(a) Distinguish between explicit and implicit subsidies. Explain the trends in explicit subsidies on irrigation and fertilizer in…

(a) Explicit and implicit subsidies, and post-reform trends

Explicit subsidies are direct, budgeted payments, such as those on food, fertiliser and LPG, which appear as government expenditure. Implicit subsidies are the unrecovered cost of goods and services the state supplies below cost, such as irrigation water, power and education, and they do not appear as a budget line.

Post-reform trends: the fertiliser subsidy, an explicit one, grew from a few thousand crore rupees in 1991-92 to about one lakh crore by 2008-09 and exceeded two and a half lakh crore in 2022-23, before easing. Nutrient Based Subsidy for phosphatic and potassic fertilisers began in 2010, while urea stays under price control, and direct benefit transfer was introduced from 2018. Irrigation is largely an implicit subsidy, since water charges recover only a small part of operating costs, and the gap widened as maintenance and power costs rose.

(b) Action Plan for Disinvestment, 2009

The Cabinet's November 2009 policy revived disinvestment of central public sector enterprises after the mid-2000s pause, with a focus on public ownership rather than privatisation. Its salient features:

(i) Profitable, listed CPSEs with less than 10 per cent public holding were to reach a minimum 10 per cent public shareholding through follow-on offers or sale of shares.

(ii) Unlisted profitable CPSEs with no accumulated losses were to be listed.

(iii) The government would retain at least 51 per cent ownership and management control.

(iv) Proceeds would go to the National Investment Fund (set up in 2005) and be used for social sector schemes in education, health and employment and for capital needs of CPSEs.

(v) Sale would be through public offers with transparent, market-based pricing.

(c) Horizontal fiscal disequilibrium and the XIIth Finance Commission

Horizontal fiscal disequilibrium means differences in fiscal capacity and cost of services among units of the same level of government, such as states, even with the same tax efforts, unlike vertical disequilibrium between the Centre and the states. The XIIth Finance Commission (Chairman C. Rangarajan, 2005-10) tackled it as follows:

(i) It raised the states' share of central taxes to 30.5 per cent.

(ii) It distributed the shares by a formula weighting income distance (the largest weight, about 50 per cent), population, area, tax effort and fiscal discipline.

(iii) It provided grants to states with non-plan revenue deficits, for elementary education, health, roads and state-specific needs.

(iv) It linked debt relief to fiscal responsibility legislation.

(d) Liquidity Adjustment Facility (LAF)

The LAF began in 2000 after the Narasimham Committee (1998) through repo (injecting liquidity) and reverse repo (absorbing it) auctions. It works in the short run because it:

(i) Adjusts day-to-day liquidity by overnight operations and so dampens call money rate swings.

(ii) Creates a corridor around the policy rate, with the reverse repo as the floor and the Marginal Standing Facility (from 2011) as the ceiling.

(iii) Signals the stance, with repo as the single policy rate since 2011-12.

(iv) Uses collateral of government securities and so keeps the system of monetary transmission flexible.

From 2022 the Standing Deposit Facility supplies the floor, and variable rate operations and term repos supplement the LAF.

(e) Universal basic income and poverty alleviation in India

UBI is a uniform, unconditional, regular cash transfer to every person. The Economic Survey 2016-17 discussed it, estimating that about Rs 7,620 per person a year (2016-17 prices) would reduce poverty to about 0.5 per cent at a cost of about 4.9 per cent of GDP.

For: it avoids exclusion errors of targeting, cuts leakage through the JAM (Jan Dhan, Aadhaar, Mobile) infrastructure, and pilots in Madhya Pradesh (SEWA) found gains in nutrition, schooling and work.

Against: high fiscal cost unless subsidies are cut, inflation in supply-constrained markets, uncertain work effects, and a risk that it replaces services such as health and food security.

It is therefore useful as a complement, or a targeted or quasi-UBI, not as a substitute for public services and employment schemes.