Subsidies ending up in wrong hands

FE Team | Published: December 24, 2023 18:52:25

The intended beneficiaries of government subsidies are supposed to be the poor and low-income people, on the one side, and high potential and growing business enterprises, on the other. A form of government intervention in the price mechanism, it tries to ensure that the average person has access to basic goods and services at affordable prices, while providing props for fledgling businesses to tap into their full potential. The subsidy may also be necessary to make local industries more competitive in international markets as well as to help businesses stay afloat during an economic recession or in the face of unforeseen adversities like the Covid-19 pandemic. It is, however, one thing to support the common people, say, farmers with subsidy schemes, and quite another thing to facilitate windfall gains for some private firms or vested quarters.
The government subsidies are now coming under increased scrutiny as budget spending on such well-intended endowments rose staggeringly high over the years. According to a report, in the previous fiscal year 2022-23, a sum of Tk 707.51 billion was spent on subsidy from the operating budget, which is 7.79 times higher than the expenditure made for the same purpose in FY2017. Even after the stunning growth in year-on-year spending on subsidies, one would have little scope to raise question about it had the money been spent on reducing income inequality, stabilising market and facilitating the growth of industries for product diversification. Instead, what we have been witnessing is a mind-boggling shameful misappropriation of government funds, especially in the energy sector. A large portion of the subsidy in the power sector is spent on paying capacity charges to around 100 private power plants, which amounted to more than Tk 1.0 trillion during the present government's three terms in power.
Surprisingly, these power plants are given the capacity charge even when they produce no electricity. Such brazen misuse of taxpayers' money is undesirable, unfair and a grave injustice to the nation. The government must get out of the dubious agreements with the private power plants and adopt a policy of no-electricity, no-pay. Rationalisation of subsidies in the power and energy sector is one of the main conditions of the IMF's $4.7 billion dollar loan package to Bangladesh. To the dismay of the people, the government has already increased tariffs of power, gas, and fuel several times to reduce the burden of subsidy in this sector, and it is widely believed the tariffs will be hiked once again after the election. The rationality behind introducing market-based prices of utility services lies in the fact that the rich benefit more than the poor from subsidies in energy sector because they consume more electricity, gas, and fuel than the poor.
Subsidies in the form of cash incentives to RMG exporters also give rise to disturbing questions. Some factories, allegedly, are selling their products at lower than the actual production cost and recouping their losses through the government's cash incentives. So, in effect, western brands are the indirect beneficiaries of the subsidies in this sector. Government subsidies in the agricultural sector are fully justifiable because it helps farmers to have agricultural inputs, and purchase fertiliser, and seeds at low costs, which in turns positively impact food production and food pricing. But the allegations that intermediaries buying farm machines at subsidised rates to rent those out to farmers at high rates serve as another woeful, glaring example of subsidies ending up in the wrong hands. The government, therefore, must rationalise the allocation of subsidies in different sectors and ensure that the funding reaches the intended beneficiaries putting an end to the scandalous drainage of taxpayers' money.