Have you ever tried pouring water into a narrow test tube from a bucket? Surely! You must have never tried such a thing and there is actually no need to do so even now. It is just that successive governments in India have attempted to do the just that with subsidies. That an overwhelming majority of subsidies are wasted is now an accepted fact. But yet, the enormity of this waste as well as the public apathy to such a waste is appalling. The consequences of this waste go much beyond wastage of public money. It has created huge inefficiencies in our systems that prevent the debottlenecking of our true potential.

Take the case of petroleum subsidy.  There is hardly a justification for the large differential between international and domestic prices for the entire population. Neither is there a logic for the artificial differential in the prices of petrol, diesel and kerosene. Just because the government is unable to target subsidies to the ‘needy segments’ of the populace it has opened the flood gates for everyone. But the resultant price subsidy is giving rise to monumental inefficiencies while providing very little succour to the marginal sections of society.  In case of kerosene subsidy, it is well established that the bulk of the subsidy comes to rest in the pockets of the black marketers and the corrupt officials from the lowest to the highest levels. Even the neediest sections of the society are unable to escape paying a premium above the government administered price for any extra kerosene beyond their limited quota. continue reading »