Survey says the price subsidies have formed an important part of anti-poverty policies in India, but have not transformed the lives of the poor Sayantan Bera
New Delhi: The Economic Survey released on Friday made a strong pitch for cutting back of price subsidies by using technology as a means to plug leakages and said direct cash transfers, if targeted well, are capable of boosting household consumption, asset ownership and reduce food security problems of ultra-poor households. Price subsidies have formed an important part of anti-poverty policies in India, but have not transformed the lives of the poor and such policies may not be the best weapon in the fight against poverty, the survey said. Eliminating or phasing down subsidies is neither feasible nor desirable, the survey observed, adding, “the JAM number trinity—Jan Dhan Yojana, Aadhaar and mobile numbers—allows the state to offer this support to poor households in a targeted and less distortive way.” Jan Dhan Yojana is aimed at ensuring that every household in the country has a bank account and Aadhaar is the unique identity number the government wants every resident of the country to possess. Presently, central and state governments offer a host of price subsidies, including on rice, wheat, pulses, sugar, kerosene, cooking gas, water, electricity and fertilizer. The survey estimated the fiscal cost of these subsidies at Rs.3.78 trillion, or 4.24% of gross domestic product (GDP), and said price subsidies are regressive, meaning richer households benefit more than poorer households. About 15% of rice, 54% of wheat and 48% of sugar distributed under the public distribution system (PDS) is lost, the survey calculated. It said fertilizer subsidies benefit manufacturers the most, not poor farmers. Price subsidies also distort markets in ways that ultimately hurt the poor, the survey said, adding minimum support prices (MSP) contribute to food price inflation and leads to water-intensive cultivation. Making a case for cash transfers, the Economic Survey said, “The stance of trying to rationalize subsidies should not be seen as a strike against the poor.” “Converting all subsidies into direct benefit transfers is a laudable goal of government policy,” it said. The Economic Survey further proposed delivery mechanisms on the JAM platform, using mobile money and post offices to transfer subsidies. The JAM number trinity solution could help the objective of “wiping every tear from every eye” the survey observed, by providing for the poor and liberating prices to perform their role in economic efficiency.