The Associated Chambers of Commerce & Industry (Assocham) has emphasised the need for a consensus among political parties to review the major subsidies on the ground that the quantum is unsustainable and the recovery rate poor.
A paper on subsidies, released by Assocham president L Lakshman, has pointed out that merit goods account for only 25.6 per cent of the total subsidies while non-merit goods account for 74.4 per cent. The bulk of the non-merit subsidy amounting to 65 per cent relate to the states.
The chamber note says subsidy build-up has a direct impact on the fiscal health of the government. For instance, non-merit subsidy alone, at 10.7 per cent of the gross domestic product (GDP) in 1994-95, was considerably higher than the combined fiscal deficit of the Centre and states at 7.3 per cent.
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The overall recovery rate, according to the chamber, is low at 8.2 per cent in the case of the Centre, and much worse in the case of the states.
According to the paper, the combined subsidy by the Centre and the states in 1994-95 has been estimated at Rs Rs 1,37,388 crore, equal to 14.4 per cent of the GDP. The main areas of subsidisation have been identified as agriculture, irrigation, power, transport and higher education.
States account for the bulk of the subsidies at Rs 94,290 crore, of which 52 per cent is towards social services and 48 per cent towards economic services.
Subsidies from the Centre stand at Rs 5,102 crore on social services and Rs 37,945 crore on economic services. Observing that subsidies have become entrenched and highly politicised over the years, the Assocham paper has pointed out that the revised structure should make subsidies temporary and time-bound with schemes linked to clearly-laid-out and objectively-defined goals.