To cut subsidy bill, govt plans cash transfers

The success of pilot studies in three states has given the Centre hope to switch over to cash transfer of subsidies by 2017 with an aim to improve the efficiency of its fiscal consolidation and welfare schemes.Chetan Chauhan reports. Cashing on

The success of pilot studies in three states has given the Centre hope to completely switch over to cash transfer of subsidies to millions of beneficiaries by 2017 with an aim to improve the efficiency of its welfare schemes and fiscal consolidation.

Prime-Minister-Manmohan-Singh-flanked-by-Deputy-Chairman-of-Planning-Commission-Montek-Singh-Ahluwalia-and-Union-Minister-for-Agriculture-Sharad-Pawar-chairs-the-Full-Planning-Commission-Meeting-for-the-Twelfth-Five-Year-Plan-2012-17-in-New-Delhi-PTI-photo-Shahbaz-Khan

Cash transfers hold the key to the government’s aim of reducing its subsidy burden to 1.5% of the GDP by 2017 from 2.08% of GDP (Rs. 2,33,000 crore) in 2011-12. In the current financial year, its social sector budget is around Rs. 5,41,000 crore.

"Subsidies can increase in absolute terms as the GDP grows, but they must be reduced as a percentage of the GDP. It is possible to do so without hurting the poor," said the 12th plan document being circulated for the Cabinet’s approval.

Planning Commission deputy chairperson Montek Singh Ahluwalia told HT on Sunday a shift to cash transfers linked to Aadhaar numbers is designed to “reduce the scope” of leakages and “empower the beneficiaries”.

“The efficiency gain and reduction in leakage will also help reduce the deficit but that is a secondary objective,” he said.

Studies on direct cash transfers conducted in Delhi, Karnataka and Jharkhand showed better use of subsidies by the beneficiaries in terms of the products and services they buy with it.

In Delhi, the beneficiaries not only bought wheat and rice — normal PDS items — but also other products, such as vegetables and eggs, through the subsidy money they got in their bank accounts.

In Jharkhand, the beneficiaries, for the first time, got their MGNREGA wages and PDS subsidy at their doorsteps. “They felt empowered. Cash transfer helped many people get a bank account,” said RS Sharma, director general, Unique Identification Authority of India (UIDAI).

Buoyed by the success, the finance ministry has asked the plan panel to make UIDAI an integral part of all schemes where people are getting direct benefit from the government.

“Eventually the common man will benefit," Ahluwalia said.