By: fe Bureau | New Delhi | February 28, 2015 1:03 am
Directly transferring welfare benefits to intended customers rather than artificially managing prices of farm products, fertilisers and utilities can not only protect the poor, but also make substantial cost savings and help long-term economic growth, points out the Economic Survey 2014-15.
The survey staunchly defends high public spending on welfare, but emphasises that price ceilings and minimum support prices on agricultural commodities are not the best way to protect the interests of the poor. The survey prepared by the chief economic adviser in the finance ministry Arvind Subramanian and team makes a strong case for further dovetailing the 12.5 crore bank accounts opened under the financial inclusion scheme, the 75 crore Aadhaar numbers of people and the 90 crore mobile phone numbers for a seamless and leakage-free transfer of benefits.
The government spends R3.78 lakh crore or 4.2% of the country’s gross domestic product on welfare. Technology-linked direct transfer of benefits will ensure the poor are provided for while liberating prices to perform their role of efficiently allocating resources and boosting long-run growth.
In fact, Aadhaar-linked direct benefit transfer in Andhra Pradesh has helped in making financial savings eight times the actual cost of implementing the national rural employment guarantee scheme there.
The survey highlighted how well-intended price subsidy schemes often work at cross-purposes on the ground.
This is particularly true in the case of passenger rail fare, which gets cross-subsidised from the high freight tariff that in turn discourages fertiliser companies from supplying in remote parts of the country as they are compensated for the state government-controlled fertiliser prices irrespective of its place of sale.
Besides the huge leakage in giving subsidy in the conventional way, a large part of the benefit actually goes to people who do not require it.
“Only 59% of subsidised kerosene allocated via the public distribution system is actually consumed by households, with the remainder lost to leakage, and only 46% of total consumption is by poor households,” the Economic Survey says.
Also, 15% of rice subsidy and 54% of wheat subsidy given through fair price shops go to people who would not mind a price increase in the commodity. Also, rich farmers who do not require subsidy, benefit from it significantly.
The survey points out that economic growth must be complemented with effective state-delivered programmes that raise the living standards of the most vulnerable in society.
To be successful, anti-poverty programmes must recognise that policies shape the incentives of individuals and firms, and also acknowledge the limited implementation capacity of the state to target and deliver public services to the poor.
Plug leakage
* The government spends R3.78 lakh crore or 4.2% of the country’s gross domestic product on welfare
* Survey makes strong case for further dovetailing Jan-Dhan Yojana bank accounts, Aadhaar numbers for a leakage-free transfer of benefits
* Only 59% of subsidised kerosene allocated via PDS is actually consumed by households, with the remainder lost to leakage, the survey claims
* The survey pointed out that economic growth must be complemented with effective state-delivered programmes
* The government spends R3.78 lakh crore or 4.2% of the country’s gross domestic product on welfare
* Survey makes strong case for further dovetailing Jan-Dhan Yojana bank accounts, Aadhaar numbers for a leakage-free transfer of benefits
* Only 59% of subsidised kerosene allocated via PDS is actually consumed by households, with the remainder lost to leakage, the survey claims
* The survey pointed out that economic growth must be complemented with effective state-delivered programmes