How India’s wealthy are milking billions off subsidy

Do you think the politics of subsidy is only confined around lower and middle economic classes? If yes, then you would wonder how subsidies worth rupees one crore go into the pockets of the rich every year, and that too via merely seven products and services.

The subsidy bill may notch up if one takes into account all kinds of services. As much as 62 per cent of the people who benefit from tax concessions on small savings consist of those who have an of more than 4 per annum. By no means can they be counted among small groups. Can they?

The 2015-16 economic survey reveals  the well-off section is being benefitted the most from the subsidies on small saving schemes, gold, electricity, kerosene, train fare and aviation fuel etc. The well-off consists of 70 per cent of the population, while ironically the impoverished 30 per cent is being accused of availing subsidy benefits.

No civilization in the world associates gold with poverty. Gold is a symbol of opulence. In no way can tax concessions on the yellow metal be justified. We stand among few countries in the world where less than two per cent tax is levied on gold.  It is nothing but a mockery of our tax structure at global forum. The combined Centre and state tax on the precious metal ranges between 1 to 1.6 per cent, while we12.5 to 25 per cent tax on essential things and petrol-diesel.


The economic survey says that the tax subsidy on gold amounts to more than Rs 4,000 crore.

Benefits on accruing LPG cylinder are no less than gold. Compared to its market value, a cylinder is 36 per cent cheaper in India. 91 per cent of gas connections are registered in the names of middle and upper classes, which means the well-to-do are gulping down Rs 40, 000 crore LPG subsidy.

Likewise, if we look at the cost and subsidy on railway fares, we discover 34 per cent concession is cornered by middle and upper classes, which amounts to Rs 3,671 crore.

On electricity rates, 32 per cent of the subsidy goes to upper classes (based of Delhi and Tamil Nadu samples). The subsidy on electricity rates to the well-off could be as much as Rs 37,170 crore.

The most interesting contradiction in fuel subsidies is related to aviation fuel. In India the tax on Aviation Turbine Fuel (ATF) stand on an average at 20 per cent while on petrol and diesel it goes up to 61 per cent. Needless to say who benefits most from the low taxes on ATF. ATF subsidy amounts to Rs 762 crore.

The economic survey shows 50 per cent of the cheap and subsidised kerosene goes to the rich, which is tantamount to Rs 5,500 crore.

If we go by the survey’s analysis, the government’s decision to tax the withdrawals of provident fund in this year’s budget was well justified. However, if someone thinks the U-turn on the same was taken keeping in mind the middle class’ interests, he/she is seriously mistaken. In fact, this Rs 12,000 crore tax exemption on small savings, too, goes into the account of the high income assesses.

In India, tax concessions on small have been controversial as the beneficiaries are not properly identified and measured.  However, fresh statistics cast some light on concessions given under Article 80C of Tax law (concessions on savings). Nearly 62 per cent of total tax incentives of small savings in FY 2013-14 were accounted for by taxpayers with gross taxable more than Rs 4 (47 per cent by those earning more than Rs 5). These individuals are at the 97.3rd and 98.4th percentiles of the distribution, respectively.

This is not the final list of subsidy rip-offs. In this list only six goods and services and a small section of small savings has been included which is a mere sample of the vast and complex world of subsidies, tax concession and a variety of other incentives. Different kinds of concessions given in states such as on pricing of water, road transport, property tax, house tax and various local taxes have not been included in it.

All these taxes are levied below the cost for the sake of the poor and the middle classes.

It is no rocket-science why the debates on balancing and rationalising taxes do not get political backing. In fact, subsidy is not the victim of politics of poverty, but that of wealth. New facts on subsidies confirm not just the poor, even many from the middle class do not get the benefit of subsidy as much as the rich does.

The cream of this is scooped away by the urban upper and middle classes as the poor and the rest of the middle classes are stigmatised and forced to carry the cross of subsidy on their heads.

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