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Scrap all production subsidies: NITI Aayog’s Bibek Debroy

 

After kicking up a storm by contending that farm income beyond a certain threshold should be taxed, NITI Aayog Member Bibek Debroy has now said that all production subsidies should be scrapped.

Debroy said that even on the consumption side, subsidies should only be given to ‘unambiguously targeted individual prospects’.

“My personal view is that on the production side, there should be no subsidies whatsoever. We (should) improve the business environment, build public infrastructure like roads. But no exemption. Because the moment I grant anyone any exemption, I will never be able to clean up the system,” Debroy argued.

He had earlier said that the Union and the state governments altogether collected 17 per cent of the GDP as taxes while all subsidies — including budgetary and off-budgetary and those relating to consumption and production — amounted to around 14 per cent of the GDP.

“The trouble is we don’t realise that every subsidy I am giving is the money that the government could have spent elsewhere. Every subsidy means a primary healthcare centre I cannot build,” the economist said.

He said while all production subsides — like cheap land and other benefits to companies — should be abolished, subsidies on the consumption side should be given in a targeted manner.

“Subsidies should only go to unambiguously targeted individual prospects because poverty is an individual household characteristic,” he said.

“I don’t have a problem if a student from a poor household is given a scholarship to study. But saying that I must pay a salary to a teacher who doesn’t teach, it doesn’t do anything for the poor child. That’s a subsidy that is completely unwarranted,” he added.

The NITI Aayog member also said the ‘entire episode’ of demonetising Rs 500 and 1,000 currency notes should not be evaluated in ‘purely narrow economic terms’.

“Demonetisation was part of a broader attempt to institutionally clean up the system,” Debroy explained.

“We know that a large part of India is unorganised and it is desirable that it becomes organised. Some of it will happen through the widening of the GST base, some through the real estate (regulation) act. I think November 8 should not be looked at in isolation. It is part of a broader picture,” he added.

Prime Minister Narendra Modi’s November 8, 2016, announcement to demonetising high-value currency notes was seen as an attempt to eliminate black money and counterfeit currency while also impacting terror-funding.

Debroy said that the three objectives were never defined by the government but were based on interpretations by journalists and commentators.

He said on November 8, the stock of high-denomination notes was roughly around Rs 16 lakh crore and one could guess that most of it came back into the banking system.

“When you do something unusual like this, you have no means of projecting how much will come in and how much won’t. On the basis of 1978 — because that was the last time a demonetisation exercise was undertaken — there were people who said maybe 6 to 15 per cent would never come in. But there was never a government figure,” he added.

Debroy said that the government never said its objective was to destroy black money, “but if someone had to exchange his large value currency notes at a discount of 35 per cent, even that is a destruction of value”.

“If retail prices have come down, even that is destruction of value. But more importantly, around Rs 15.5 lakh crore that has come in has not become clean. It is subject to scrutiny,” he said.

On eliminating counterfeit currency, Debroy said it was a continuous battle.

“At least, the existing apparatus of counterfeiting has been destroyed… Saying it’s a continuous thing and that it would be generated again does not negate the importance of destroying the existing counterfeiting apparatus,” he said,

He added that in the case of counterfeit notes, one should not just look at the figures.

“Because the damage a terrorism-like thing does is far more; Rs 50 crore may seem like nothing, but how much did it cost for something like Mumbai (the terror attack of 2008)?” Debroy said.

He said that while counterfeit figures varied widely and were slightly old as well, there is a range of about Rs 450 crore to Rs 2,000 crore.

“Even Rs 450-2,000 crore can do a lot of damage,” he said.

Asked about NITI Aayog’s role in demonetisation, Debroy said the limited number of people who were privy to the decision was in their capacity as individuals, not in their capacity as an institution.

Asked if he was one of those individuals, he said: “I have told you whatever I am going to say on that. And if you carry it, carry it like that.”

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