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Indian Economic Policy

Notes against the provision of ` 31,000 crores in 2008-09 budget.
A similar situation prevails in food subsidies. The international price of foodgrains has also risen
sharply. On account of shortage at home, India has decided to import one million tonne of foodgrains
so that the weaker sections of society are provided foodgrains at subsidized rates. Thus, the foodgrains
subsidy bill will be much higher than the provision in the 2008-09 budget of the order of ` 32,667
crores.
The Finance Minister made a provision of ` 66,537 crores in the budget for 2008-09 for food subsidy
` 32,666 crores, for fertilizers ` 30,986 crores and for petroleum for ` 2,885 crores. But both national
and international factors are going to jeopardise these predictions. Even by issuing bounds to some
public sector companies for petroleum subsidy, the country shall be only postponing a part of the
burden for future years. Despite this, experts estimate that the total subsidy on food, fertilizers and
petroleum products is likely to go up to 4-5% GDP. The situation is, therefore, very grim.
But what are the policy options ? Firstly, the Government has no option but to accept the subsidy on
petroleum imports. It can further increase the domestic price of petroleum products. Even if this is
done, it will only reduce the burden of the Government partially. The option of reducing petroleum
imports is not available to the Government in view of expanding demand for petroleum due to sharp
increase in the growing demand and production for automobiles—motor cycles, three wheelers and
cars. Secondly, in case of food and fertilizers, the chances of charging the consumers more appear to
be very bleak since the coalition government has to face the electorate in the General Election due in
early 2009. Thirdly, the Government has to take a decision about the large scale exemptions granted
to industry so as to enchance its revenues. But in view of the commitment made on SEZ projects, the
Government requires great amount of courage to slash down exemptions.
The only policy option available with the Government is to present a comprehensive paper on all
subsidies Central as well as state levels, both implicit and explicit. It is quite possible that a national
debate on the question of subsidies may result in throwing up a consensus on some short-term and
some long-term options to reduce the mounting burden of subsidies.
Self-Assessment
1. Choose the correct options:
(i) In which city is the Board of Governor's Office located?
(a) Philadelphia (b) New York City
(c) Washington D.C. (d) Boston
(ii) Who among the following is the head of the government-appointed panel on the legislative
reforms in the financial sectors?
(a) Subroto Roy (b) T.N. Srinivasan
(c) Vijay Kelkar (d) B.N. Shri Kkrishna
3. Rcently which among the following State government has announced special Rs. 300 crore
public toilets scheme for the urban poor?
(a) Gujarat (b) Maharashtra
(c) West Bengal (d) Bihar
4. The first finance commission recommended that the states should share 55 per cent of the
proceeds of the income tax. This commission was presided by
(a) K.C Pant (b) J.P Neogi
(c) Vijay Kelker (d) None of these
25.2 Summary

• India has a federal structure, in which a clear distinction is made between the Union and State
functions and sources revenue, but the residual powers belong to the Centre. Although the

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