Cash subsidy for whom?

The benefit of transfer of cash based on Aadhaar card may reach the foreigners too along with Indians.

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 fertilisers 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 crore which reached Rs 2,16,927 crore by the beginning of 2011-12. An important part of this subsidy, i.e., Rs 72,823 crore 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 Rs 4 to make the subsidy of Re 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 fertilisers to farmers, the policy of subsidy is not 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 extremely high and is rising fast. Their prices have 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 the PDS. The pathetic condition of PDS in the country is no secret. Even after the heavy subsidy of more than Rs 72,000 crore, not all deserving people are able to get reasonable quantity of quality food grains and sugar through PDS. If each BPL consumer gets Rs 1,000 cash, he would be able to purchase these products from the market and if there are 40 crore BPL consumers in the country, then the total subsidy would be only Rs 40,000 crore and in the process people living below poverty line would benefit 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 the labour’s bank account under employment generation programme. At many places, widow and old age pensions are sent directly to beneficiaries' bank accounts. In this scenario, what we need is a strong political will. 

Right step

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. 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 constituted a committee for timely implementation of this policy for 25 per cent households in the country.

Heavy subsidy is still being given on diesel due to which its misuse in luxury cars is on the rise. Latest data published by Delhi government shows that in the year 2011-12, consumption of diesel in Delhi jumped by 15 per cent, while consumption of petrol decreased by 1.5 per cent.  However, government has made no plan to replace diesel subsidy with cash transfer. On the other hand, heavy subsidy is given on chemical fertilisers by the government through fertiliser companies. Though  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 across sectors.

The whole plan of giving cash subsidy is based on the 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 Bangladesh have been residing in India after crossing the border. Due to poverty in Bangladesh, this tendency is on the increase. Therefore, the benefit of transfer of cash based on Aadhaar card may reach the foreigners too along with Indians. Thus, a 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.

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