The subsidy bill since fiscal year 2004 has grown nearly six times, far more than the growth in the underlying economy in nominal terms. The gross number is even starker: the two Manmohan Singh governments have spent a cumulative Subsidies have crowded out spending on public goods. Just ask yourself what could have been built if at least half of those 11 trillion had been redirected to build new infrastructure... building a kilometre of a good rural road costs about 5 crore per km, which means that India has effectively given up around 20,000 km of new rural roads, assuming one-tenth of the subsidy spending since 2004 had been used to build new rural roads. One could come to similar conclusions about new schools or drinking water schemes or public toilets... 11.82 trillion on various subsidies over the past decade... Look at what China has built in the past five years: 19,700km of new rail lines, 609,000km of new roads or 31 airports.I am in particular struck by the 20000 km new rural roads. This blog has consistently argued that all-weather roads and three-phase electricity supply are the two most effective anti-poverty and development interventions. Furthermore, the absence of all-weather roads attenuates the effectiveness and sustainability of any other development intervention, whereas its presence amplifies their long-term value.
Friday, March 15, 2013
The opportunity cost of India's subsidies and the foregone roads
Niranjan Rajadhyaksha writes in Mint,