Targeting in theory

Now that the petroleum ministry is thinking of introducing a dual pricing scheme for kerosene, one for those below the poverty line and one for those above it, the Planning Commission is pushing for a similar scheme for the power sector. A few months ago, the Indian Oil Corporation chief had rooted for a similar scheme for petrol, with separate petrol pumps for two-wheelers, where it would cost less, but fortunately that idea didn't find takers. Both ideas are based on the simple premise that if you restrict the subsidy to only those for whom it is intended, the net outflow will reduce. An NCAER survey on kerosene shows nearly 40 per cent leakage, with around half the sale to those with above-poverty-line (APL) cards. So, the logic goes, if you can restrict subsidised supply to the below-poverty-line (BPL) households, you can cut the subsidy by around half. This logic is flawed for several reasons. First, the issuing of ration cards itself is flawed and using BPL and APL cards to target subsidy will be equally so. "Bogus" ration cards are a pervasive Indian reality, and "bogus" BPL cards, on the one hand, and many deserving people not getting them, on the other, will continue to undermine targeting based on cards. Sonia Gandhi's National Advisory Council has acknowledged the limitations of such targeting by recommending that the national rural employment guarantee programme be available to all rural households and not just the poor ones, that is not be based on cards. Instead, targeting has been sought to be achieved by designing the programme as self-selecting by offering under it jobs which are likely to interest only the poor. Other attempts at targeting have also not been very effective. It can be inferred from the same NCAER report that an attempt to curb the diversion of subsidised kerosene, by colouring it differently, didn't make much impact as most legal and illegal users of such kerosene did not care about its colour.

In the case of the power sector, the logic of the Planning Commission proposal is even more strange since it can be no one's case that poor households have either electricity connections or consume a lot of power, at least in the aggregate. One known form of power theft is supply to non-agricultural users not being billed and being passed off as consumption by the agricultural sector. With such billing irregularities being well-entrenched, restricting subsidies to poor families will be as problematic as currently limiting them to farm households. The logic is also flawed because it assumes politicians want subsidies only for the poor. It can be no one's case that either LPG or petrol is used by the poor, yet the subsidies on both are huge""the former is paid through the budget and the latter is borne by the oil companies. Political reluctance to cut power subsidies for the undeserving is also highlighted by the opposition by some state politicians to introducing any kind of metering for agricultural use, even when it is assured that poor farmers will not have to pay for their metered consumption. The key task in the power sector is to crack down on pure theft occurring with the connivance of the power supply staff and implicit sanction of politicians. Better targeting can possibly be achieved with the innovative use of IT-based identification, as TCS has shown in presentations to the government. But are our politicians really interested? If they are not, then why is the Planning Commission bothered?