Illuminating the Arts-Policy Nexus 

On subsidies, there is little doubt on the intention and that they have indeed helped create an essential social safety net for India. However, poor targeting of subsidies and an ineffective enabling physical and social infrastructure has increasingly contributed to fiscal stress with limited progress on poverty alleviation. India's food subsidies, which have tripled since 2006, are mainly driven by increasing procurement and carrying costs, which are the main domestic drivers of higher cost of food grains. Subsidised food and fuel such as kerosene & LPG are intended for the below-poverty line and have a ration card to prove their economic status. However, NSSO data reveals that about 50% of poor rural households did not have a BPL card and in some states such as Bihar, it was as high as 80%. This results in red tapism as large share of PDS items are illegaly sold, diverted to non-household use or hoarded. A recent report by TERI estimates that the adulteration of diesel may have cost state governments up to USD 224 mn in foregone excise duties from diesel sales in 2005-06. Market distortions are common as well, as exemplified by the growing number of private vehicles that run on diesel rather than petrol. Even with LPG cylinders,the uptake is largely skewed towards urban affluent households. Only 12% of rural households have access to LPG compared to 65% in urban households (NSSO data). Even fertilizer subsidies are concentrated geographically on a relatively small number of crops and producers. Against this backdrop, one finds that the current subsidies structure for India is infact long term regressive and not sustainable from a fiscal as well as growth perspective. The answer lies in gradually moving towards a more effective direct cash tranfers system, which is much better targeted, eliminates abnormal profits gained by the middlemen, reduces dependence on supply side bottlenecks and creates fiscal space for investment in infrastructure.