Friday, November 24, 2006

Subsidy administration revamp

The government has embarked on a major revamp of the current subsidy regime in food, oil and fertilizers. It plans to introduce food stamps, smart cards and cash transfer schemes to ensure targeted delivery of the various subsidies.

Food stamps could replace the current PDS (Public Distribution System) regime. Smart cards will be issued to all the citizens. This is expected to reflect the subsidy entitlement for target groups. A direct cash support will be given for enabling the citizens to buy kerosene from the market. Civil society organizations also will be involved in the whole exercise.


  1. A revamped subsidy adminsitration mechanism in this fashion is expected to bring in enormous savings in the annual subsidy bill of the government. On oil, grains and fertilizers, this is expected to result in a savings of abour Rs. 44,532 cr in 2006-07 or about 8% of the total annual expenditure of the centre.
  2. It can ensure that governmetn hand-outs reach the intended beneficiaries, instead of being usurped by various vested interests.
  3. Add to the purchasing power of the poor and integrate them better with the rest of the economy.
  4. The involvement of the civil society organizations will ensure establishing a complete audit trail and prevent systemic diversion.

Studies by NIPFP (National Institute of Public Finance and Policy) show that the entire state and central subsidies are current at about Rs. 1,00,000 cr.