FE Editorial : Anti-poverty vs anti-poor

The Financial Express, Feb 16, 2011
The report that the government plans to provide kerosene, cooking gas and fertiliser subsidy to the poor, through direct cash transfers on a pilot basis using the expertise of the Unique Identification Authority, before the end of the current year is good news. Not only does the move signal the acceptance of the fact that the existing subsidy regime has failed but it also opens the doors to extending the cash transfer scheme to other anti-poverty programmes, including food subsidies. Success of the pilot programme will substantially increase the size of direct cash transfers to around Rs 90,000 crore, as the fertiliser subsidy in the last Budget alone was around Rs 50,000 crore while the kerosene and LPG subsides will add up another Rs 30,000 to Rs 40,000 crore. And the potential is much larger, as experts Devesh Kapur, Partha Mukhopadhyay and Arvind Subramanian have estimated that the direct transfer of total food, fertiliser and fuel subsidies, and central sector schemes—amounting to Rs 1,80,000 crore in 2007-08—to the 310 million BPL population spread across 70 million households will ensure that each family gets a monthly transfer of Rs 2,140, which is more than the poverty line income for rural households in that year. In fact, the study even noted that direct cash transfer of the food subsidies incurred on the PDS alone will ensure a monthly income of more than Rs 500 per poor household and will allow them to buy 35 kg of rice or wheat even at the then prevailing high market prices. So, a direct cash transfer scheme will finally put an end to the tragedy of the current anti-poverty schemes, where the expenditure incurred in the name of the poor alone is enough to remove income poverty.

While direct cash transfers are certainly superior to the current subsidy regime, which has far outlived its usefulness by many decades, it should be remembered that such cash transfers are no silver bullets for eradicating poverty. Experts have time and again pointed out that the success of direct cash transfers will primarily depend on the ability to push through transparent targeting criteria, building a robust delivery mechanism, and ensuring transparency about people’s entitlements. Hopefully, the UID expertise will take care of such issues. Given how the anti-poverty expenditure is far greater than what India needs to eliminate poverty, a well-designed UID-driven cash transfer scheme can be a real game-changer. Since it will affect voting patterns in a big way, it is obvious the government will put its best into it.