The interim report of the task force set up to work out a way to transfer cash subsidies directly to the consumers of cooking gas, kerosene and fertilisers marks a major step in using the management and information technology skills that Nandan Nilekani brings to bear on government systems, which need fixing. If technology and good management could deliver better governance then this could turn out to be an uplifting success story. The outcome will depend on the learnings from the various pilots that will test the interim road map. However, two aspects are clear. Direct payment of subsidy, provided it is carried out with necessary policy changes, can produce enormous gains by stemming leakages along the supply chain and raising the efficiency of the whole operation. By using Aadhaar (unique identification number)-linked accounts to route payments, impersonation and fictitious beneficiaries can be eliminated. But directing subsidies to only the deserving, a key preference of many policy makers and commentators, is beyond the ken of this exercise. Whether a person is poor or not, and above or below the poverty line, will have to be separately determined by a rough and ready income tax assessment system. Thus, issues such as the existence of far too many below-poverty-line ration card-owning households in a particular state than conceivable, or many poor people without ration cards, will continue to hang fire.
The road map adopts certain general principles. One, let goods transit through the entire supply chain at market prices so that there is no incentive to spirit away supply to the black market, depriving genuine beneficiaries. Two, give the beneficiary a choice on whether to receive the subsidy in cash or kind and from wherever she likes. These two principles will give the beneficiary maximum freedom and choice to get the best value for the subsidy and bring the supply of subsidised goods into the open market price system, thus forcing various players to get their act right. The third, and equally important, goal is to use technology to create a more efficient distribution and administration system which is amenable to better surveillance. Improving the distribution of subsidised cooking gas is perhaps the easiest thing to do since the system is relatively well organised and beneficiaries well recorded. The road map first calls on the government to cap the amount of subsidy by limiting the number of gas refills a consumer can get in a year. It also seeks to shift by stages the payment of subsidy to the retailer and finally to the consumer. In the case of kerosene, the plan is to first shift the payment of subsidy from the oil marketing companies to state governments, then to retailers and finally to consumers. In the case of fertilisers, shifting the payment by stages from manufacturers to retailers and then cultivators will bring in the much-needed reform in the incentive system for manufacturers so that they improve their operating efficiencies instead of gold-plating plants. But perhaps the greatest challenge will be to fix the entitlement of individual farmers whose land may or may not be irrigated or fertile and who cultivate an array of crops requiring different fertiliser inputs. Currently, as many as 23 fertilisers are subsidised! The road map cannot and does not address this issue.