Subsidies: Trapping people in a golden cage

The Government has decided to link all subsidy schemes to one Aadhar number. All subsidies such as those paid for food, LPG, MNREGA, and fertilisers will be transferred directly into the bank account linked with the Aadhar number of the beneficiary.

Already a number of schemes have been linked with Aadhar. This has led to huge savings. The LPG subsidy bill has been reduced by Rs 12,000 crore. The kerosene subsidy bill is expected to be cut by Rs 25,000 crore. Large amounts of leakages in MNREGA have been prevented. The implementation of Direct Benefit Transfer (DBT), therefore, is entirely welcome.

There is a need to think further ahead, however. The DBT was the brainchild of the UPA, which believed in keeping the people trapped in a golden cage. The strategy was to keep the people poor but remove extreme poverty. Make them dependent on the largesse of the Government so that they stand with folded hands before the politicians and do not question their policies. Keeping large numbers in poverty enabled the politicians to continue to make promises of poverty alleviation and secure their votes. There would be no occasion to implement MNREGA if the people got well-paid jobs in the market.

Our indigenous idea of welfare is fundamentally different. Gurudev Rabindranath Tagore explained this in the following words: “Today the thoughts of the Bengali people have been separated from the villages. Today the responsibility of providing water is that of the government. The burden of health provision is upon the government. For learning also, one has to knock at the door of the government. The tree that flowered itself today begs the sky for a rain of flowers with its naked branches.” Gandhi gave the same message when he said that give the naked work, not cloth. The learning from these great persons is that the job of the government is to provide infrastructure, law and order, and such enabling economic policies that lead to increased incomes in the hands of the poor. The people could then manage their affairs themselves. They could pay the fees of Rs 1000 per month of the nearby English medium school without having to beg before the Government officials. However, the objective of the UPA Government was to promote the interests of bureaucracy. Hence, such policies were implemented that killed the initiative of the society and ensured that the people ever looked towards the Government for welfare.

It is self-evident that DBT does empower the people. It does not create jobs or incomes. It only leads to an increase in consumption, which is important but inadequate. No wonder a study by the Asian Development Bank found that food subsidies in India have resulted in an insignificant reduction in the poverty. It also found that 70 percent of the beneficiaries of these welfare schemes were non-poor. These problems are not solved in DBT. Indeed, there is less bureaucracy and corruption but the basic problem of the people begging for welfare benefits remains unattended. It is like the fever of the patient coming down from 102 to 100 degrees but the patient remaining sick. The need today is to cure the disease.

There are four levels at which poverty can be addressed. The lowest level that was followed in the past was to provide Administrative Subsidies through the administrative machinery such as kerosene and food subsidies through PDS, employment subsidy through MNREGA; fertiliser subsides to manufacturing companies and diesel subsidy through public sector oil companies. The businesspersons and bureaucracy mostly pocketed these subsidies. The fertiliser subsidies supported inefficient production by businesspersons and the food subsidies supported corruption by officials of the Food Corporation of India. The UPA Government took the first steps to move away from these and institute a system of DBT. This was a welcome step.

The DBT approach is being pushed ahead by the NDA Government. This too is welcome. However, the stranglehold of bureaucracy on the system remains. For example, the Below Poverty Line lists will continue to be made by the Patwari.

The third level is to shift from sector specific subsidies to comprehensive entitlements. Every family can be given a lump sum amount every month. The family may use the money for meeting its requirements of education, health, food or other. A back of the envelope calculation indicates that an amount of Rs 2,500 per month can be provided to each family in the country from the monies being spent by the Union Government alone on welfare schemes. An amount of about Rs 5,000 per month can be provided if the welfare expenditures being incurred by the State Government are also paid in cash. Such a payment would empower the people. They could pay fees of the child in an English medium school, for example, instead of buying kerosene.

The fourth and highest level of welfare programme is to implement economic policies that lead to generation of employment. For example, all production of cloth for domestic consumption could be made from handlooms. This would lead to a huge demand for labour. The increased demand would lead to higher wages and there would remain no need to provide any subsidy whatsoever.

The NDA Government should be congratulated for continuing to push the DBT system. However, the need was to graduate from DBT to comprehensive entitlements and employment programs.

Counterargument against this suggestion is that the beneficiaries will misuse cash subsidies. A hungry family may buy a TV instead of vegetables. However, such misuse of subsidies is possible in DBT as well. More importantly, this argument is highly derogative of the people. It assumes that people do not know where their own welfare lies. The Government must determine whether the family will eat wheat or rice.

Subsidies are justified only for specific purposes and for a short time. It is justified to provide subsidies on iodised salt and polio drops so that the unaware households are encouraged to adopt these methods. All other subsidies must be dismantled wholly and the entire money saved should be transferred to the bank accounts of the families. Time has come to dismantle the welfare bureaucracy that makes money in keeping the people in golden cages perpetually.

Author was formerly Professor of Economics at IIM Bengaluru

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