Fuel subsidy only benefitting the rich: IMF official

The massive amount of fuel subsidy, which is taking a toll on government expenditure, is mainly benefiting the rich and not the poor, an IMF official said on Tuesday.

It will take 1/10th of the current expenditure on subsidy to benefit the bottom 40 per cent of the population, according to Laura Papi, Assistant Director, Asia and Pacific Department at the International Monetary Fund.

"They are not poor who are benefiting from the (fuel) subsidy," Papi told a Washington audience referring to a recent study in this regard.
"This seems to be really an area which is key to reform to get a much better and more pro-growth and more pro-poor allocation of spending.

"If the government were to target and say we will keep the benefits for the 40 per cent bottom of the population that would mean spending only 10th of what they spend now," Papi said.

Participating in a panel discussion on "The State of the Indian Economy: The Budget and Beyond" organised by the Brookings Institute, an eminent American think-tank, the IMF official said India needs to initiate a series of structural and fiscal reforms to boost up the country's growth.

"The recovery is not going to be a quick one. After the global financial crisis, the Indian economy bounced back very quickly, but this time things are very different and we

expect that recovery will be much more subdued," she said.

Noting that there is quite a bit of lag between the investment and gross domestic product cycle, she said there has been some movement on the reform front.

"But the question is whether this would be followed through or if there would be sufficient progress on the ground, especially relieving the supply bottlenecks in the power is at the core of the problems," she said.

Anne Krueger, professor of International Economics, at the School of Advanced International Studies from Johns Hopkins University called for reform in a series of areas.

Noting that reforms in the infrastructure sector -- power, roads, transport and ports -- is needs, she said more needs to be done and the next set of reforms should focus on key areas like labour market, land reform, tax reforms, and reforms in the legal sector.

Diane Farrell, executive vice president of US-India Business Council (USIBC) said it was an honest endeavour on the part of the Finance Minister P Chidambaram to recognise the pressures that any election year brings but also recognising the equal pressure coming from rating agencies who were threatening to downgrade India to junk status.

It looks like the Finance Minister has crafted a budget that would avoid that phase, she added.

In his remarks, Ejaz Ghani, Economic Advisor, South Asia to the World Bank said that the latest budget is trying to go beyond growth.