Direct cash subsidy: Mirage in making!

SUBSIDY

Divergent views have been expressed with many questioning the very efficacy of the proposed system in the country…


Sopan Correspondent/ New Delhi


The government’s decision to move towards direct transfer of cash subsidy for kerosene, liquefied petroleum gas (LPG) and fertiliser has sparked a debate in the country about its efficacy notwithstanding the present system of delivering the goods and services at subsidized rates to poor which has largely failed to give the desired results.

A cross section of experts holds divergent views on the issue, as some consider it a major attempt to improve delivery and circumvent corruption but others have serious reservations. Beyond that there are also questions about whether a full-proof system can be put in place in a country like India.
Actually a serious debate began with Finance Minister Pranab Mukherjee’s announcement during his budget speech that the government would provide a direct cash subsidy on kerosene and fertilisers to the poor from March 2012.

“To ensure greater cost efficiency and better delivery for both kerosene and fertilizer, the government will move toward direct transfer of cash subsidy for people below poverty line (BPL) in a phased manner,” Mukherjee said during his presentation of the Budget 2011-12.

A task force headed by the former top Infosys man, Nandan Nilekani, is working out the modalities for the proposed system of direct transfer of subsidy for kerosene, LPG and fertilisers, he informed, adding that the interim report of this task force was expected by June 2011.

At present, the government provides kerosene at subsidised rates to families living below the poverty line through the Public Distribution System (PDS). Furthermore, LPG is provided at a subsidised rate to all the households. As regards fertilisers, the government provides subsidy to companies so that farm inputs, which include urea and imported fertilisers, can be provided to farmers at cheaper rates.

Doubting the efficacy of the proposed system, development economist and National Advisory Council (NAC) member AK Shiva Kumar, though conceded that there is serious problem in the present system through which subsidy has not been reaching to those who deserve it or require it the most. “So, on the face of it the government’s plan for direct cash transfer appears to be a perfect solution to come of the rot. We have examples the world over, particularly in Latin America. But there the pattern is different. There the cash transfer is not a substitute of kind transfer.” The system is just supplementary, he added.

“If we adopt the system of direct cash transfer, it will not solve the problem of supply-side constraints. In our society we also need to worry about the power structure within the family. Who gets the money is an issue that needs to be looked into. There cannot be one general view on the matter. Cash transfers might work in some instances, such as in maternity benefits, and not in others,” Shiva Kumar said.

By raising the issue of power structure in the family, Dr Shiva Kumar actually intended to point out a different issue, which has a lot of social ramification. AS per the plan the government intends to transfer cash in the name of woman in the family. Through this the intention is to ensure that money is spent in the welfare of the family, as fairer sex in the family is generally considered to be most sensitive towards other members of the family. But there are arguments that this might lead to violence in the family. “If we leave the choice to individual family to buy whatever they want by transferring cash, it may lead to different kind of social ailment, which will create rather more poignant problem in the society,” said an expert.

Secondly, the experts argue that the main problem in the present system lies in the faulty PDS mechanism. “Do you think that the government would be able to dismantle the PDS shops? No, because subsidy can be calculated only the basis of a constant base price fixed by the government and that can be possible only through government shops,” many of the experts argue.

They say that in open market prices fluctuate with every drop of hat and if the poor are left to buy from the open market, the whole concept of providing cushion to them will go for a toss.

Therefore, even if direct cash subsidy is doled out to the targeted poor, PDS will continue to exist and the government would still look for policy intervention to weed out leakage, pilferage and black-marketing, as prices would certainly vary between APL price and open market. Poor may remain poor and their suffering would perpetuate eternally.

Blurb: In open market prices fluctuate with every drop of hat and if the poor are left to buy from the open market, the whole concept of providing cushion to them will go for a toss.