Prime minister, N Modi was romped to the seat of power on the promise of fulfilling the aspirations of 1.25 billion people of India. Those aspirations include rooting out corruption, inclusive development, jobs for all, house for all, electricity for all homes, toilet in every home, subsidized gas for all poor households, road connectivity for all habitats, model villages, smart cities, to name a few.
True to his promise, he started in all earnestness implementing policies and programs to achieve these highly ambitious goals. His deliverable so far are a matter of tremendous relief and bolster confidence of the public at large about his ability to reach the goal post. It is worth mentioning some of these here.
220 million accounts opened under PM Jan Dhan Yojna [PMJDY] with total deposits of over Rs 40,000 crores
A mammoth saving of Rs 15,000 crore annually under direct benefit transfer [DBT] of LPG by eliminating leakages and misuse
Saving of Rs 10,000 crores in food subsidy [in select states] by linking ration card under public distribution system [PDS] with Aadhaar and eliminating bogus cards
Reaching electricity to 50% of a total of over 18,000 villages which had no pole and a wire even after 7 decades of independence
Garnering over Rs 200,000 crores through auction of 204 coal mines cancelled by by Supreme Court [SC] and Rs 100,000 crores via auction of spectrum
Building rural roads, highways and rail lines at a pace much faster than under erstwhile UPA – dispensation
Record increase in production by Coal India Limited [CIL] resulting in reduced imports and saving in foreign exchange.
Increase in production of urea and mitigating short supply to farmers – enabled by making its neem coating mandatory
There are many more examples of Modi – dispensation working with zeal and determination in pursuit of set goals yielding concrete outcomes. The best part is that the prime minister has nurtured in the entire central government machinery a cult of ‘transparency’ and ‘accountability’ which has a potential for huge savings in resources by improving efficiency and even more importantly, by stemming nepotism, favoritism and corruption.
But, these are far from meeting the aspirations of the people who have pinned a lot of hope on Modi. Much of their current woes are due to ‘flawed’ policies pursued in the past. These led to rampant misuse of subsidies, price distortions/anomalies in the market, perpetuation of monopolies, inefficiencies and cost padding in operations and opportunities for rent seeking and corruption.
Alas! thus far, the government has made no attempt to correct these flawed policies and change the course though, there is no dearth of pronouncements about its intent to do it. Let us look at 4 most critical areas viz., fertilizer, food, oil and power that affect the life of every citizen and have a bearing on the state of economy.
FERTILIZER
According the Economic Survey [2015-16], of the total fertilizer subsidy, 41% is mis-appropriated vide diversion of subsidized urea to chemical industries [and smuggling to neighboring countries], 24% each goes to manufacturers and rich farmers and only 11% accrues to poor farmers. Now, the solution offered by Modi is neem coating of urea which is mandatory for all suppliers/manufacturers.
The coating of urea with neem renders it useless for chemical industries; so, it won’t get diverted. But, this will happen only if the order is strictly enforced which is doubtful. The annual consumption of urea in India is around 30 million tons or 600 million bags [20 bags of 50 kg each = 1 ton]. Policing this in a highly complex and marathon supply chain all over is next to impossible.
The root cause behind diversion of urea [besides its excessive use] is that its sale price is controlled at ½ to 1/4th of its cost of supply [depending on the source]. Therefore, the temptation to divert is very strong. Neem coating cannot stop it. It be can be done only by removing control on price which will eliminate the arbitrage. To protect poor farmers, it can give subsidy via DBT.
With this, rich farmers will automatically be deprived of subsidy and there is no way manufacturers can corner the subsidy either. It will also curb excessive use of urea as its price gets better aligned with price of decontrolled P&K fertilizers. This in turn, will reduce imbalance in use which is impossible to achieve merely with soil health card [SHC], the government is issuing to all farmers.
FOOD
In food too, there is large-scale mis-appropriation of subsidy [going up to a high of 50% in some states] under extant arrangements of subsidized supply through public distribution system [PDS]. At present, the government is trying to check misuse through administrative mechanisms viz., checking genuineness of beneficiaries with use of Aadhaar, uploading data base on website etc.
Unless existing system is overhauled, this will have limited impact. How can diversion be reined in when over 60 million tons of food is sought to be made available under National Food Security Act [NFSA] at nearing zero price of Rs 1/2/3 per kg as against market price that is 10-15 times? Howsoever, fool proof the supply system may be, given the irresistible temptation of making money via arbitrage, dubious operators will find ways to circumvent.
The only fool proof mechanism to stop misuse/diversion is to put a stop to the extant policy of selling food cheap. Instead, subsidy amount can be given to the poor ‘only’ directly in to his account under DBT. The consumer can buy his needs from any shop of his choice including fair price shops [FPS]. Food procurement, handling and distribution should be un-shackled from controls and private sector encouraged to participate actively.
POWER
In the power sector, reaching electricity to every home is laudable. However, merely putting up transmission lines, poles, wires etc won’t be enough. For this state electricity boards [SEBs] have to be financially healthy. But, under current policies of giving power free or selling at throw away price, abetting large-scale theft and letting generators sell power on ‘cost plus’ basis, this will be next to impossible.
These policies must change to allow for free-wheeling of power and larger number of players selling at competitive tariffs. The subsidy to farmers or target households, if any, should be given directly from state budget using DBT [as in fertilizers and food, the extant policy of supplying power free or at subsidized rate is surest invitation to misuse and corruption]. The practice of allowing fuel cost to generators as ‘pass-thru’ should be shunned.
OIL
In oil, bringing LPG subsidy under DBT was a master stroke. This reform should be taken a step forward by putting a stop to routing subsidy through oil PSUs. The government should transfer subsidy directly in to beneficiary’s bank account and latter should be free to buy from an outlet of his choice. This will also encourage private sector to come in thereby bringing benefits of competition and lower price.
As brought out above, in every segment, the best way to give subsidy support is direct transfer by the state in to the account of beneficiary. So, why not club all forms of subsidies and give a consolidated amount [call it income support] to every poor household. These reforms will generate monumental saving in resources by curbing leakages, improving efficiency and reducing cost in every sphere. These savings can be fruitfully used for building roads, highways, rail lines, homes, toilets, smart cities, model villages etc.
This together with good governance and efficient administration already unleashed by Modi can work wonders truly transforming the face of India and enabling him deliver all that he has promised to 1.25 billion aspiring Indians.