Subsidies will not be eliminated but better targeted, says Modi

New Delhi: Promising reforms that will transform lives, Prime Minister Narendra Modi on Friday said the government will not eliminate all subsidies but will rationalise and target them to the needy.

He said unnecessary controls and distortions will be eliminated and promised efficiency in allocation of resources as well as creation of opportunities for citizens to progress.

"I am not arguing that all subsidies are good. My point is that there cannot be any ideological position on such matters. We have to be pragmatic. We have to eliminate bad subsidies, whether or not they are called subsidies.”

"But some subsidies may be necessary to protect the poor and the needy and give them a fair chance to succeed. Hence my aim is not to eliminate subsidies but to rationalise and target them," he said addressing the Economic Times Global Business Summit here.

He also took a dig at economists and corporates saying any dole for industries is called incentive or subvention while for farmer it is derogatorily called subsidy.

"We must ask ourselves whether this difference in language also reflects a difference in our attitude? Why is it that subsidies going to the well-off are portrayed in a positive manner?" he said.

He said the total revenue lost due to incentives to corporate tax payers was over Rs 62,000 crore while dividends and long term capital gains on shares traded on stock exchanges are totally exempt from income tax even though it is not the poor who earn them.

Modi said since it is exempt, it is not even counted in the Rs 62,000 crore.

Double Taxation avoidance treaties have in some cases resulted in double non-taxation and this too is not counted in the Rs 62,000 crore.

"Yet these are rarely referred to by those who seek reduction of subsidies. Perhaps these are seen as incentives for investment. I wonder whether, if the fertiliser subsidy is re-named as 'incentive for agricultural production', some experts will view it differently," he said.

Modi said the universal access to banking through the Jan Dhan Yojana has enabled plugging of huge leakages in subsidies.

Subsidies on cooking gas (LPG) are now directly transferred to bank accounts of users, thereby eliminating multiple and bogus connections.

Also, 6.5 million people have heeded to his call to give up cooking gas subsidy voluntarily.

"This enables genuine beneficiaries to get what they deserve while eliminating those who are not eligible. This has substantially reduced the subsidy," he said.

Similar experiment is being now started for kerosene. "There is clear evidence that a large quantity of subsidised kerosene is misused and diverted. We have begun a pilot in 33 districts where kerosene will be sold at market prices. The difference between market price and the subsidised price will be transferred directly to bank accounts of those who are poor," he said.

This, he said, will eliminate duplicate, non-eligible and bogus consumers and reduce the total subsidy.

"We have decided that 75 per cent of the savings from this will be passed on to the states. Thereby, we have encouraged state governments to implement this in all districts," he said.

Speaking of the pilot done in Chandigarh, he said in April 2014, there were 68,000 beneficiaries using subsidised kerosene in Chandigarh.

A campaign was launched to issue gas connections to all eligible families. 10,500 new gas connections were issued. Kerosene quotas were stopped for 42,000 families who already had gas connections.

By March 31, Chandigarh will be declared kerosene-free, he said adding the saving achieved in kerosene consumption through this initiative is 73 per cent.

Also, eliminating double counted and ineligible pensioners has led to a reduction of 12 per cent outgo without any harm to the poor.

To check diversion of subsidised urea, the below-market priced nutrient is neem-coated.