X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster
Investing in India? Get Equitymaster Research  
Will direct cash subsidy work? 
(Fri, 23 Nov Pre-Open) 
 
India spends about Rs. 1.6 trillion every year or roughly 2% of the country's GDP on subsidies, all indirectly. And most of these subsidies do not reach the poor. Dubbed as one of the "big ticket" reforms, the government has decided that subsidies on kerosene, fertilizers and Liquefied Petroleum Gas (LPG) and delivery through the Public Distribution System (PDS) would be replaced by direct cash transfers in a phased manner for people living below poverty line.

The government has already started cash transfer in some states and has found success in that. For example - In Alwar, Rajasthan, kerosene supplied through public distribution system was replaced by cash transfer to the target consumers. In a short time span, the monthly off-take of kerosene in the district dropped from 80 kilolitres to only 14 kilolitres, or by 80%. This is significant because kerosene supplied through PDS is largely diverted for adulteration of auto fuel.

The direct cash transfer system; however has its fair share of critics. First - money that comes in for free, without doing anything, even going through the motions of work, would more likely end up in unproductive uses.

Take the example of Kerala. During 2006-11, when the communists have been in power, government spending on welfare has shot up and so has alcohol consumption. Figures from the State Beverages Corporation (the government liquor monopoly) show that sales have more than doubled during this time. And you only have to look at the profile of the people queuing up in front of these stores to figure out that much of this increased consumption comes from the poorest.

Second - the government is planning to link cash transfers to the new Unique Identification Authority of India, which when fully implemented will document every Indian. But recently, Bangalore police had busted a fake unique ID (UID) racket and also seized thousands of fake UIDs with official Aadhaar logos.

The crux is that direct cash transfers are not perfect, but we're not living in a perfect world. The current system of subsidies and the Public Distribution System are so riddled with leakage, corruption, criminality, and waste, that the system hardly benefits the poor and is, in fact, a huge drag on the economy.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

View all commentaries | Archives  RSS
Read the latest Market Commentary
 
BSE-30
 

 
Go
 

Equitymaster requests your view! Post a comment on "Will direct cash subsidy work?". Click here!

  
 

Become A Smarter Investor In
Just 5 Minutes

Multibagger Stocks Guide 2017
Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Jul 28, 2017 (Close)

MARKET STATS