Is politics of subsidies destroying Indian economy? How can we, the citizens of India help in reviving the economy?

You are missing one of the largest and very important subsidy from your list which is "Corporate Tax concessions". If you see the 2013 budget and got to the section titled "Tax forgone" then you will notice that only central tax subsidies to corporates is larger than India's  entire fiscal deficit. only because it is not called as subsidy doesn't mean that we should exclude it from any discussions relating to subsidies. It is as much loss to the exchequer as any other subsidy. Now coming back to the larger question of utility of subsidies in our economy. We must understand that subsidies have real and important uses in sustaining a healthy economy. Subsidies are critical for: 1. Creating level playing field in various sectors like education, health, food, manufacturing, etc.. -For example if government doesn't give tax relief to industry in difficult times then it can lead to further difficulties to industries and could result in job losses for a large number of people. Also tax subsidies can help domestic industry to compete against foreign companies. -Similarly if govt doesn't provide subsidized food to the poor in the times of extreme poverty then their future generation will be underdeveloped and undernourished leading to a huge population which can never properly participate in the future building of the country. -One more example, if government doesn't provide subsidized education to the poor children then they will never be able to compete with the rich kids who get good education. Being born poor is not the fault of those children. 2. Subsidies can be of great tools for implementing government planning and vision. E.g. if tomorrow government wants to popularize Jowar (sorghum) grain (because it takes less than half water than growing wheat and less than 1/4 water than growing rice and can be grown in un-irrigated land) then they can subsidize it to bring its prices down. I so wish the govt does this for Jowar and other millet grains. 3. Subsidies are also very important for effective redistribution of wealth. Due to the nature of current system free-market capitalism (not the ideal capitalism) , wealth is not distributed evenly. Ones who have money and power exercise that power to ensure that wealth is concentrated around them. This is bound to happen as it is human nature. In such situation subsidies are one of the tools through the poor can express their political power and try to get some small piece of that wealth. Now, I am not saying that all subsidies are good. There are many extremely poorly designed and poorly targeted subsidies in India which should be reformed. In many cases its not the subsidy but the delivery mechanism which is at fault and not the subsidy itself. Each subsidy should be looked and individually and either the structure or the delivery mechanism should be reformed to make them more effective. Subsidy is a economic tool and it can be used - like any other tool - for constructive as well as destructive purpose. Our job as citizens is to not to paint all subsidize as bad but to have a nuanced view of each one of them and express our opinions accordingly. Lastly we should also scrutinize the necessity and utility all corporate subsidies in the same way that we do for all the other subsidies.

Most certainly subsidies help in extreme circumstances. Equally certainly they will destroy productivity if overdone, by reducing competitiveness, encouraging lethargy, and missing the point all together. Unless a nation has debilitating problems, it should have no excuses for having poor people, or for having to subsidize something for its survival. Today we have hordes of Indians, in the millions, living on subsidies and freebies, while the agricultural sector has a shortage of labour!  India's biggest employer, with a shortage of labour, can you imagine? There are people under schemes like the NREGA that do absolutely useless 'work', like plucking grass on the sides of roads that grow back fairly quickly!  It's a fun looting process, where these lazy bums sleep under trees or in the temple, collect their daily wages, trimmed from 140 to 80 rupees per head, by the pipeline of agents and councillors, and everybody else, while the farmers cannot afford to keep their agriculture going, even if they're willing to pay 300 to 500 rupees a day. This is because the bums also get free rice, and free TVs, and their children eat at school for free too.  This is a very dangerous culture India is getting into. One by one, I hope the government chucks them all out.

However one may detest subsidies, freebies, doles etc. they are already there and many have got addicted to them. They can not be done away at one stroke. A de-addiction program, a slow but resolute paring down of subsidies etc. is required to be started till such time that they are reduced to zero. This would help us to reduce the financial burden of government employees to oversee them. Minimum government and maximum governance. It would reduce pressures to increase subsidies from time to time.

Subsidies should be definitely there. But they should be targeted towards people who absolutely need it. The subsidies should not be based on caste, religion, creed or gender. It definitely destroys the purpose of giving subsidies. They should be given based upon the economic condition of the people. Only the economically deprived section of people should receive it.

The Government pays the subsidies. But who funds the government's treasury? It is always claimed that the subsidies are for the "poor & downtrodden". So presumably this section is unable to contribute to the Government treasury. The "rich" (viz major Corporates) are given major "Concessions" and "Tax Exemptions". So their contributions are also negated! It then boils down to the "middle-class" who are taxed directly and indirectly. This comprises the salaried guys and the entire business class starting from the small trader to the various tiny, small, medium and large manufacturers. So, it is they who shoulder the responsibility to fund the Subsidies of the Government. (In practical life, it is this class which is compelled to surrender for mere survival to all kinds of extortions just to avoid harassment by most government officials). Thus, reducing Subsidies will drastically affect the first 2 classes stated above, but it will also be a boon to the people who fund the subsidy for politicians to dole out under various names as Subsidies for Upliftment of the poor and Concessions for Growth and Development!!!

Excessive subsidies cripple the economy in direct and indirect ways. Let us have a look at the breakup of expenditure of Central government: Subsidies amount to about 11% of total expenditure and among the non-planned expenditure, it is indeed one the major component. Giving excessive subsidy for oil, LPG, electricity, food etc. gives a boost to the demand for these products This increase in demand will increase the price of commodities. So, virtually reducing the prices by giving subsidies will eventually lead to increase in the prices.   Moreover, this increase in demand leads to increase in imports(eg: Import of crude oil). More import means more debt which in turn, means more expenditure on interest payments. As seen from the pie chart above, these two components(subsidy and interest payment) together amounts to about one third of the total expenditure of Indian Government. Also, not much can be done to reduce other expenditures. Let us see why: 1.) Planned expenditure : This includes the money given to states/UT and the money spent on five year plans of the central government. Any reduction here will mean scarcity of basic infrastructure, education, health etc. 2.) Defense: With hostile neighbors on three sides of the country, it will not be wise to do reduction here 3.) Interest Payment: We have to pay the interest for the loans that we have taken. All we can do is that decrease the loans that we take. For this, we need to boost our economy. Of course, the above expenditures can be reduced by increasing the efficiency of expenditures, eg: By reducing corruption, by efficient planning etc. But these are long term measures and in addition to these, we need some short term reduction in expenditures to revive the economy. So, there is immense need to reduce those subsidies which are huge burden on the economy. Instead of subsidies, focus should be given to employment generation. This can be done by attracting foreign investments, propelling growth in sectors such as manufacturing and service sector including IT. Moreover, making people self sufficient will increase the flow of money in the economy which is another good sign for the revival of economy.

Thanks to for encouraging me to write on this issue. I'm gonna focus on the first question as the 2nd one was covered very well by . Existing answers by and are too very well written. Lets start, Financial year 2012-2013 budget paper says 190000 Crores kept for all subsidies, out of which 39% goes for Food, 32% for Fertilizers and 22% for Petroleum. pointed out very well that subsidies certainly help in extreme circumstances but equally they destroy productivity if overdone. But country like us should have no excuses for subsidizing something for its survival as long as its having poor people and serious problems. Lets take these subsidies one by one, Food Subsidy (Food Security Bill) - 39% of 190000 Crores kept for subsidies Food Security Bill has created some sense of possible labour shortage in rural India. But I think that's not true and bit exaggerated by political parties for their own selfish motives. This bill is definitely going to save tonnes of rotting food grains in FCI(Food Corporation of India) store houses and never be a burden on economy if properly implemented. If you go through this bill, you'll notice that nothing is going to change at existing system level (from procurement to pricing) because of this bill. The only change you'll notice is tonnes food grains stored in FCI store houses will be made available to humans instead of rats. I don't disagree fully with the fact that this bill may create shortage of labour in future but again it depends on how state governments implement it and how beneficiaries react to it. Fertilizers Subsidy  - 32% of 190000 Crores kept for subsidies. Well, this is something government can never abolish. Being a son of a farmer and very much familiar with rural India, I'm fully qualified to comment on this. Farmers need fertilizer subsidies because they can never buy any with its original price. Remember that Farming in India is no more a profitable business. Petroleum subsidy - 22% of 190000 Crores kept for subsidies. This includes diesel and LPG. Note that Petrol prices are deregulated and LPG cylinders subject to subsidy are limited that's why I'm focusing on Diesel only. Well,Diesel consumption is growing very fast.People are interested in buying diesel cars thereby increasing Diesel demand which puts pressure on government for every litre of consumption. So as the parity between Petrol and Diesel increases Diesel consumption will increase that will result in higher subsidy bill of government. Some Key points, Govt says we have to pay oil companies to recover from their losses which according to me never existed or exist. Govt allocate funds in the name of subsidies to recover from these losses. Govt uses the term under recovery instead of loss and remember these are two different terms( loss and under recovery ). Govt uses these terms interchangeably according to its convenience. e.g. At the time of price hike, Govt uses the term loss in front of public but at official level it uses the term under recovery. Government obviously does not pay off full amount of under recovery. They negotiate and approximately compensate 55-60% of under recovery rest is to be beard by the OMCs(Oil Marketing companies). In my opinion, the root cause of the petroleum subsidies problem lies in the Modern Economics and the way in which government decides prices of petroleum products.   Govt uses Trade Parity Pricing formula adopted in 2002 for deciding petroleum products prices. Lets take a look at what this formula is exactly and what does the term under recovery mean. Lets assume that, A tea vendor in India sells a cup of tea at Rs.5 with Rs.1 margin/profit on each cup. This selling cost/price of a cup of tea includes everything(raw material + labour + other expenses).  e.g. tea powder, sugar, milk, fuel, labour and margin/profit. Rs.1 - Tea powder Rs.1 - Sugar Rs.1 - Milk Rs.1 - Other expenses Rs.1 - Margin When we decide the selling price of any commodity, we naturally include its cost price (manufacturing price + misc expenses) and margin. This is the golden rule of Economics and Accounting to decide price of any commodity. Hence, here in case of our tea vendor's cup of tea, Rs.4 is our cost price and Rs.1 is margin/profit. He is earning Rs.1( 20% ) profit on a cup of tea so his business is in clear profit.   But according to trade parity formula his business is in under recovery because the price of a cup of tea in International market is $1 which is INR 60 approx. so his business going through under recovery of Rs.55 ( Rs.60-Rs.5 ) on each cup of a tea sold but not loss. Same goes with the diesel prices in our country. Govt justifies this by arguing that "this mechanism is important for the growth of our economy,healthy petroleum sector and OMCs". The switch to the current system of pricing, which is benchmarked to the international market was completed in 2002. Since then, claims the government, refinery capacity in the country has risen to 213 millions from 114 million tons, with about 40% of capacity in the private sector. In fact, India today has more refining capacity than it needs, and is a net exporter of petroleum products to the international market — net exports of petroleum products were about 45 million tons in http://2011-12.In 2001, India was a net importer of petroleum products. Interestingly in the five years till 2011, about three-fourths of the increase in refinery capacity was accounted for by the private sector — Reliance and Essar. You can track a growth of petroleum sector in our country in last few decades and figure out a difference between the growth of OMCs and private companies.   Note that this issue is a bit controversial and very much confusing too at policy level. Every government after independence tried to solve this and appointed several committees to decide the price formula but no government could come up with a permanent solution because of corporate pressure and extreme confusion at policy level. Conclusion - Even if we accept this formula of Petroleum prices, the amount government collects from the sector in the form of duties exceeds the amount of under recoveries so petroleum subsidy is no burden on economy in any way. Final Comment - This issue of subsidies to common people is purposefully exaggerated by governments especially UPA and this tone is going to be followed by NDA or even its successors too.

Depends on what subsidies we are talking about. Here is a fun fact to begin with - The corporate karza maafi Indian government waived off this year is Rs 5,72,923 crore. (source -http://indiabudget.nic.in/ub2014-15/statrevfor/annex12.pdf). This is tax payer's money, and amounts to over Rs 5,000 per citizen, close to three times the amount said to have been lost in the 2G scam, almost five times what this year’s budget earmarks for the public distribution system, and over 15 times what’s been allocated for the NREGA budget. Considering India Inc generates 60% of India's GDP, the sacrifice seems pretty reasonable. Or does it? Since GDP is criticised for representing a skewed picture of an economy where one super-rich and a billion poor can also lead to good numbers, government markets this huge corporate subsidy as an employment scheme for India's aspiring workforce. Or job creation. Data on the number of employees in corporate sector is not available (help me find if it is). But considering 2.75 crore employees working in India's organised sector and a 1.8:1 ratio between public and private sectors, it is a safe guess that India's organized private sector employs close to 1 crore people. (source - http://l.facebook.com/l.php?u=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FLabour_in_India%23cite_ref-survey11_4-1&h=PAQE1LDfx&enc=AZOKXXeCQ4ce7JeajHIrG3s3Bx3dfkhJd3wRYn2ExfdZZ6x8AMnpRfOO7nfQVCCiiEAkHSnmqwJaJdGk6Hz6bUuarA2-EORvupbmG0qf_eWsuCmsUf_US7jHoqjm9IeiLG5fBpiEZ91oLhA1EfNeR1m0&s=1) Now divide the subsidy to corporates with the number of jobs they generate. Our government pays Rs 5,72,923 per employee to the employers in the name of job creation. I have a feeling this is higher than the average salary of these employees but unfortunately I don't have the data to prove it. And we thought our government is helping the poor and the middle classes? On one hand, subsequent  budgets have stripped NREGA to its bones without even adjusting it to  inflation. Compare this to the figures written off for the corporates,  which amounts to a total of Rs 5,72,923 crore. http://www.outlookindia.com/article/How-Much-Can-We-Forgo-To-India-Inc/291424,  this number is close to three times the amount said to have been lost  in the 2G scam. About four times what the oil marketing companies claim  to have lost in so-called “under-recoveries” in 2012-13. Almost five  times what this year’s budget earmarks for the public distribution  system. And over fifteen times what’s been allocated for the NREGA. In  fact, the Karza Maafi for the corporates over the past 9 years – which  amounts to a whooping Rs 36.5 trillion – could have been used to fund  NREGA for 105 years or PDS for 31 years. http://mnregaweb4.nic.in/netnrega/all_lvl_details_dashboard_new.aspx 8.2 crore workers in 2011. The numbers, due to budget cuts has gone down to 4.81 crore workers in the previous financial year. http://www.mca.gov.in/Ministry/pdf/annualreport_2012_2013.pdf, on the other hand, employs close to 80 lakh Indians. There is a huge criticism that welfare  schemes like NREGA and PDS make the working classes lazy. Conservatives  across the world have often claimed the same. From Margaret Thatcher to  Ronald Reagan, the most powerful of conservative leaders have used this  argument to cut budget allocated to labourers and farmers and increase  corporate subsidies. The outcry in India against the workers being  benefited is no different. It is true that welfare makes people ‘less  desperate’ to work. A person who can get guaranteed employment and food  at subsidised rates is going to be a lot less desperate than someone who  doesn’t. However, both people may still be quite desperate – because  subsidised food does not make you rich. If anything, it fills your  stomach and feeds your family. For a country with the highest levels of  malnutrition – where Tuberculosis claims over 4.5 lakh lives every year,  diarrhoea claims 15 lakh infants every year – feeding  the poor being criticised by those with filled stomach is nothing  but hypocrisy. The best way to measure whether the  workers and unemployed are behaving lazily is by examining the ratio of  job seekers to job openings. If the problem is that the beneficiaries  are slacking off work to enjoy the fruits of government welfare, we  would expect to see a shortage of labour in the economy. I spoke to a  few labourers and contractors in and around my locality. The common  trend is that labourers have to wait for days together before they get  contracts to work on. In USA, where statistics are more easily  available, there are http://www.politifact.com/truth-o-meter/statements/2014/jan/07/gene-sperling/there-are-3-unemployed-people-every-job-opening-ob/.  Considering India’s population and socio economic needs, it does not  take rocket science to conclude that our situation is much worse, if  anything. Such is the need, that children are forced to work. Labour  immigration to the gulf has increased over the past 8 years. The https://www.youtube.com/watch?v=TJYXgMigfpo in the gulf nations are well known. I don’t dispute that cutting  welfare wouldn’t make workers more desperate. But that is not the same  as creating more jobs. If anything, NREGA needs better implementation  and infrastructure. More than being a tactic to fill vote banks, it  should reach out to the real needy in a greater way. Cutting budget is  certainly not a step forward. This class divide in India is not just an  economic problem. It lies within us. A judgemental rich is considered a  keen observer. A judgemental worker is considered unfit for his work  and most often – hated. A rich who questions everything is seen to have  leadership qualities. A labourer who questions is most likely to loose  his job. The incentive for the rich to work is love for his  work, fulfilment of his interests and spiritual needs, value for his  work, growth and opportunity. The incentive for the labourer to work is  that they should not die of hunger?! What kind of equality is this? If  you and I can seek a balance between work and leisure, then why should  the labour be treated any differently? If you believe that hunger, and  not the work in itself should be a poor man’s motivation for work, then  yes, NREGA does make people lazy. And I am glad it does. Complete article here - http://souravroy.com/2014/10/17/does-nrega-make-workers-lazy/

Subsidies are not something that can be applied randomly. It has specific theories behind it as to when it is to be applied. The main reason for it being is to stabilize the particular market which is loosing its equilibrium due to various factors if left alone can lead to instability of the economy.For example, take the rubber commodity market of Kerala. The prices are so low now that the producers are finding it difficult to continue at the present rate of costs. This is reflecting in the local Kerala economy by way of which we are the bottom performers in the last fiscal. If subsidies too are removed then the rubber production a mainstay of our economy will fail, and then it will destabilize our local economies. Since this only a local economy phenomenon too much instability is not manifesting due to other factors like foreign remittances and small scale industries driving the economy forward.The direct affect of subsidies is to maintain momentum of the economy, and growth is sustained with it. Subsidies can be removed when the market failure mode vanishes to efficient market conditions prevailing.So many of our markets are in failed mode, like pulses, rubber and other like even consumer goods where wealth loss is in large scale to households. Then government does interfere in only some due to political targets perceived or for better control of the economy. To create efficient economy require will and creative labor, which will bring consumption under public domain exempting us from private consumption we all are forced to make due to the failed mode of the market prevailing here, an inheritance from our past inefficient existence when it comes to wealth targets never taking priorities then. Now things are changing to freemarket directions and subsidies are one way to maintain psudo stability of markets till full form efficiency form in the future through mindfulness on wealth creation and maintainance imperative of households.