Direct subsidies to counter leakage?

“We are working on a scheme under which cash subsidy will be provided to all BPL families if they switch over from using kerosene as fuel to LPG,” officials in Food and Civil Supplies department said. They said the government may extend a cash subsidy of Rs. 250 to each BPL family per LPG cylinder against its market price of Rs. 310, besides providing the gas stove free of cost.

The Delhi government’s plans to introduce direct subsidies to poor families – mainly with an eye on reducing leakages in the system. The UID will no doubt be critical to the introduction of this scheme. The UID has already been declared an acceptable identity proof for new bank accounts and mobile phone subscriptions. But will the UID alone help to identify the poor? How will it plug leakage on its own in a corrupt system if vendors seek bribes to give-out what customers are entitled to. But at least, by handing money out to the people, it puts the power in their hands. With complementary programmes that promote accountability, the corrupt system could be challenged.

Jayati Ghosh reminds readers that cash transfers cannot stand on their own – to be effective, they require social sector spending by governments in complementary sectors

…In Brazil, for example, Bolsa Familia can be based on minimum school attendance only because there are enough public (and free) schools of reasonable quality that children of poor households can attend, which in turn means prior and continuing public investment in quality schooling and teacher education. Similarly, providing small amounts of cash to allow people to visit local private quacks will hardly compensate for the absence of a reasonably well-funded public health system that provides access to preventive and curative services. Cash transfers are less effective in periods of rising prices of essential goods…

If cash transfers are introduced along with a mass privatisation of goods and services, it might create a market for these goods, but will not protect the poor from price fluctuations. Ghosh points to the deregulated price of fuel as an example – can cash hand-outs are pegged to one or many price indices and revised from time to time to take care of these inequities?…interesting times ahead!  


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