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Cash subsidy for whom
By Dr. Ashwani Mahajan
Once, a former Prime Minister said that when the government spends 100 rupees, only 15 rupees reaches the actual beneficiary. In order to provide cheap grains to common people, cheap fertilizers and petroleum products such as diesel etc. to farmers, less expensive kerosene and LPG cylinder to the commoners, the government makes provisions for different kinds of subsidies in its budget. For the last few years, these subsidies have been increasing continually. In 2002-03, the central government subsidy bill was Rs 43, 533 crores which reached Rs 2,16,927 crores by the beginning of 2011-12. An important part of this subsidy, i.e., Rs 72,823 crores is for food items.

It is believed that the subsidy meant for poor people does not reach its correct destination and gets embezzled on its way itself. Not only this, the government has to spend a lot of money to make the subsidy reach its correct destination. According to an estimate by the Planning Commission, the government needs to spend nearly 4 rupees to make the subsidy of rupee 1 reach the poor people through its Public Distribution System. Apart from this, many economists are of the opinion that though it is important to provide cheap food and fuel to poor, and cheap fertilizers to farmers, but the policy of subsidy is no good. We understand that when subsidy is given, the prices of subsidised items get reduced. Due to the reduction in the prices, people start using more of these items. Generally, subsidised items are scarce too. For instance, petroleum products. Our dependence on foreign companies for petroleum products is more and is rising fast. Their prices has also been increasing and in this scenario, when subsidy is given on petro products like diesel, it would encourage misuse of these products, due to which not only government gets burdened with rising subsidy bill but our dependence on foreign countries would also increase.

Today, a large chunk of food subsidy is spent on storage of food and Public Distribution System. The pathetic condition of Public Distribution System in the country is no secret. Even after the heavy subsidy of more than Rs 72,000 crores, not all deserving people are able to get reasonable quantity of quality food grains and sugar through Public Distribution System. If each BPL consumer gets 1000 rupees cash, he would be able to purchase these products from the market and if there are 40 crores BPL consumers in the country, then the total subsidy would be only 40 thousand crores and in the process people living below poverty line would get benefitted too.

A few years back, the thought of cash subsidy was an impractical one, however now the time has changed. In this era of information technology, direct cash transfer is not at all a difficult task. At many places, it is possible to send money directly to labour's bank account under employment generation program. At many places, widow and old age pensions are sent directly to beneficiaries' bank accounts and not only this, BPL consumers are getting the benefit of health insurance through smart cards. Thus, providing cash subsidy to the needy through the bank system by using the information technology is now possible. In this scenario, what we need is the strong political will. If the government takes a decision, these arrangements would not be difficult.

This way, giving cash in lieu of subsidy may be a right step. UID Authority of India also submitted a report to the Finance Minister in this regard. The Authority says that the UID number, which is given under the ‘Aadhaar’ may be used to transfer money through bank, ATM and even mobile banking. In case of fiddling under this system, beneficiary would be able to lodge a complaint directly to the government. The Authority also made a plan to implement this policy and submitted it to the government under which a pilot plan was made for seven states including Tamil Nadu, Assam, Maharastra, Delhi, Orissa and Rajasthan. The experiences of Alwar District of Rajasthan regarding this pilot plan were also included in the latest draft of cash transfer policy. In order to stop corruption and leakages in the conventional subsidy policy, the government has made an ambitious plan to transfer the money directly to the beneficiary account. The Prime Minister has made a committee for timely implementation of this policy for 25 per cent households in the country.

Incomplete Policy

Until now, talks are going on for giving cash transfer of pension, MNREGA wages, kerosene and other items distributed by Public Distribution System. It is to be noted that the government subsidy is not limited to food items. Petroleum products and fertilizers are other important constituents of this subsidy. However, presently government is not thinking of replacing these subsidies with cash transfers. In case of petroleum subsidy, the maximum subsidy is given on LPG, diesel and kerosene. The government has decided to give cash in lieu of kerosene subsidy and recently, government has decided to limit quota 6 LPG subsidised cylinders per household. Heavy subsidy is still being given on diesel due to which its misuse in luxury cars is on rise. Latest data published by Government of NCT of Delhi shows that in the year 2011-12, consumption of diesel in Delhi jumped by 15 percent, while consumption of petrol decreased by 1.5 percent. However, government has made no plan to replace diesel subsidy with cash transfer. On the other hand, heavy subsidy is given on chemical fertilizers by the government through fertilizer companies. Though the discussions on giving direct subsidy to farmers has been going on for a long time, yet no concrete plans have been made to give subsidy directly to farmers. It seems the declaration of cash transfers is only a gimmick, devoid of sincerity to deal with inefficiencies.

‘Aadhaar’ is Not the Right Basis

The whole plan of giving cash subsidy is based on Aadhaar Card. Aadhaar scheme was initiated a few years ago and UID Authority was formed for the same. The task of preparing Aadhaar Card was given to companies. Any person residing in the country can get his card prepared and no proof for being the citizen of the country is required for the same. Many people from neighbouring country Bangladesh have been residing in India after crossing the border. Due to poverty in Bangladesh, this tendency is on increase. In this scenario, the benefit of transfer of cash based on Aadhaar card may reach the foreigners too along with Indians. Thus, the large amount of taxpayers' money may not reach the deserving poor people of the country. It is important that the proof of citizenship is made mandatory for cash transfers.

It is unfortunate that the government is publicising proposed policy of cash transfers to poor, yet there is no generally acceptable definition of poor, and there is no mechanism to identify the poor. This way, the money targeted for the poor may not really reach them. The basic issue of identifying the poor is forgotten in the political game plan of transferring cash subsidy.

(The author is Associate Professor, PGDAV College, University of Delhi and can be contacted at Email:
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News Updated at : Friday, February 1, 2013
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