Description
It would be wiser for the state governments & their leaderships to choose working out their own growth as well as subsidy distribution models in the face of challenges which are forcing governments to innovate and reach out to masses. Remodeling of services is an arena which allows leadership to build reformist image and improve social outreach as well offer support to society to improve productivity and efficiencies that result in economic growth.
The Politics of Subsidies: Challenges to Government
By; Amit Bhushan Date: 1
th
!ul
1
"ne of the biggest challenges faced by any government either at a
state or center #hich is $een to %ush gro#th oriented economics
es%ecially #hen they begin to clash #ith the Subsidy Bill& Challenge is
if you t#ea$ subsidy bill' %o%ulist %olitics begins to hound #hile on the
other side' the demand for gro#th continues to haunts #ith s%ecter of
a sure shot defeat unless a signi(cant thrust is im%arted to a )ammed
engine& The government is caught in a tussle bet#een legacy and ne#
thin$ing' and #here the ne# thin$ing is normally %ushed to a bac$ seat
due to huge de%endencies on e*isting system that been develo%ed
over the years; these de%endencies seems almost irre%laceable
#ithout signi(cant %olitical costs being %aid& Any %arty in government
has to consider both the as%ects as u%setting any #ill cause trouble to
bre# for the %arty&
+hat generally is not discussed are macro measure that can be ta$en
to im%rove e,ciency of the distribution of subsidies and its li$ely
im%act on either savings or on %ublic satisfaction achieved through
subsidy distribution& To be fair to the %revious government it did
initiate AAD-A.' in an event to im%rove subsidy distribution but #hat
it could only achieve is a huge bill for distribution of /0Cards #ith very
little real gains& +hile the current government had initially indicated
that it may not bac$ AAD-A. #ith the same gusto' ho#ever #hat its
current stand and its li$ely im%act' is no# an area of focus&
There can be several %ossible macro measures on ho# ma)or subsidies
are administered and if the model is changed' there can be %otential
savings or im%rovement in satisfaction or outcomes& This is not roc$et
science ho#ever the challenge is to overcome bureaucratic inertia
around the system since the bureaucrats are rarely interested in
changing status 1uo unless it results in an increase in their s%an of
in2uence 3 control& Also' targeting an im%rovement in satisfaction of
the end consumer re1uires tightening the belt of the entire chain of
command' something that has %otential to ru4e feathers of fello#
bureaucrats as #ell as of %oliticians 3 service %roviders5vendors& This
is a %otential mine(eld for the bureaucrat to ste% into and has
%otential to result into several %roblems over the long term even if the
current government may be su%%ortive of the move& Also' there has
been layers of center and state bureaucracy that has been develo%ed
for admin and distribution of the subsidies and therefore a %ush from
center or any state initiative alone cannot #or$ on standalone basis;
unless of course #here center agrees to bac$ the subsidy t#ea$ing
initiatives by state governments&
Current subsidy distribution model for ma)or subsidy items at center
level are on 6ertili7ers' Coo$ing5Trans%ortation fuels 89erosene 3
G;
and 6ood& There are other areas li$e central +ater resources including
irrigation %ro)ects management' Central <ducation /nstitutions 3 %ublic
services li$e hos%itals managements #hich are also subsidi7ed for
bene(ciaries but are not recorded and %resented as subsidies& =uite a
burden remains on central boo$s as salaries to em%loyees and non0
ca%ital e*%enditure& "ne of the e*ercises that need to be underta$en is
to measure the e*act 1uantum and form of subsidy distribution by
government; so that e>orts can be made to im%rove e,ciency of the
subsidy distribution system&
+ith regards to declared subsidies of 6ertili7er' 6ood and
Coo$ing5Trans%ortation 6uels; the subsidy is administered as a
negative ta* #hile being distributed& This is so because' one can buy
fertili7ers at noti(ed %rice inclusive of subsidy #hile the fertili7er
com%any is su%%osed to collect subsidy from government& The same
stands for food #hich one buys from .ation sho%' the .ation sho%
agent receives subsidi7ed food from state #hich in turns buys
subsidi7ed %roducts from center& Coo$ing and Trans%ortation fuels are
administered in the same #ay& /n other #ords' there is no incentive to
save 6ertili7er' reduce 6ood consum%tion by curbing #astage or saving
Coo$ing5Trans%ortation fuels because your investment on this count
results in reduction of subsidies so gains goes to government #hile
investment in say a high e,ciency generator or energy saving
illumination is to be %aid from %oc$et& Similarly' there is little incentive
for setting u% a bio0fertili7er %lant or researching on lo# fertili7er
consuming %lant varieties because customers may not be #illing to
%ay any e*tra amount or #ill re1uire convincing to try ne# seed
varieties&
Similarly for state government' #e have distribution of education and
healthcare #here subsidy bill goes though much of it in name of salary
and %er$s& +e have huge declared and often undeclared subsidy for
electricity #here undeclared subsidy is Theft or under recovery& State
subsidy for drin$ing and irrigation #ater' sanitation etc& remain as not
so clearly recorded subsidy %rograms&
+hile on one hand #e are still develo%ing infra for Direct Bene(t
transfer so as #e t#ea$ the subsidy structure& /t may be #ise to allo#
states to run their o#n e*%eriments as #ell& The center should %erha%s
#or$ #ith some states to distribute subsidies through cou%ons or credit
cards& A %reset credit card or cou%on can be handed over to targeted
bene(ciary say head of a family and on %urchase of ration' the card
s#i%e should result in some government account be debited for
subsidy amount #ith balance to be %aid by the bene(ciary in cash& The
bene(ciary becomes free to buy from any sho% #hich gets him good
1uality food at a>ordable %rice therefore more em%o#ered5better
satis(ed& The system is forced to become more e,cient to meet the
demand& The DBT also intends to aim for the same e*ce%t that it
transfers money to the bene(ciary #ith several nutritionists crying that
it results in diversion rather than im%rovement of health outcome&
/t #ould be #iser for the state governments 3 their leadershi%s to
choose #or$ing out their o#n gro#th as #ell as subsidy distribution
models in the face of challenges #hich are forcing governments to
innovate and reach out to masses& .emodeling of services is an arena
#hich allo#s leadershi% to build reformist image and im%rove social
outreach as #ell o>er su%%ort to society to im%rove %roductivity and
e,ciencies that result in economic gro#th&
doc_557475923.doc
It would be wiser for the state governments & their leaderships to choose working out their own growth as well as subsidy distribution models in the face of challenges which are forcing governments to innovate and reach out to masses. Remodeling of services is an arena which allows leadership to build reformist image and improve social outreach as well offer support to society to improve productivity and efficiencies that result in economic growth.
The Politics of Subsidies: Challenges to Government
By; Amit Bhushan Date: 1
th
!ul
1
"ne of the biggest challenges faced by any government either at a
state or center #hich is $een to %ush gro#th oriented economics
es%ecially #hen they begin to clash #ith the Subsidy Bill& Challenge is
if you t#ea$ subsidy bill' %o%ulist %olitics begins to hound #hile on the
other side' the demand for gro#th continues to haunts #ith s%ecter of
a sure shot defeat unless a signi(cant thrust is im%arted to a )ammed
engine& The government is caught in a tussle bet#een legacy and ne#
thin$ing' and #here the ne# thin$ing is normally %ushed to a bac$ seat
due to huge de%endencies on e*isting system that been develo%ed
over the years; these de%endencies seems almost irre%laceable
#ithout signi(cant %olitical costs being %aid& Any %arty in government
has to consider both the as%ects as u%setting any #ill cause trouble to
bre# for the %arty&
+hat generally is not discussed are macro measure that can be ta$en
to im%rove e,ciency of the distribution of subsidies and its li$ely
im%act on either savings or on %ublic satisfaction achieved through
subsidy distribution& To be fair to the %revious government it did
initiate AAD-A.' in an event to im%rove subsidy distribution but #hat
it could only achieve is a huge bill for distribution of /0Cards #ith very
little real gains& +hile the current government had initially indicated
that it may not bac$ AAD-A. #ith the same gusto' ho#ever #hat its
current stand and its li$ely im%act' is no# an area of focus&
There can be several %ossible macro measures on ho# ma)or subsidies
are administered and if the model is changed' there can be %otential
savings or im%rovement in satisfaction or outcomes& This is not roc$et
science ho#ever the challenge is to overcome bureaucratic inertia
around the system since the bureaucrats are rarely interested in
changing status 1uo unless it results in an increase in their s%an of
in2uence 3 control& Also' targeting an im%rovement in satisfaction of
the end consumer re1uires tightening the belt of the entire chain of
command' something that has %otential to ru4e feathers of fello#
bureaucrats as #ell as of %oliticians 3 service %roviders5vendors& This
is a %otential mine(eld for the bureaucrat to ste% into and has
%otential to result into several %roblems over the long term even if the
current government may be su%%ortive of the move& Also' there has
been layers of center and state bureaucracy that has been develo%ed
for admin and distribution of the subsidies and therefore a %ush from
center or any state initiative alone cannot #or$ on standalone basis;
unless of course #here center agrees to bac$ the subsidy t#ea$ing
initiatives by state governments&
Current subsidy distribution model for ma)or subsidy items at center
level are on 6ertili7ers' Coo$ing5Trans%ortation fuels 89erosene 3
G;and 6ood& There are other areas li$e central +ater resources including
irrigation %ro)ects management' Central <ducation /nstitutions 3 %ublic
services li$e hos%itals managements #hich are also subsidi7ed for
bene(ciaries but are not recorded and %resented as subsidies& =uite a
burden remains on central boo$s as salaries to em%loyees and non0
ca%ital e*%enditure& "ne of the e*ercises that need to be underta$en is
to measure the e*act 1uantum and form of subsidy distribution by
government; so that e>orts can be made to im%rove e,ciency of the
subsidy distribution system&
+ith regards to declared subsidies of 6ertili7er' 6ood and
Coo$ing5Trans%ortation 6uels; the subsidy is administered as a
negative ta* #hile being distributed& This is so because' one can buy
fertili7ers at noti(ed %rice inclusive of subsidy #hile the fertili7er
com%any is su%%osed to collect subsidy from government& The same
stands for food #hich one buys from .ation sho%' the .ation sho%
agent receives subsidi7ed food from state #hich in turns buys
subsidi7ed %roducts from center& Coo$ing and Trans%ortation fuels are
administered in the same #ay& /n other #ords' there is no incentive to
save 6ertili7er' reduce 6ood consum%tion by curbing #astage or saving
Coo$ing5Trans%ortation fuels because your investment on this count
results in reduction of subsidies so gains goes to government #hile
investment in say a high e,ciency generator or energy saving
illumination is to be %aid from %oc$et& Similarly' there is little incentive
for setting u% a bio0fertili7er %lant or researching on lo# fertili7er
consuming %lant varieties because customers may not be #illing to
%ay any e*tra amount or #ill re1uire convincing to try ne# seed
varieties&
Similarly for state government' #e have distribution of education and
healthcare #here subsidy bill goes though much of it in name of salary
and %er$s& +e have huge declared and often undeclared subsidy for
electricity #here undeclared subsidy is Theft or under recovery& State
subsidy for drin$ing and irrigation #ater' sanitation etc& remain as not
so clearly recorded subsidy %rograms&
+hile on one hand #e are still develo%ing infra for Direct Bene(t
transfer so as #e t#ea$ the subsidy structure& /t may be #ise to allo#
states to run their o#n e*%eriments as #ell& The center should %erha%s
#or$ #ith some states to distribute subsidies through cou%ons or credit
cards& A %reset credit card or cou%on can be handed over to targeted
bene(ciary say head of a family and on %urchase of ration' the card
s#i%e should result in some government account be debited for
subsidy amount #ith balance to be %aid by the bene(ciary in cash& The
bene(ciary becomes free to buy from any sho% #hich gets him good
1uality food at a>ordable %rice therefore more em%o#ered5better
satis(ed& The system is forced to become more e,cient to meet the
demand& The DBT also intends to aim for the same e*ce%t that it
transfers money to the bene(ciary #ith several nutritionists crying that
it results in diversion rather than im%rovement of health outcome&
/t #ould be #iser for the state governments 3 their leadershi%s to
choose #or$ing out their o#n gro#th as #ell as subsidy distribution
models in the face of challenges #hich are forcing governments to
innovate and reach out to masses& .emodeling of services is an arena
#hich allo#s leadershi% to build reformist image and im%rove social
outreach as #ell o>er su%%ort to society to im%rove %roductivity and
e,ciencies that result in economic gro#th&
doc_557475923.doc