Scrap production subsidies, says Niti Aayog’s Debroy

Debroy said even on the consumption side, subsidies should only be given to “unambiguously targeted individual prospects”. “My personal view is that on the production side, there should be no subsidies whatsoever. We (should) improve the business environment, build public infrastructure like roads. But no exemption. 

“Because the moment I grant anyone any exemption, I will never be able to clean up the system,” Debroy argued. He had earlier said that the Union and the state governments altogether collected 17 per cent of the GDP as taxes while all subsidies -- including budgetary and off-budgetary and those relating to consumption and production -- amounted to around 14 per cent of the GDP. 

“The trouble is we don’t realise that every subsidy I am giving is the money that the government could have spent elsewhere. Every subsidy means a primary healthcare centre I cannot build,” the economist said. He said while all production subsides -- like cheap land and other benefits to companies -- should be abolished, subsidies on the consumption side should be given in a targeted manner. 

“Subsidies should only go to unambiguously targeted individual prospects because poverty is an individual household characteristic,” he said. 

“I don’t have a problem if a student from a poor household is given a scholarship to study. But saying that I must pay a salary to a teacher who doesn’t teach, it doesn’t do anything for the poor child. That’s a subsidy that is completely unwarranted.” 

The NITI Aayog member also said the “entire episode” of demonetising Rs 500 and 1,000 currency notes should not be evaluated in “purely narrow economic terms”. “Demonetisation was part of a broader attempt to institutionally clean up the system,” Debroy explained. 

“We know that a large part of India is unorganised and it is desirable that it becomes organised. Some of it will happen through the widening of the GST base, some through the real estate (regulation) act. 

“I think November 8 should not be looked at in isolation. It is part of a broader picture,” he added. Prime Minister Narendra Modi’s November 8, 2016, announcement to demonetising high-value currency notes was seen as an attempt to eliminate black money and counterfeit currency while also impacting terror-funding. 

Debroy said the three objectives were never defined by the government but were based on interpretations by journalists and commentators. He said on November 8, the stock of high-denomination notes was roughly around Rs 16 lakh crore and one could guess that most of it came back into the banking system. 

“When you do something unusual like this, you have no means of projecting how much will come in and how much won’t.”