Wednesday, November 28, 2012

FDI, DCT, Congress, BJP

Some folks seem to oppose FDI in retail trade and direct cash transfers championed by Congress, simply because those folks are, by nature, anti-Congress and pro-BJP.

I do not like the current Congress dispensation either.

Congress may have brought out Direct Cash Transfers primarily to attract the votes of the poor in the upcoming parliamentary election. However that alone should not be the reason to oppose this scheme.

BJP is yet to make its views on DCT, but you can safely assume that it will be negative.

This is a wrong approach. The right approach should be to evaluate this policy vis-a-vis BJP's own approach to Indian economy, growth and subsidy and then decide whether to support this or not.

Indian administrative set up is entirely corrupt. It is impossible to think of any department in a state or central government which is devoid of corruption. It may be only a thing of degree; some states may be less corrupt than some other states, but it will be impossible to find a state that is completely clean. Much of the money spent by the governments on the welfare of people is lost along the way. Again, there is no doubt here. The only argument is about what percentage is pilfered: Is it 15% or 85%?

What are the arguments against DCT?

(1) Subsidy itself is wrong. How long do we continue to provide such subsidies?
(2) Aadhar is faulty. Anybody can get an Aadhar card. This will encourage infiltration from Bangladesh.
(3) How is BPL determined? Who decides who should be included in the BPL list, which in turn will make them entitled to Rs 32,000 an year?
(4) Direct cash subsidy implies removal of indirect subsidies. This will impact those who are just above BPL, but may still need support.
(5) Grains in hand much better than cash in hand, as these folks will spend the cash on liquor.
(6) Indirect subsidy controlled the prices directly, and made cheap food, education and healthcare available directly to the poor. Direct cash may not be commensurate with the actual market prices of essential goods and poor may find life more difficult going forward.

Let me take each of the above.

(1) We can dismiss the first question straight away. We already provide subsidies. They were provided in an indirect manner. Whether we should provide subsidies (either direct or indirect) at all is a different question, not relevant to our current discussion.

(2) Aadhar seems shaky. There are many people who oppose the system because it violates privacy and because anybody can get an Aadhar card by giving random and spurious data. I don't think Aadhar card by itself entitles you to a subsidy package. With a bit of understanding of RSBY scheme (Rashtriya Swasthya Bima Yojana), I can say that the central government does have a list of BPL households on a district by district, taluk by taluk level across the country. This list may have a few dodgy households in it. Some genuine families may not find a place there. This problem exists even today. In Tamil Nadu, you can't easily get a ration card today. So, many deserving families don't get subsidised ration goods today. This will continue in the current model also. Some undeserving will end up getting extra Rs 32,000 cash while many deserving will not get it. But by and large, bulk of the population in this list will be genuine.

This is just my belief and how this will established and how the list will be cleaned up every year is to be left to the Central and the State Governments. We need to push them to come up with a workable mechanism.

I am less concerned about Bangladeshi infiltration as of now. I genuinely think it is a minor problem.

(3) & (4) How BPL families should be defined is a big question. I am sure various agencies we have follow different methods and thus come up with very different data. Also, what constitutes a poor in different states, from rural to urban regions should vary. It can't be a simple "annul family income" number. Also, the subsidy amount should ideally worked together with a state government. It need not be a flat Rs 32,000 per annum. Also, it may be desirable to consider multiple buckets (groups A, B C), who will get different subsidies based on the per capita earning of that particular family. It could be Rs 32,000 per annum to one group, Rs 24,000 per annum to another and Rs 15,000 per annum to the third.) This way, we can gradually reduce the shock to every group.

(5) Grains vs cash. It is quite possible that a whole lot of people may misuse the money and waste it on liquor or other vices. I suggest transferring the cash to the woman of the house rather than the "head of the household" who is usually a man. Women in poor households are more likely to spend the money wisely. They understand hunger and healthcare requirements better than men. Money in their hand will also make them more powerful in the family. In some cases, this may also make the women vulnerable to attacks from the man. It will have to be left to the law to deal with such situations.

(6) In the models of indirect subsidy, government purchased in bulk, thereby could get grains at cheaper prices. Now, too, the government can procure in bulk and sell goods through the ration shops. Only, the price will not be Rs 1 per kg. It will be Rs 10 or Rs 15 or whatever it is.

Now what could be the advantages?

The ration shop guys won't loot this and sell elsewhere at a higher price, because no one will pay any higher price than what is being charged. You can only arbitrage on subsidised goods, like the Tamil Nadu rice in Kerala market.

The ration shop fellow will have to be nicer to the public, because if he isn't, the folks will buy from a private shop. The price difference will be marginal. If the ration shop fellow is not nice, he may not have a job, because the shop will eventually be closed for want of customers.

People will not accept third rate, rotten grains because for that rate (Rs. 10/15, they can get decent rice elsewhere too). Now, they are forced to accept inedible junk, because they won't get them so cheap anywhere else.

Market shock can be best handled by few govt. run shops which will ensure that there is always a correctly priced alternative.

If the prices still increase for essential goods which were earlier indirectly subsidised, the government will have to take a look at whether direct cash transfer subsidy amount should be increased, and whether they can fund the increase.

I see enormous advantages in this model. This is certainly worth a try - even if it has been introduced by a Congress govt. for cynical political gains.

Tuesday, November 27, 2012

Direct cash transfer

Poll time: Ministers detail biggest reform measure "direct cash transfer" from Congress Headquarters

Indian central government has decided to offer subsidy to families below the poverty line directly through cash transfers to their bank accounts, as opposed to the prevailing indirect model today.

The amount per family per year seems to be large: Rs 32,000. For 10 crore homes, this amounts to Rs 3.2 lakh crore an year. How this is going to be rolled out while dismantling the current indirect subsidy is unclear.

At a certain level, some kind of subsidy is required to lift poor people up. Let us hope they use the money sensibly and not waste it away. In fact, the leftists are the ones who disapprove of direct cash transfers. They probably do not trust the poor to spend the money wisely on food, education and healthcare.

We have to see how this works in the pilot districts. It may be worthwhile that the money be transferred to the woman of the household rather than the man.

Friday, November 16, 2012

New Blogger app for iPad

Blogger has released its app for iPad yesterday. This is obviously much better than the earlier iPhone version. Hopefully now, I will blog a bit more in English.

There is a built-in camera feature for taking a live picture and embedding in a blog -- something that may make better sense within an iPhone app. Probably the iPad mini can make better use of this.

Just to test that feature... An image of one of our recent publication...