Sun, Oct 28, 2012 - Page 14 News List

India’s poor split on new cash-in-hand welfare programs

New Delhi’s experiments in replacing subsidies with cash handouts are part of its grand scheme to maximize efficiency in the distribution of its US$61 billion welfare budget

By Adam Plowright  /  AFP, BUDHI BAWAL, India

Yet a welfare shake-up is politically risky and fraught with danger in a country where an estimated 42 percent of children under five are malnourished.

The Indian Public Distribution System is the biggest such scheme in the world, providing subsidized kerosene, wheat and rice to up to one-quarter of all households from rundown shops of the sort seen in Budhi Bawal.

It is also staggeringly inefficient. An estimated 58 percent of grains purchased by the Indian government fail to meet their intended targets, data from the Indian Planning Commission showed in 2005.

However, the results in Kotkasim are described by the top local administrator, Alwar District Collector Ashutosh Pednekar, as “remarkable.”

Figures from his office show kerosene consumption has fallen 82 percent since the cash scheme began, a saving for the government of 1.5 million rupees (US$30,000) per month.

Before, crooked dealers would siphon off subsidized kerosene at 15 rupees a liter and sell it on the black market for around 30 rupees, where it was purchased as a cheap replacement for diesel to run tractors or generators.

Those entitled to discounted fuel also had an incentive to draw their full allotment — up to three liters per month — and then sell it on at a profit.

“The diversion of kerosene for purposes other than cooking and lighting has been stopped,” Pednekar told reporters.

“The moment you start selling kerosene at a market price, the business collapses for those with a business in ‘leakages,’” the 34-year-old added.

Under the next phase of his plan, the sale of subsidized cooking gas cylinders will be phased out in Kotkasim.

In five months, the whole of Pednekar’s Alwar District, home to 3.7 million people, will move over to the cash transfer system for kerosene.

While he conceded people were “not going gaga” over the cash system, “by now, there would have been a hue and cry” if they had not received the money.

In the dusty villages of the trial area, foreign media spoke to households who said the cash had indeed arrived promptly.

However, there was also anger and confusion.

Some complained of surly bank officials who refused to help them; others said repeated complaints had come to naught; many said they had either stopped buying kerosene altogether or were now paying the higher price from their own pockets.

John Blomquist, an economist from the World Bank in New Delhi and expert on welfare programs, says cash transfers can be an effective strategy to cut fuel and power subsidies.

“As countries get more developed, you tend to see fewer in-kind benefits,” such as subsidized fuel, he told reporters. “You can design a great cash transfer system, but it’s really about do you have the mechanism in place to implement well? Can you monitor well?”

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