The economic survey has hinted at the government’s intention of subsidy overhaul by replacing the present price mechanism with cash transfer into bank accounts, saying it was possible through JAM (Jan Dhan Yojana, Aadhaar, Mobile) Number Trinity.
“If the JAM Number Trinity can be seamlessly linked, and all subsidies rolled into one or a few monthly transfers, real progress in terms of direct income support to the poor may finally be possible,” the economic survey said.
It added that phasing out subsidies was neither feasible nor desirable unless a cushion was provided to the poor and vulnerable to achieve their economic aspirations.
In the same vein, the survey described price subsidies as ‘regressive’ as they do not benefit the poor and talked of keeping the fiscal deficit at 3% of the GDP.
It also gave a detailed explanation that the present subsidy on foodgrains and kerosene was leading to huge leakages with figures as high as 41% for kerosene and 54% for wheat.
The state-wise breakup of leakage shows that in Manipur and Nagaland, all the subsidised foodgrain is sold in the black market.
The survey made a strong case for discontinuing the present price-based food subsidy, especially for above poverty line families (APL), on the grounds that the leakages were higher in APL category in case of food distributed to below poverty line families.
Terming cash transfer as an effective way of curbing leakages, the survey lauded the government’s decision to convert all subsidies into direct benefit transfers and said the state capacity to implement the direct transfers to replace subsidies will take time but cautioned against slowing down in this key reform.
Recent experimental evidence documents that unconditional cash transfers — if targeted well — can boost household consumption and asset ownership and reduce food security problems for the ultra-poor, the survey said.
It also provided data on new bank accounts opened under the Jan Dhan Yojana, Aadhaar numbers generated and mobile connections to state effective cash transfer was now possible and should be pushed all the way for economic empowerment of the poor.
Describing JAM Number Trinity (read cash transfer) as Nirvana for the poor, the survey said the poor will be protected and provided for; and many prices in India will be liberated (market driven) to perform their role of efficiently allocating resources in the economy and boosting growth in the long run.
The finance ministry had set June 2015 as the deadline to roll out cash transfer for all entitlements and subsidy in all schemes by when all eligible Indian residents will have a bio-metric based unique identification number called Aadhaar.