Subsidy burden gets heavier
The government’s subsidy expenditure has soared 29.36 percent to Tk 46,385 crore this fiscal year largely due to its concessions on demands from pressure groups.
For instance, Tk 6,825 crore has been set aside for exporters, up by a staggering 70.63 percent year-on-year. The government has extended 1 percent cash incentive to all garment exporters to prop up their competitiveness this fiscal year.
Previously, 26 sectors -- including garment, which accounts for more than 80 percent of the country’s exports -- were given cash incentives ranging from 2 percent to 20 percent of their export proceeds.
Garment makers who use local yarn enjoy subsidy of 4 percent on their export earnings. Those who export to new markets -- destinations other than the US and the EU -- also get cash subsidy.
But from July 1, all apparel exporters have been enjoying 1 percent cash incentive on their export receipts.
The handout for garment exporters came at a time when there were calls for providing cash subsidy to the country’s nearly two crore farmers to help them offset losses from Boro harvest because of low paddy prices.
“While we have to be mindful of the political management compulsions that governments in all countries have to cede to more or less, the economic rationale must also be at least congruent to such allocations to be in national interest and sustainable,” Zahid Hussain, a former World Bank economist, told The Daily Star.
Speaking at a pre-budget discussion on June 12, Debapriya Bhattacharya, a distinguished fellow of the Centre for Policy Dialogue, said injustice was done to farmers. The government did not take the right decision at the right time.
A farmer had to spend Tk 24,000 to grow a tonne of paddy, which the millers bought for Tk 15,000, causing Tk 9,000 loss a tonne to farmers, according to growers and the agriculture ministry.
The government, in turn, bought paddy from millers at Tk 26,000 a tonne, giving them a Tk 5,850 profit outright.
“Under the circumstances, a farmer deserves Tk 5,000 to make up for the losses,” Debapriya added.
About Tk 9,100 crore may be required in the budget for the one-off incentive for rice growers, according to the CPD.
Incentives for the agriculture sector, still the backbone of the economy, remained the same at Tk 9,000 crore as in fiscal 2018-19.
According to Zahid, budgetary allocation in the form of subsidies, incentives and transfers, when compared on an individual-sector basis this fiscal year, exceeds the allocation to sectors such as health, energy and power, local government and rural development and so on at 1.6 percent of the GDP.
“The question therefore is that of prioritisation and economic justification. This is understandable in case of agriculture, particularly at a time when bumper crop, paradoxical as it may seem, has meant distress for small and marginal farmers.”
Additional cash transfers to these farmers would have been justified on the grounds of equity. “That unfortunately has not been proposed,” he added.
OTHER ALLOCATIONS
Some Tk 9,500 crore has been set aside for the power sector, where the Awami League-led government enjoyed the most success in its past two terms spanning a decade.
As of May 29, the country generated 12,893 megawatts of electricity, the highest yet and a straight fourfold increase from fiscal 2009-10 when the AL assumed power.
As much as 93 percent of the population now have access to power, and the number of beneficiaries doubled in the last one decade.
“By the next year, each upazila will have 100 percent access to electricity,” Finance Minister AHM Mustafa Kamal said in his maiden budget speech on June 13.
This fiscal year, the subsidy allocation to the power sector is 3.26 percent higher than that in the last fiscal year, which raises the question of whether it would be a permanent feature of the budget.
Up to Tk 5,000 crore has been earmarked for subsidising the prices of gas, whose production cost has spiralled for the addition of costlier imported liquefied natural gas to the gridfrom this fiscal year, said finance ministry officials.
In fiscal 2018-19, Tk 2,500 crore was set aside for the gas sector.
The government is spending about Tk 35 for each cubic metre of imported LNG, while the cost of locally produced gas is about Tk 5, according to officials of Bangladesh Energy Regulatory Commission (BERC).
When LNG is blended with local gas, per unit cost of production stands at Tk 12.60, added the officials.
Subsequently, Petrobangla, the state-run oil and gas company, had called for hiking the gas prices ranging from Tk 7 to Tk 40 per unit for certain users such as power plants, fertiliser manufacturers and CNG-run auto-rickshaws.
On June 30, the government hiked the gas prices for all including households.
For power plants, the price was increased 40.8 percent, for CNG-run auto-rickshaws 7.5 percent and for industries 37.89 percent.
The hikes have not brought the gas price on a par with the production cost, so the government is making up the difference, mentioned the BERC officials.
Zahid said subsidies for electricity and gas can be justified as transitional measures to allow time to users and providers to move towards full-cost recovery.
“It would have been helpful if that was made absolutely clear …,” he added.
This fiscal year, the government is introducing 2 percent cash incentive for migrant workers to encourage them to send remittance through the official channels.
Some Tk 3,060 crore has been allocated for this purpose.
“Could we not achieve the same objectives by allowing correction in the existing overvaluation of the taka?” asked Zahid.
By letting the taka float, the government would not only have been able to avoid the subsidy expenditure but also stem the erosion of foreign exchange reserves and reduce drainage of liquidity from the banking system, he noted.
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