In May 2010, Panchkula in Haryana became one of the first districts in the country to provide direct cash transfers to below-poverty-line families instead of foodgrains under the targeted public distribution system (TPDS).
Considering the good response to the pilot, the central government has decided to expand the scope of direct cash transfers to the poor for cooking gas, kerosene and fertilisers, the subsidy for which accounted for more than R74,000 crore in the Budget of 2010-11. Add the food subsidy, and the subsidy bill works out to more than R1,25,000 crore or 2% of gross domestic product.
On Monday, the finance ministry appointed a task force headed by Nandan Nilekani, chairperson of the Unique Identification Authority of India (UIDAI), also known as Aadhaar Authority, to design information technology systems and align those with the issuing UID numbers for direct transfers of money to beneficiaries.
“It is possible…we need to have systems in place for it,” Nilekani said. In the next four months, the task force will recommend to the government the road map and administrative changes required to ensure that by end of 2011 the pilots are implemented. “The unique number will help in ensuring the real beneficiaries get the money,” he told Bihar chief minister Nitish Kumar, asking him to take a lead in providing UID safety to social sector schemes.
The aims of direct cash transfers are two — to plug the leakages and reduce the government’s increasing subsidy burden. A study by the National Council of Applied Economic Research said 35% of kerosene in the PDS is diverted and half of it is used for adulterating diesel.
And, finance minister Pranab Mukerjee made his intention to reduce the subsidy burden clear when he said: “There is a need to focus on further measures and means to cap this expenditure to create further fiscal space for increased investment in physical and social infrastructure.” In the long run, experts say, it will restrict the government subsidy burden to
1.5-2% of GDP.
One way of doing it is to provide subsidy only to the poor. The first steps in this direction have been taken. The petroleum minister in 2010 launched a pilot project for purchasing kerosene using smart cards through the PDS in Pune, Bangalore and Hyderabad.
The Centre had also introduced pilots to give fertiliser subsidy based on nutritional levels of the soil to discourage high fertiliser consumption. “It will be impossible to implement direct cash transfer unless comprehensive land reforms are undertaken. However, I welcome the task force aimed at looking at alternatives,” said Biraj Patnaik, advisor to the food commissioner of the Supreme Court.
However, the government has not included food in the terms of reference of the task force because the Sonia Gandhi-headed National Advisory Council opposed the idea. The Planning Commission in 2005 estimated 46% foodgrains leakages in the public distribution system, which has been found to be minimal in Panchkula and Jhajjar, where direct cast transfer has been introduced.