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Subsidies, Merit Goods and the Fiscal Space for Reviving Growth: An Aspect of Public Expenditure in India

Sudipto Mundle and Satadru Sikdar

No 118, NCAER Working Papers from National Council of Applied Economic Research

Abstract: Budget subsidies have been defined as the unrecovered cost of economic and social services. The incidence of these implicit and explicit budget subsidies provided by the central and state governments has declined from about 12.9 % of GDP in 1987-88 to 10.3 % at present. The bulk of these subsidies is provided by the states and about half is spent on non-merit subsidies. The paper finds an inverse relationship between subsidy incidence and per capita income and also finds that subsidies are important determinant of the consumption of many public services though not all. There are large variations across states in the efficiency of subsidy use and the paper identifies the states which lie on the subsidy efficiency frontier for several key public services. The paper also argues that rationalisng non-merit subsidies is one of several deep fiscal reform measures that could together free up massive fiscal space, conservatively estimated at 6% of GDP, and outlines a proposal for using this fiscal space to finance an inclusive growth revival strategy that could simultaneously reduce the fiscal deficit even without raising any tax rates.

Keywords: Subsidies; Merit Subsidies; Non-merit Subsidies; Subsidy and Public Services; Subsidy Efficiency Frontier; Indian Economy; Public Expenditure Policy; Growth Revival Strategy; Income Support Policy (search for similar items in EconPapers)
JEL-codes: E6 H2 H5 O2 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2019-11
New Economics Papers: this item is included in nep-mac and nep-pbe
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http://www.ncaer.org/publication_details.php?pID=307 First version, 2019 (application/pdf)

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Working Paper: Subsidies, Merit Goods and the Fiscal Space for Reviving Growth: An Aspect of Public Expenditure in India (2019) Downloads
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