Cash subsidies are worth a try, but can’t replace need for propriety
Nov 25 2012, 2123
An unknown animal is about to be unleashed by the government on the economy about whom the only two things known with certainty are its speed and the trail it leaves behind, somewhat akin to the cheetah, the fastest sprinter on planet, that also leaves behind identifiable footprints. What is unknown about this animal, however, is whether it will target its intended prey or end up eating the wrong one. The government is ready with its direct cash transfers scheme for managing various subsidies under different welfare heads. To be implemented in phases, both with respect to the type of subsidy and the coverage of districts, with effect from the first day of the new year, the cash transfer scheme is aimed at reducing the debilitating diversion of subsidies from intended beneficiaries to untargeted greedy intermediaries. There is no disputing the good purpose. The government has even chosen a sound technological tool by way of electronic transfer of subsidy amounts to bank accounts of beneficiaries. But there can be no shortcuts to this aim. Those in charge of steering and administering the new scheme will still be expected to be scrupulous and honest in order to eliminate fraud in transfers. Those responsible for providing necessary inputs to the scheme, such as identification of intended beneficiaries and collating their data, including bank account numbers, will still have to do an accurate job, without which any deliberate or systemic inefficiency can still have the same effect of subsidy misuse as with the current regime. Sure, an audit trail will be available in the electronic transfer mechanism and it will be easier to track and investigate allegations of continued misuse later. But there were also elaborate laid-out procedures along with several checks and balances in the current in-kind subsidy system that were skilfully manipulated by pilferers. In other words, if the government is thinking it can ensure zero leakages through the implementation of cash subsidies, then it is being shortsighted. Effective monitoring mechanisms are required for the new scheme to be effective and actually put into use. That begs the question if the government really has the administrative and political will and wherewithal to seriously stop diversion of subsidies, what with some of the diversions ending up in the coffers of political parties? Nevertheless, a case exists for trying out the cash transfer scheme to figure out if the new deal is better than the old regime, at least in parts. More importantly, the dual pricing that exists in certain commodities, as with fertilisers in the current regime, is undesirable given the temptations it poses to manipulators. It is aptly stated by the government’s June 2011 interim report on direct transfer of subsidies on kerosene, LPG and fertiliser that “ensuring that goods move in the supply chain at market prices can minimise the incentives for diversion.” Incidentally, these three products will be in the first phase of the new cash subsidy regime. Cash subsidies will also help in curbing questionable concessions, where there is no illegitimate diversion, as with diesel that gobbles up a big chunk of the subsidy bill. Direct cash transfer to farmers and transporters of essential goods will mean market-driven diesel prices that should be welcomed by one and all. But how soon will the government move to bring that under the cash subsidy regime remains to be seen.