Subsidies are bad: D Subbarao

Chandigarh: Advocating fiscal consolidation and containment of fiscal deficit, Reserve Bank Governor D Subbarao today termed subsidies given on fuel, fertiliser and irrigation as "bad" ones and stressed on weeding out unproductive expenditure.

Delivering the P N Haksar Memorial lecture here, Subbarao said, "In charting a roadmap for fiscal consolidation, we need to be mindful of the quality of fiscal adjustment-- which is to weed out unproductive expenditure and protect growth promoting expenditure," he said.

Sharing his thoughts on subsidies in his address on 'Rejigging the Elephant Dance: Challenges to Sustaining the India Growth Story, Subbarao said, "There are bad subsidies and there are good subsidies".

"Bad subsidies like fuel subsidy, subsidy on LPG may be Rs 300 but every time you buy LPG you are getting subsidy to the extent of Rs 300. Not only you, Mr Birla, Mr Ambani, every time they buy a cylinder, they will also get subsidy," he said.

"Then there is fertiliser subsidy...soil degradation happens because of fertiliser subsidy and thereafter irrigation subsidy," he said.

Subbarao said there were good subsidies as well, like giving cycles to girls to come to school and constructing toilets for girls in schools located in villages. "These are good subsidies," he asserted.

He said about 75 per cent of the government's expenditure constitute payment of salaries, pension etc.

He emphasised on the importance of a stable and predictable macro-economic environment which was necessary for growth.

"Fast growth gained through an excess can be an allure because the signs of instability brewing in underbelly are often not visible real time. But when implosion inevitably happens, the losses by way of lost growth and welfare can be monumental," he said.

Source: Financial Express