State Subsidies By Uttar Pradesh Government: Magnitude, Trends and Implications
| Date | 01 January 2016 |
| DOI | 10.1177/0019556120160104 |
| Published date | 01 January 2016 |
| Author | Nagendra Kumar Maurya,Ajit Kumar Singh |
| Subject Matter | Article |
STATE SUBSIDIES BY UTTAR PRADESH
GOVERNMENT: MAGNITUDE, TRENDS AND
IMPLICATIONS
NAGENDRA
KUMAR
MAURYAAND
AJIT
KUMAR
SINGH
The article discusses the magnitude,
trends
and implications
of
state subsidies provided
by
the Government
of
UP
during
the
period 2002-03
to
2011-12.
The
discussion covers both
explicit and implicit subsidies granted by
the
State
Government.
For
the
purpose
of
analysis subsidies have been classified
into
merit and non-merit subsidies.
The
article adopts cost
recovery
approach
to
measure
the
extent
of
implicit subsidies.
The
article shows that
the
amount
of
government subsidy both
explicit and implicit
in
UP
has
been
growing
rapidly.
These
subsidies entail a
huge
economic
and.fiscal
cost.
Total
subsidies
amount
to
about six per cent
of
GSDP
and about
30
per cent
of
the
revenue expenditure
of
the
State government.
The
analysis
also
shows that
the
subsidies
are
poorly targeted and suffer
from
large
leakages.
It
is
suggested that all subsidies should
be carefally scrutinised at regular intervals
to
see whether
they
are
serving any usefal economic or social purpose. It
is
also
argued that a gradual approach
to
increase user
charges
periodically rather
than
in
a single
go,
after a long
time
gap
would
be
politically
more
acceptable.
INTRODUCTION
BUDGETARY SUBSIDIES are paid
by
governments the world over
to promote social and economic objectives. The economic rationale
of
subsidies is provided
by
the positive externalities they generate. Subsidy is
desirable when the social benefit from using up
of
a subsidised commodity
or service is greater than the sum
of
the private benefits to the consumers
(Srivastava
et al. 2003). Education,
health
care,
and
research
and
development are prime examples
of
the positive externalities. Subsidies are
justified by some economists because
of
market failure
or
inefficiency due to
information asymmetry (Arrow 1993; Tilak 2004). Subsidies are also used
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to encourage the use
of
new inputs like fertilizers to promote agricultural
production (Sharma and Thaker 2010). Subsidies are also advocated on
equity grounds. Subsidies play a distributive role when they are extended
to provide a commodity or service at a price lower than the market price to
that section
of
the society which cannot afford it at market prices.
The issue
of
government subsidies came into forefront
in
the early
1990's when structural reforms were introduced in India and efforts were
made to compress the fiscal deficits. Several economists made attempts
to assess the quantum
of
subsidies and its effect
on
fiscal health
of
the
Central and state governments (Gulati 1989; Rao and Mundle' 1992; Tiwari
1996 and Srivastava et
al.
1997). The Government
of
India released a
Discussion Paper on subsidies in 1997 (GOI 1997). This led to a heated
debate on the issue
of
subsidies in India and a number
of
economists came
out with papers dealing with the rationale, measurement, volume and
quality
of
subsidies. These studies highlighted that the subsidy regime in
India was disproportionately large, mostly implicit, largely input-based,
poorly targeted, often regressive, and resulted in waste and misallocation
of
resources (GOI 1997; Gulati and Naranayanan 2000; Srivastava and Rao
2002; Srivastava
et
al. 2003; Anand and Jha 2004; Tilak 2004; Sharma and
Thaker 2010). It has been argued that many
of
these subsidies
do
not benefit
the poor and need to be stopped.
Apart from the economic justification
of
subsidies, political factors play
an important role in the continuation and growth
of
subsidies
as
the parties in
power try to use subsidies to win over political support
of
various sections.
Fiscal consolidation has its own political cost and the governments aiming
fiscal consolidation through reduction in subsidy may have weak chances
to get elected for the second term (Pushak et al. 2007).
In
addition to the Central Government subsidies, the state governments
also give different types
of
subsidies. The magnitude
of
state subsidies
is
quite large and has been growing and putting pressure on the state finances.
Studies show that most
of
the state subsidies go to agriculture and education
sector (DP 1997; Srivastava and Rao 2002; Srivastava et al. 2003).
Few studies dealing with subsidies at the state level have come out
in recent years. The present study focused on the state
of
Uttar Pradesh
(henceforth UP), which is among high subsidy and low recovery ratio states
(Srivastava et
al.
2003) is an attempt in that direction. Subsidies in
UP
grew from
ameager~
804.47 crore in 1977-78,
~
18110 crore
in
1998-99,
i.e. by more than 22 times (Table 1 ). Subsidies as per cent
of
own revenue
receipts
of
UP
government increased from 65.45 per cent to 104.20 per
cent during 1987-88 and 1998-99.
On
the other hand, the recovery ratio
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