Subsidies are a major component of expenditure they are a form of transfer payment given by government to the People. Subsidies can be classified as food, petroleum and agriculture subsidies.
Government expenditure power is limited and they cannot go beyond a point further the fiscal deficit should be solely utilised for the purpose to finance capital assets creation. Secondly in revenue expenditure most of them is committed one. Hence scope of reduction lies with the revenue subsidies only. Third, most of the reports have suggested low efficiency and mis targeted subsidies. Hence rationalisation if the need of the hour.
Measures taken to rationalise subsidies:
- Use of direct benefit transfer to plug the leakage. Like PAHAL scheme.
- Use of technology to disburse subsidies like : Point on sale machine, Aadhar machine enabled payment
- Removal of subsidies on petroleum and diesel.
- Moral suasion by Prime Minister to give up subsidies.
- Creation of objective database to remove duplicacy in disbursal.