George Bernard Shaw's writings lead to pithy quotes. In 1944, he wrote in Everybody's Political What's What, 'A government that robs Peter to pay Paul can always depend on the support of Paul.' Etymologically, the expression refers to not paying taxes to St Peter's Church in Westminster and diverting the money to St Paul's Cathedral instead.
Multiplier effects of capital expenditure - which add to a country's productive potential - are roughly 2.5 times that of revenue expenditure. All resources have opportunity costs, a lesson one forgets about after a first year's course in economics. Hence, revenue expenditure means Peter of future generations is robbed to pay Paul of the current generation. Irrespective of whether it is the Union government or a state government, major components of revenue expenditure are wages, pensions, interest payments (on past borrowings) and subsidies. Of these, the first three are fixed and exogenously given in the short run. One can, but should not, default on these.
What is a subsidy? Conceptually, there is a market price for inputs and outputs, in production and consumption. Anything that keeps prices artificially below market prices, or a cash payment, or a tax exemption, is a subsidy.
Subsidies can be through the budget, in which case, they are explicit. They may also be off-budget, in which case they are implicit. Twice - in 1991 and 2020 - the National Institute of Public Finance and Policy (NIPFP) estimated subsidies, and of explicit subsidies, not implicit ones.
In 2015-16, GoI subsidies were 3% of GDP. There are variations between states. Overall, state-level subsidies were 7.5% of GSDP. Roughly, 10.5% of GDP/GSDP is, thus, spent on such subsidies, and the figure has obviously increased since 2015-16. Both the Comptroller and Auditor General (CAG) and the Reserve Bank of India (RBI) have flagged this. It is more difficult to compute subsidies on the production side (something not attempted by NIPFP).
Read more at: https://economictimes.indiatimes.com/opinion/et-commentary/why-distinctions-between-subsidies-for-merit-goods-and-freebies-are-dubious-from-economic-viewpoint/articleshow/94359292.cms
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