Finance minister P Chidambaram has said that he hopes to achieve 20-60 per cent savings on subsidies annually by trying to better the distribution network under the direct benefit transfer (DBT) scheme, a project that has attracted a lot of attention lately. The government expects to roll out the DBT scheme, currently under a pilot run in 20 districts across the country, completely by end-2013. The DBT scheme is a flagship scheme of the current government by which cash is directly transacted to bank accounts of people, mainly the poor who are under various payrolls of the government be it for scholarship, ration subsidies, pensions or beneficiaries from its various welfare schemes. Chidambaram’s hopes are largely based upon the results of the ongoing pilot project and is nonetheless welcome. It will indeed make sound economic logic if the government is able to make 20-60 per cent savings on subsidies. With a new era of reform having been ushered by the government through market linked fuel pricing, de-subsidising of LPG prices, FDI in retail and other decisions and enactments, the government is clearly no concentrating on how to leverage the increase in prices with its welfare schemes. And the DBT links it the most directly. For this is the new age subsidy initiative of the government which is now slowly moving away from subsidising products of bulk usage, like petrol or diesel and concentrating on target-specific subsidies like welfare schemes and pensions etc. This will help the government, as announced, achieve heavy benefits in its savings on subsidies and give a boost to its efforts in lowering fiscal deficit. On the other hand, with target-specific, location-specific and demography-specific subsidies, the government will hope to balance out the reform-induced price rise with electorally gainworthy welfare schemes.
But it is to be noted that any effort leverage subsidy with growth without hurting the poor badly is to be welcome and it is in that spirit that the FM’s hopes, we hope, will be met. No one is arguing for a welfare country which has to borrow money to keep its welfare schemes going. Instead, if there are intelligent policies to help the government achieve fiscal consolidation while not entirely compromising on its welfare role, those should be welcomed with every care. But any achievement of this scale depends largely on the infallibility of the plan and Chidambaram clearly has his talk cut out if he wants to achieve what he has said and then head towards a ‘responsible’ budget, as he has already hinted.