STRAIGHT DRIVE
THE GOVERNMENT PLANS TO REPLACE ITS SUBSIDY MECHANISM WITH COUPONS/CASH DELIVERED DIRECTLY TO POOR HOUSEHOLDS.
WIDE SUPPORT Delhi government is debating direct cash payments to poor households to buy kerosene from the market instead of selling heavily subsidised fuel The economic survey had also make a strong pitch for use of vouchers to deliver food and subsidy Economic Advisor to finance ministry Kaushik Basu is a strong proponent of the system
How will direct transfers of subsidy help Ensures targeted delivery of subsidy Prevents leakage and cornereing Better management of subsidy can bring down government’s bill Allows market forces to dictate prices and thereby discourages wasteful consumption
How does direct transfer work Instead of asking beneficiaries to buy subsidies stuff from dedicated shops they are given coupons These coupons can be used by households for open mkt purchases A number of private companies have forged tie-ups with private providers of food coupons to incentivise their employees These food coupons recognised at merchant establishments can be used by the employees to buy groceries or at restaurants The same principle can be applied in the case of fertiliser and kerosene
Pitfalls of direct transfers Could be sold off by the recipient at a discount The coupons could as easily reach those who do not need the subsidy Could beused by recipients to buy other things than food
INTERNATIONAL EXPERIENCE The United States passed a legislation on food stamps in 1977 The system of direct transfers in now implemented through electronic debit and ATM card system accepted at most grocery stores The card gets topped with cash subsidy at the beginning of every month which can be used for making payments Caters to over 35 million people very month African nation Malawi has introduced a large-scale input subsidy programme using vouchers UAE has a experimented successfully with books coupons for children
INDIAN EXPERIENCE Andhra Pradesh has issued ration cards with bar coded coupons for buying rice and kerosene Jammu & Kashmir has issued ration card booklets with 24 months for buying provisions Bihar has provided monthly food coupons for wheat & rice to BPL families
If some people sell off the coupons, don't try to set up an elaborate bureaucratic machinery to stop this. Even if the coupon gets sold, someone somewhere will use that to buy food and the poor household that sold it off at least got money in exchange KAUSHIK BASU, C H I E F E C O N O M I C A D V I S O R
