A new system

''Pilot projects will be implemented in six states.''

The recommendations made by the task force on subsidies headed by Nandan Nilekani can change the entire system of administering subsidies in the country. In its interim report, the task force has presented a plan for introduction of a phased system of cash transfers in place of the existing leaky system in the case of kerosene, LPG and fertilizers.

Pilot projects will be implemented in six states, including Tamil Nadu and Maharashtra, this year and the system will be extended all over the country later. It is known that the present system of subsidies is inefficient and, more often than not, the intended beneficiaries do not gain and the undeserving take advantage of them. Ways to improve the system have long been discussed and now there is an opportunity to try a method based on technology and management.

The proposed system envisages direct cash transfers to the targetted sections of population instead of sale of subsidised goods to them. In the case of kerosene, LPG and fertilizers there are two prices at present -- the actual price and the subsidised price. But in the new system there will be only one open market price.

The beneficiaries of subsidies will buy the goods from the market and get the subsidy transferred to their bank accounts from the government. The system can eliminate diversion and misuse of subsidised items. Kerosene is used for adulteration of diesel, domestic LPG is diverted for commercial use and manufacturers and rich farmers benefit more from fertilizer subsidy than poor farmers.

Middlemen can be eliminated if safe and proper arrangements are made for adequate supply of the needed items and for reaching the subsidy amount to the right persons. The government will be able to considerably reduce the subsidy amount on these items from the present Rs 80,000 crore and ensure that the subsidy reaches the really needy. The UID number will form an important tool for cash transfer and it is likely to prevent impersonation and fictitious claims.

But technology and management can go only to an extent. The major task of identifying the beneficiaries will still be left with the government machinery. Those who have vested interests in the existing system will try to scuttle the new proposal. Powerful persons can connive with officials to claim eligibility for subsidies or to open accounts in the names of poor people. But the malpractices can be reduced and eliminated once the system gets going.
(Source: Deccan Herald, 11 July, 2011)