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19 January 2026|The Indian Express
3 min read
EconomyEDITORIAL

Rationalizing Subsidies: Key to India's Economic Reform Drive

Reforming food and fertilizer subsidies is crucial for India's economic progress.

Background Context

The history of subsidies in India is deeply intertwined with the nation's socio-economic policies post-independence. Initially, subsidies were introduced as a tool to ensure food security and support nascent industries. The Green Revolution in the 1960s and 70s saw a significant increase in fertilizer subsidies to boost agricultural production. Food subsidies, primarily through the Public Distribution System (PDS), aimed to provide affordable food grains to the poor. Over time, these subsidies became entrenched, often facing challenges of leakage, inefficiency, and distortion of market prices. The economic liberalization of the 1990s brought calls for subsidy reforms, but political considerations often hindered substantial changes. Various committees, including those led by experts like C. Rangarajan, have recommended rationalizing subsidies to improve targeting and reduce fiscal burden.

The article emphasizes the importance of rationalizing food and fertilizer subsidies to complete India's economic reform drive. It highlights that these subsidies, while intended to support farmers and consumers, often lead to inefficiencies, environmental damage, and fiscal burdens. The author suggests that a targeted approach, leveraging technology and direct benefit transfers, can ensure that subsidies reach the intended beneficiaries without distorting markets or harming the environment. Reforming these subsidies is crucial for sustainable and inclusive growth, allowing for better allocation of resources towards infrastructure, healthcare, and education.

Latest Developments

In recent years, there's been a renewed focus on subsidy reforms, driven by fiscal constraints and the need for efficient resource allocation. The government has been exploring direct benefit transfer (DBT) schemes to reduce leakages and ensure that subsidies reach the intended beneficiaries. The use of technology, such as Aadhaar-linked payments and digital tracking systems, is becoming more prevalent. The debate continues on the optimal level and targeting of subsidies, with some advocating for a complete phase-out of certain subsidies while others emphasize the need to protect vulnerable populations. The COVID-19 pandemic further highlighted the importance of food security, leading to increased allocations for food subsidies. The future outlook involves greater emphasis on sustainable agriculture practices and promoting efficient use of resources, which may require recalibrating existing subsidy structures.

Editorial Analysis

The author argues that rationalizing food and fertilizer subsidies is crucial for India's economic reform. He advocates for a targeted approach using technology and direct benefit transfers to improve efficiency and reduce negative impacts.

Main Arguments:

  1. Inefficient subsidies lead to fiscal burdens and market distortions, hindering economic growth. Reforming these subsidies can free up resources for infrastructure, healthcare, and education.
  2. Targeted approaches, such as direct benefit transfers, can ensure subsidies reach intended beneficiaries without distorting markets. This improves efficiency and reduces leakages.
  3. Environmental damage from fertilizer subsidies, such as soil degradation and water pollution, necessitates reform. Sustainable practices and efficient resource allocation are essential.

Conclusion

Rationalizing food and fertilizer subsidies is essential for sustainable and inclusive growth. A targeted approach, leveraging technology and direct benefit transfers, can ensure subsidies reach the intended beneficiaries without distorting markets or harming the environment.

2 Key Concepts to Understand

This article covers important concepts like Subsidies, Food Security. Understanding these will help you answer exam questions better.

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