Economics Of Subsidy
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Economics of subsidy

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See interview of Ashok  Kothare

Recently there was furor on removal of subsidies on mineral fuels. Our government has been giving subsidies on many other essential commodities to facilitate comfortable living of poor people in the society. The recommended economic arrangement in this process of subsidizing many essential commodities is like this:

When a commodity is sanctioned for subsidy the real cost of that merchandise is divided in two parts, one part in that is small and other big. The bigger part is subsidized that means that part is paid by the government to the supplier and only the small part is charged to the customer. For example, suppose fuel cost is rupees 12/- per liter, it is divided in two parts of rupees 2/- and rupees 10/-; out of this part rupees 2 customer pays and the other bigger part government pays to the supplier.

The philosophy behind this arrangement is very simple. Our government suggests that cost of living of poor section of society be paid by more affluent section of the society as a gesture of good will toward the poor section of the society. With this ideology accepted by all, government transfers the big share of cost on this more affluent section of the society by increasing taxes on them for various commodities they purchase. By this arrangement some additional taxes are levied on other commodities which generally only this more affluent section of the society purchases. Through these extra taxes government recovers the other bigger half from this affluent section of the society. This clearly explains that the cost of these essential commodities government does not pay out of its pockets but ultimately the society takes the burden of all the cost. All claims that the government bears that cost are mischievous and fraudulent and so highly objectionable. Most people do not know of this arrangement to recover the subsidized cost, so they are better informed of this arrangement.

Now the point of question that comes, who are poor? For that, our government had worked out recently some fictitious calculation to show that a person can maintain himself in rupees 50/- per day. To that people criticized and that matter remains not settles as yet. The callousness of our government in fixing this very low and an impossible cost of living is well explained when we see the above policy to decide section of society who should receive subsidy. This cost of living is so low that almost all people of society shall be shown to be above the definition of poor. By that argument our government wants to prove that almost nobody in the country is poor enough that any subsidy is required. And by that excuse the government wants to remove all subsidies completely. People have been resisting to that strategy of the government and we shall see what outcome will be in the near future. The relation of this definition of poor and ensuing subsidy many people do not know. Let them know of it so that they can see through the callousness of our government properly. This is like a police station not recording any complain to show that there no crime takes place in that place. 

Whatever the policy, one thing is clear that at present the government is determined to remove all subsidies and make people pay the real cost whatever be their financial status. My question here is about the other part of the arrangement of subsidy. I am referring to the other part that the bigger section of the cost, which is recovered by additional taxes on more affluent section of the society. If now government is not paying for that section so obviously those extra taxes government charges on this affluent section should also be removed. My humble request to the honorable government is that they clearly show what extra taxes they had charged to the affluent section of the society to recover that subsidy and dually remove them.

If that is not done then it means that this government is actually cheating the people by double taxation which is not allowed by our law. There are subsidized other commodities by State governments; all these subsidies and due extra taxes on the affluent society be made open for inspection of people so that we all shall know what taxes we pay to help our less fortunate brethren. Clear transparency in these matters will show exactly how much we were paying to help our poor brethren.

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