Definition
Subsidy Rationalisation
Subsidy rationalisation is the effort to make government subsidies on food, fertiliser and fuel more targeted and fiscally sustainable.
Major subsidies — food, fertiliser and at times fuel — are among the largest items of revenue expenditure in the Budget. Subsidy rationalisation seeks to reduce leakage and ensure benefits reach the intended poor, often by moving from price subsidies to direct benefit transfer.
Reforms have included direct transfer of LPG subsidy to bank accounts, Aadhaar-based targeting of food rations, and periodic attempts to reform fertiliser pricing. Rationalising subsidies improves the quality of the fiscal deficit but is politically delicate because it affects vulnerable households.
Related terms
- Fiscal ConsolidationFiscal consolidation is the process of reducing the government's fiscal deficit and debt over time through higher revenues or lower spending growth.
- Revenue vs Capital ExpenditureRevenue expenditure covers the government's recurring running costs, while capital expenditure creates lasting assets or reduces liabilities.
- Direct Benefit Transfer (DBT)Direct Benefit Transfer is the routing of government subsidies and welfare payments straight into beneficiaries' bank accounts to cut leakage and middlemen.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.