VINSON KURIAN
Cash transfers can save costs, says economist
THIRUVANANTHAPURAM, DECEMBER 8:
Cash-scrapped Kerala is best placed to make ‘direct benefits’ from targeting its subsidies better. It may take a leaf out of the experience of Madhya Pradesh, says Jose Sebastian, faculty at the Gulati Institute of Finance and Taxation.
Aadhaar base
Yes, the reference is here to replicating the Centre’s Aadhaar-based Direct Benefit Transfer at the State level.
He referred to the experiment in Madhya Pradesh where two pilot schemes were conducted in which thousands of people in nine villages received a modest basic income every month in cash for 18 months.
The takeaway from here is that cash transfers will save money in administrative and other costs, and induces more positive economic and social outcomes than selective or targeted schemes.
In the local context, every paisa conserved in this manner gets added to the Kerala’s own resources or whatever left of it, says Sebastian. This is more like saying every unit of energy conserved gets actually saved.
Inexplicable scenario
And this is about the only way to reverse the inexplicable scenario in which subsidies have continued to flow to feed the pockets of the variously well-heeled and well-fed in the middle and upper-middle classes.
Any round of attempted mid-course corrections intended to raise scare resources through additional taxes and levies would now become meaningless unless this anomaly is set right, in the first place.
“Because Kerala cannot survive for long with its dangerous and unsustainable proclivity to borrow ₹1,000 crore every month to merely pay off salaries and pension,” Sebastian says.
But the State is also well-placed to attempt better targeting of the subsidies through direct benefits transfer. For one, Aadhaar penetration has reached almost 93 per cent of the state’s population.
This is a good base to start with. The next step would be to find out those who still do not have a bank account and get them to open one.
Decisive plunge
This done, there is no other conceivable bottleneck for the state to take the decisive plunge. The next crucial step is to divide the population into appropriate classes to target them for direct transfers.
Sebastian says the population could be divided into four classes, viz. those below poverty line, the lower middle-class, the upper middle class, and the upper class, for the purpose.
Differentiated levels of transfers could be arrived at – as in 85 per cent in the case of below poverty line, followed by 60- , 40- and 20 per cent in that order for others, as one goes level by level.
But Sebastian agreed that this is easier said than done since the very ground based on which this could be done – ration card entitlements - is itself flawed.
“If we can somehow get around this problem, the way will have been cleared for directing transfers where they should be going. This can prove to be decisive in the efforts at managing the state’s finances better,” he said.
(This article was published on December 8, 2014)
