The subsidy question

The government faces some tough choices. Pledge-bound to provide subsidy in agriculture, it has had to backtrack somewhat in the face of expensive imports and production of urea. The double subsidy comes when they have to but whatever has been produced by the farmer to ensure prices are fair and decent. Now they have the second part of the double whammy in the form of the inevitable price-hikes in the energy sector. According to reports without upward price adjustments in petroleum, gas and electricity prices, the subsidy will bloat to Tk. 600 billion (60,000 crore), almost a third of the proposed draft annual budget. Clearly unsustainable. But the issue of price hikes also come with some heavy political caveats. With the short-term power projects heading towards delivery time, the cost will now have to be counted. Somehow in between expectation and delivery, the price factor was forgotten. Power and fuel prices were jacked up very recently and the government's approach appears to have been softer blows by frequent but small increases. The word out is that there will be two price-hikes, one in July and the other in September. Inaction is probably not a consideration and there seems only one way out. How the consumer will react to heavier prices. Overall and with prices there's usually an initial uproar, plenty of meat for the media and then the inevitable acceptance. With electricity price increases however, there are other price-factors that will be triggered furthering the burden on the hapless consumer. In between experts are cautioning the government against doing anything but increasing the subsidy in the social safety net and focusing on reining in inflation. What it all turns out to be is the requirements of proper monitoring to ensure the subsidies achieve what they are set out to and prudent spending that is transparent. The budget funding will be another issue. With inflows in to the development partner coffers likely to more constrained than in previous years. The partners have in turn suggested that the government keep a close look at the balance of payment situation. While that is a factor to be considered the government also has to think of the additional sops that will almost certainly be required to prop up businesses, especially export businesses that will require a fair chunk of change. All in all there's a huge balancing act to be performed and that isn't an enviable task. (The writer can be reached at mahmudrahman@gmail.com)