Subsidy zooms, again

Rejaul Karim Byron

The growing dominance of subsidy in budget allocations in recent times has started to worry the finance minister.

In the proposed budget for next fiscal year, subsidy, at 18 percent of the total outlay, yet again stands to become the highest single expenditure for the government.

The allocation for subsidy has been kept at Tk 34,533 crore for fiscal 2012-13, a 14.5 percent rise from this year’s Tk 30,154 crore.

For fiscal 2011-12, the original allocation for subsidy was Tk 20,477 crore, which was then revised to Tk 30,154 crore, making it the highest single expenditure for the year.

The steep increase in subsidy is mostly in fuel, electricity and agriculture sectors, with the upward trend mainly due to soaring petroleum prices in the world market and an increase in fuel consumption by rental power plants.

Extension of support to the jute sector by the government also accounts for the inflated figures. The sector’s subsidy — historically in the range of Tk 200 crore to Tk 300 crore — went up to Tk 2,900 crore in 2011-12. For the next year, the government set aside Tk 1,700 crore.

“Our subsidy payment is spiralling due to lack of sufficient price adjustment to match the increasing fuel prices in the international market,” the finance minister said in his budget speech.

“This is intensifying pressure on the financial sector, government budget and the economy. We must, therefore, cut down on subsidy, especially on fuel,” AMA Muhith said.

Some economists, however, have opposed the proposed move and would like the subsidy carried into the future. Their premise is that the price adjustment will push up inflation which, in turn, will hurt the poor.

On the other hand, Binayak Sen, research director of Bangladesh Institute of Development Studies, would like the subsidy to be reduced for the sake of macroeconomic stability.

“If subsidy pushes inflation up it will not bring any benefit,” he said.

On certain quarters’ demand for equal subsidy to the power and agricultural sectors, Sen said a greater weight must be given to the power sector in the interests of investment and growth.

The government should reconsider its decision on rental power plants if the fuel price continues to spiral in the world market, Sen said. “If the price does not increase further there is no need to assign more subsidies.”

For fiscal 2012-13, the government has allocated Tk 6,200 crore for energy subsidy and Tk 6,400 crore for power.

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