The Hindu Business Line : Finance Ministry asks NIPFP to strengthen its report on subsidies

THE Finance Ministry has asked the National Institute of Public Finance and Policy (NIPFP) to strengthen its report on effective targeting of subsidies. "The report has been given back to the institute with certain suggestions. The Ministry has also sought clarifications on some issues," official sources said.

Source told Business Line that the draft report commented on how the existing public distribution system (PDS) could be improved further to ensure that benefits are passed on to the right people. It has also commented on how the minimum support price (MSP) can be better managed. The NIPFP recommendations are expected to find their way into the Budget for 2005-06.

Based on the commitment in the National Common Minimum Programme (NCMP), Mr P. Chidambaram, Union Finance Minister, informed in the Budget for 2004-05 that the NIPFP hadbeen asked to prepare a blueprint on how to rationalise the current subsidy structure.

This was to ensure that benefits from subsidies reach the target segment, that is the poor and truly needy such as small and marginal farmers, farm labourers and the urban poor. The focus of the blueprint was to remain in three segments — food, fertilisers and petroleum.

In fact, NIPFP had earlier also submitted a report on subsidies, which was placed before Parliament seven years ago by Mr P. Chidambaram as the then Finance Minister. The basic focus of the paper was to provide a comprehensive estimate of Budget-based subsidies in which both explicit and implicit subsidies are covered.

To make the subsidies more revenue earning and a more fruitful exercise, some of the suggestions in that white paper were that reforms should focus on using subsidies for well-defined economic objectives, instituting systems for periodic review of subsidies, and setting clear limits on duration of any new subsidy scheme.