THE government needs to formulate a national policy to stop doling out unnecessary subsidies, prevent leakages and make state interventions more targeted and efficiently applied; economists said Saturday as reported by a national daily.
Had there been a national policy, the country would have been able to decide when the prices of rice or oil have to be subsidized, they said adding there has to be a clear definition of subsidies to establish transparency in the spending of taxpayers’ money. Debapriya Bhattacharya has been quoted in the report as saying that said subsidies are deemed to be pro-poor but that may not be the reality in the ground. He suggested using other countries experience in this respect.
The country’s subsidy spending is already up to 1.7 percent of the gross domestic product this fiscal year from 0.41 percent in 2001-02, Kaniz Siddique of Center for Policy Dialogue (CPD) reportedly said that the government estimate on subsidies so far going grossly estimated. The government’s budget document says the total subsidy for this fiscal year is about Tk 16,600 crore, but the sum does not account for the amount handed out to the energy sector.
Essentially for subsidies to be effective they have to be given to the low-income groups in a targeted way – from the consumer side. Producers should only be given subsidies if the industry is an infant industry and generates jobs but it should be only in the short term, otherwise it would be subject to capture by the industry and thus become entrenched. Consumer subsidies could exist whenever the prices of agricultural products rise in the international or domestic market as otherwise the ultra poor would suffer – but giving it in a targeted way, without losses incurred due to corruption, would be a problem.
According to conventional theory subsidies almost always result in a net welfare loss to society as the costs outweigh the benefits. Very few cases of giving subsidies exist where the spillover benefits actually outweighed the total costs – one example being the Apollo program which took man to the Moon, which resulted in the growth of entire industries like the telecommunications and solar industry, among others.
However giving subsidies is not the solution to all problems – as we can see it rather creates problems of its own – much like a child who refuses to grow up after being continuously sheltered by its parents. One example being our energy sector which guzzles subsidies like elephants eat bananas – but it helps only a narrow minority of society while keeping the sector from becoming interested in efficiency gains. From viewpoints of efficiency it is almost always undesirable, from the viewpoint of equity certain unique situations exist where giving it becomes a necessity from a moral viewpoint. But for most the only way for improvement is for it to go.
