Direct subsidies to poor soon: Pranab

Leakage in allocations of grain and fuel for poor has been a concern

Faced with large-scale leakages and improper use of grain and ker­osene meant for poor, the government is working on handing out direct payment of subsidies to the beneficiaries through electronic payment system, Finance Minister Pranab Mukherjee said Sunday.

The e-payment mechanism, which was introduced in October last year, is expected to plug leakages and save administrative expenses totalling around Rs 1 lakh crore, according to official estimates. The system is yet to be implemented in want of infrastructure to enable e-payment model.

“The government is in the process of implementing an e-payment system for direct credit of dues from the central government to the beneficiaries,” Mukherjee said in his key-note address at the 70th Foundation Day of Oriental Bank of Commerce in Gurgaon on Sunday morning.

The finance minister in his budget speech last year had announced installing e-payment mechanism to bring transparency and expedite direct payments for subsidies from central paying units to the targeted beneficiaries of fertilizer, kerosene and cooking gas. He also asked banks in the country to gear themselves for this “path-breaking” governance reform. The government’s key policymakers in the past have also suggested direct transfer of subsidies to poor.

“The ideal way to give subsidy to the poor is not by lowering the prices of goods – lowering prices of fertiliser, kerosene, LPG – that’s not the right way to do it. The right way to do it is you allow products to sell at market prices as much as possible but give direct subsidies to the poor and the vulnerable,” India’s Chief Economic Adviser Kaushik Basu had said recently.

The consulting firm McKinsey, in its report last year had remarked that the infrastructure to enable an e-payment model will entail a one-time cost of Rs 60,000-70,000 crore, an amount that can potentially be paid back within one year from the savings incurred through an e-payment infrastructure.

The report talked about how the current payment inefficiencies cost Rs 1 lakh crore annually with a large share of that amount — Rs 71,000 crore — attributed to welfare schemes disbursed by the government.