when it comes through bureaucratic channels.

In fact, despite the sharp increases in food subsidies over the years, the availability of foodgrain has fallen -- the growth in availability fell by 0.3 per cent in the 90s as against an increase of 1.2 per cent in the 80s. Given the fact that the food subsidy on the PDS is likely to be around 50 per cent higher than the target of Rs 8,100 crore, this means that a whopping Rs 4,000 crore is lost on this account alone.

Similarly, in the case of petroleum subsidies -- which don't directly get reflected in the budget since these are parked on the books of the oil companies -- it is not the poor who get the benefits. The total subsidies on various petroleum products went up from Rs 5,686 crore in 1992-93 to Rs 17,850 crore in 1999-00, and close to half this is accounted for by kerosene. The average subsidy on kerosene was around Rs 6.51 per litre last year, up from Rs 4.62 in 1997-98.

Problem is, as any oil company official will tell you, close to a third of kerosene supplies in the country are diverted and mixed with diesel since the latter costs 2.25 times what kerosene does. It is this large diversion, in fact, which explains how diesel consumption growth has fallen this year despite economic growth being the same. Total the cost of the subsidy that gets wasted this way, and the average duty losses the government has, and you get a total of Rs 5,400 crore or so.

Similarly, in the case of urea fertilisers, the government pays local firms a price that is several times the imported price -- last year, based on this, the extra amount the government paid amounted to a whopping Rs 4,500 crore -- economist Ashok Gulati, in fact, reckons that 55 per cent of the fertiliser subsidy in 1999-00 went to fertiliser firms, and not to the farmer for whom they are supposed to be.

So when Sinha wants you to pay more taxes, or says he can't build new roads, because he needs to hike subsidies for the needy -- these rose from Rs 12,253 crore in 1991-92 to an expected Rs 27,000 crore in 2000-01 -- don't believe him: we all know where the subsidies are going.