The Hindu Business Line : Staunching the subsidy bleed

Like the catch-phrase in a spin-a-yarn game, the subsidy burden has been echoing from public platforms of late; unlike the participants in the game, policymakers complaining about the cost to the exchequer of subsidies on food, oil and fertiliser — Rs 1 lakh crore this year or an average of Rs 5,000 for every family in the country — do not seem capable of developing the skimpy plot into a full-blown narrative with a decisive ending. Policymakers, from the Prime Minster to the Finance Minister, to the Planning Commission yet again offer hardly any clues as to what they intend to do about it.

At first glance, the Finance Minister’s dressing-down of the States at the National Development Council about leakages in the Public Distribution System appears a solution of sorts, but the States have had their knuckles rapped over the wastage any number of times. So, what is the policymaker going to do about staunching the haemorrhage that threatens social sector schemes for which the Budgets since 2005 have doubled allocations? One obvious way to reduce the burden is to simply abolish, or at least reduce, the quantum of subsidies across the board and let the market do the rest. But that is impossible, given income disparities and the high levels of poverty that justify subsidies for a large section. That leaves the government with the only solution that has been around as long as the problem — targeting the subsidies to make them equitably efficient. There are two aspects to this: one is to identify the needy on the basis of some criteria more inclusive than ‘Below the Poverty Line’ because the living standards of those just above the demarcation may not be vastly different from those below it. The second is to make sure that subsidised foodgrains, kerosene, cooking gas and fertilisers are available to the target groups.

Since ration cards no longer serve that purpose, one way to do so would be to create bank accounts for the targeted beneficiaries, from which the deposited subsidy can be withdrawn as and when needed. Indeed for some destitute families the amount transferred would be more than what they earn otherwise. The bank account has the added advantage of introducing the banker to the farmer or the worker as a better alternative to the usurious moneylender. Bank accounts for the identified recipients would work better than food or kerosene stamps in a vast country such as India, subject as the latter is to corruption, like the ration card. At the same time, the bank account would enable more inclusive banking, surely one of the government’s objectives for sustained growth. The problem of subsidies is reaching crisis point and demands novel solutions and more active commitment to change than is evident today.

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