The Centre and state governments provided subsidies to the tune of Rs 2,35,752 crore (Rs 2357.52 billion) in 1998-99 on economic and social services. This amounted to 13.54 per cent of the gross domestic product of the country.

While the Centre provided social and economic subsidies to the tune of Rs 79,828 crore (Rs 798.28 billion) in 1998-99, which was 33.86 per cent of the total subsidy level, states provided the balance of over 66 per cent, according to a study on budgetary subsidies conducted by the National Institute of Public Finance and Policy.

The per capita subsidy on social and economic services ranged from Rs 670 to over Rs 4,000 in different states.

Overall, these subsidies accounted for 11.11 per cent of state gross domestic product in 1998-99 and over 90 per cent of revenue receipts.

Non-merit subsidies accounted for 56.5 per cent of the total subsidy level in the country in 1998-99.

These subsidies, amounting to over Rs 1,33,000 crore (Rs 1,330 billion) needed to be phased out, said the report commissioned by the Planning Commission.

It recommends limiting public services to high merit goods, improving the quality of services and automatic mechanisms, linking costs to user charges.

Downsizing staff strength, budgetary transparency, closing unviable public enterprises and focusing attention on power, irrigation, transport and fertiliser are suggested.

The report also proposes introduction of subsidies for consumers and avoiding input-based subsidies.

Overall, subsidies accounted for 13.54 per cent of the gross domestic product in 1998-99, up from 70.43 per cent in 1992-93.

The report attributes the increase in subsidies, relative to the gross domestic product, to the increase in current costs due to increase in salaries, increase in interest rates, low recovery rates and continued growth of explicit subsidies by the Centre, especially food subsidies.

The report says that relative to 1994-95, the Centre's share in overall subsidies had gone up.

The largest share of 24 per cent went to agriculture and allied activities, which included food subsidies, followed by industries, which covered fertiliser subsidies, getting 21.4 per cent of the total subsidies.