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04 December, 2012

Brave new subsidy scheme

BRP Bhaskar
India, saddled with an outdated administrative apparatus controlled largely by semi-feudal political leaders at the lower levels, is all set to experiment with a computer-driven scheme for direct delivery of subsidies in cash to entitled citizens.

The government says the scheme, which will come into operation in the New Year, is a game changer. However, many political parties, for their own reasons, do not want any change in the rules of the game.

With large sections of the population too poor to fend for themselves, the government has instituted various welfare measures for them and sanctioned subsidies on items such as food, fuel and fertilisers. The measures, conceived and funded mainly by the Centre, are implemented by the state governments.

Taking into account the burden the globalisation process has cast on the poor, many new schemes have been taken up in the past two decades, pushing up the cost of subsidies from about Rs80 billion in 1994 to an estimated Rs3,200 billion next year. All the money does not reach the intended beneficiaries.

In the absence of prompt scrutiny of accounts, there is no way to ascertain the extent of leakage. It is well known that in Kerala, now one of the richest states, few buy grains from the ration shops. The unsold grain is diverted to rice mills. The shopkeepers and the millers thus become the actual beneficiaries of the subsidy. A pilot study at Alwar in Rajasthan showed that more than half the subsidy on kerosene meant for the poor is appropriated by others. The new scheme envisages payment of subsidy direct to the beneficiaries through banks, eliminating intermediaries. They can open bank accounts with the unique identification numbers allotted to them under the Aadhar project, managed by the Unique Identification Authority of India (UIDAD).

Prime Minister Manmohan Singh last week asked Central officials to assist the states, which hold most of the information relating to beneficiaries of welfare measures, to digitise the databases and seed them with Aadhar numbers to ensure smooth flow of cash from January 1. He said direct transfers, made possible by innovative use of technology and spread of modern banking across the country, will eliminate wastage, reduce leakages and benefit the poor.

One reason why opposition parties dislike the scheme is that they suspect the United Progressive Alliance government has conceived it with a view to deriving an electoral dividend. The National Rural Employment Guarantee Act of 2005, which assures employment for a minimum of 100 days in a year to at least one member of every rural family, is believed to have helped the UPA to earn a second five-year term in 2009. The opposition fears that direct cash transfers will do for it in 2014 what NREGA did in 2009.

The Bharatiya Janata Party has written to the Election Commission alleging the scheme violates the code of conduct which bars policy announcements while the poll process is on. The national elections are one-and-a-half years away but the BJP argues the scheme cannot be launched now as Assembly elections are under way in some states. The Commission has sought a response from the government.

The Communist Party of India and the CPI-Marxist view the scheme as part of a strategy to cut down subsidies. The CPI says it will hurt the poor, and the CPI-M fears the Centre will use it to lower subsidies and undermine the public distribution system.

A fall in government spending can certainly be expected — not because of cuts in the size of subsidies but because of the elimination of ineligible persons from the list of beneficiaries.

The Asian Development Bank has endorsed the scheme for direct payment of subsidy as a step that will plug leakages in welfare spending, which, it estimates, is about five per cent of India’s GDP. It says the Philippine government’s scheme of direct cash payments to mothers with school-going children, introduced three years ago, has proved cost-effective.

If successful, the cash transfer scheme will help the poor by freeing them from the clutches of intermediaries who wield political power at the state and district levels. If it fails, it will take the Congress and the UPA down with it. Aware of the risks, the Centre has decided to move cautiously. To begin with, it proposes to introduce the scheme in selected districts across the country and to bring under it only pension and scholarship payments, which can be easily managed. -- Gulf Today, Sharjah, December 4, 2012.

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