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

Author

Listed:
  • Mundle, Sudipto

    (National Council of Applied Economic Research)

  • Sikdar, Satadru

    (National Institute of Public Finance and Policy)

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 nonmerit 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.

Suggested Citation

  • Mundle, Sudipto & Sikdar, Satadru, 2019. "Subsidies, Merit Goods and the Fiscal Space for Reviving Growth: An Aspect of Public Expenditure in India," Working Papers 19/282, National Institute of Public Finance and Policy.
  • Handle: RePEc:npf:wpaper:19/282
    Note: Working Paper 282, 2019
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    References listed on IDEAS

    as
    1. Mundle, Sudipto & Chowdhury, Samik & Sikdar, Satadru, 2016. "Governance Performance of Indian States 2001-02 and 2011-12," Working Papers 16/164, National Institute of Public Finance and Policy.
    2. Ranjan Kumar Mohanty & N.R. Bhanumurthy, 2018. "Assessing Public Expenditure Efficiency at Indian States," Working Papers id:12837, eSocialSciences.
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    Cited by:

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    2. Sacchidananda Mukherjee & Shivani Badola, 2021. "Public Financing of Human Development in India: A Review," Indian Journal of Human Development, , vol. 15(1), pages 62-81, April.

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    More about this item

    Keywords

    Taxation; Subsidies and Revenue ; Macroeconomic Aspects of Public Finance ; National Government Expenditures and Related Policies ; Development Planning and Policy;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy

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