Who is subsidizing whom?

This week saw the protests and discussions on fuel( petrol ) price hike. It was mentioned that middle class will be crushed under the load of inflation/fuel price hike etc. etc...

Frankly none of this is true.

Middle class in India is in fact pampered a lot and subsidized by none other than the poor!

Consider this:

1)Rail travel is subsidized
2)Full Education from school to post graduation and even doctorate is subsidized
3)Fuel including cooking gas , diesel and till recently petrol was subsidized
4)Food is subsidized
5)Water is subsidized in most municipalities.
6)Government Hospitals provide very cheap services
7)Most importantly Even most services are subsidized!

Who is paying all this subsidy? Industry ?


Well it's poor farmers and factory and household worker/bai/butler etc .

How?

Ever wondered how these people earning in the range of 2 to 5,6 thousand Indian rupees make ends meet? How can they live in an expensive cities like Mumbai, Delhi and other Tier 1 and 2 cities with these meager income?

Well they live in slums and make their ends meet . If they start living at the minimum standard of cities and in their own pucca house , their services will become much more costlier.

Hence they actually provide "subsidy" the middle class.

It is a well known fact that Indian farmers do not get enough profit for their produce . Inflation for primary articles has remained stubbornly high since last few years especially food and vegetables.

There is a very simplistic explanation to all this.There has not been enough investment in agriculture in India and the reason for that is that there is not much return.Hence any slight demand uptake leads to high inflation of these commodities.

Again who has benefited the most from the low food prices over last few decades?

Not the farmer which constitutes the most poor of India.

The only way out of this quagmire is increase prices to such a level where it becomes attractive for farmers to produce more and do investment. This will ensure better supply side elasticity in future.

The fuel subsidy which amounts to a 1-1.5 lakh crorers every year. It can simply be diverted from middle class to farmers and poor people .
Now ,There is a very the old thinking ( mindset actually) that out of 1 Rs spent by Government only 15 paise reaches villages ( Rajiv Gandhi's utterances, he was surely not an economist).It is not true. It is possible to ensure that almost all of it reaches the poor.

Subsidize raw material like fertilizers , seeds , pesticides and provide direct account transfer of subsidy, increase budget support to rural employment programs, reduce interest on loans to farmers etc.There are many ways ...

Middle class tends to be a vocal vote bank , but not decisive one.Government will do well to get rid of lopsided subsidy as soon as possible.