Survey for freeing food,diesel prices

The Economic Survey said,subsidies given to these sectors have a 'questionable' impact.

The Economic Survey asked the government to decontrol prices of food,fertiliser,diesel and kerosene,saying subsidies given to these sectors have a “questionable” impact.

Freeing prices from government control could help deploy large resources for financing other vital activities in the economy that could promote productivity and eradicate poverty.

“The impact of these (food,fertilisers,kerosene and diesel) subsidies,using the yardstick of poverty mitigation is,however,questionable”,the Survey said.

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The high level of subsidies “now constitutes a major fiscal burden and tends to crowd out the government’s ability to finance other vital activities in the economy that could promote productivity and eradicate poverty,” it added.

Already,the government’s resources are strained due to various fiscal stimulus and the Survey has separately noted that high growth environment creates scope for partial rollback of these stimuli.

Pointing out it is a ‘mistake’ to assume that a subsidy scheme has to be coupled with price control,the Survey said: “If we want to ensure that poor consumers are not exposed to the vagaries of the market,the best way to intervene is to help the poor ‘directly’ instead of trying to control prices”.

Once the government becomes involved in setting the price of a commodity,the Survey said,this becomes a matter of politics and lobbying,which cumulatively adds to the distorting and hence prices are best left to the market.