Subsidy schemes could delay direct cash transfer plan

Written by Banikinkar Pattanayak | New Delhi | Updated: Dec 2 2012, 04:19am hrs
The massive scale and complexity of major subsidy schemes are likely to delay the ambitious plan of limiting state subsidy on food, fertiliser and petroleum products only to the poor by directly transferring cash to their bank accounts using a unique identity number (Aadhaar).

While other cash payments like pension, scholarship, wage under rural job guarantee scheme can be transferred directly to the beneficiarys bank account, it is difficult to integrate these major subsidies.

Going by the government assurances, direct cash transfer of subsidies on food, fertiliser and petroleum products will only become a reality in the second phase of the subsidy targeting programme, scheduled to begin in April next year. The government will roll out the targeted payment scheme for social welfare from January 1, which economists say is less beneficial to the cause of addressing the budget deficits considering the massive payments on three major subsidies. As per budget figures, food, fertiliser and petroleum account for 94% of the central governments total subsidy outgo. That raises serious questions about the efficiency of the direct payment of subsidy under Aadhar the way it would be implemented from January 1.

Direct cash transfers related to the ministries of justice and empowerment, human resource development, minority affairs, women and child development, health and family and labour and employment will begin from January 1, 2013.

Food is a controversial subject. There is no clarity on the food Bill. Even market availability is a problem in rural areas. As far as fertilisers are concerned, it is a complicated subsidy and the producer subsidy goes to at least 20 companies, said an official from UIDAI, the agency that has developed the Aadhaar platform.

At present, the government operates about 42 schemes of which 29 would be covered in the first phase.

The direct subsidy transfer in the food and fertiliser sectors will be rolled out later, mainly due to huge scale of the subsidy involved. While direct transfer remains the goal, the first stage of implementation of the programme would provide fresh insights and valuable experience on how to do it in the food sector successfully, said a senior government official.

Another official denied the observation that uncertainty over implementation of the food security Bill has delayed direct food subsidy transfer plans, saying the Bill may add just around R20,000 crore a year and would represent a smaller chunk of the overall subsidy burden.

The governments food subsidy bill rose 14% to R72,823 crore in the financial year through March, while the budget estimate for the last fiscal was R60,572.98 crore. Although the government has budgeted food subsidy at R75,000 crore for 2012-13, sources say the burden could hit a record R1,00,000 crore, thanks to a 16% hike in the procurement price of paddy.

The Bill aims to provide legal entitlement for subsidised grain to 63.5% of the countrys population. Provisional estimates suggest the government needs as much as 63 million tonne of grain to implement the Bill, nearly eight million tonne higher than the current requirement.

Similarly, the countrys fertiliser subsidy shot up 22% to R67,199 crore in 2011-12, while the budgeted allocation for last fiscal was only R49,998 crore. The government has again estimated R60,974 crore for 2012-13, although industry executives feel the final subsidy burden would exceed the allocation.