EASY WAY FOR INDIA TO DO AWAY WITH SUBSIDIES !!!

India pays nearly Rs. 1.6 lakhs cr as subsidies, which in order burdens on India's fiscal. India has total public debt of US$ 852,827,671,233 and at Rs. 50/$ it is at Rs. 42,64,138 Lakhs Cr. And always there will be a question whether the said subsidy is used by the genuine citizen or the most needy, Can there be any alternative were by the real effected people of India can be benefited by the subsidy given by government.

9 months back Iran managed to reduced its subsidies by 50 % and this is how they did –

First, they announced the roll out of subsidy removal. Next, the government asked every individual to fill in forms listing the names of the members in each household; the number of cars in that house hold; details of assets especially apartments & land; wealth & other sources of income. This data was then cross – checked with the existing databases from Banks, car registration data, other data banks of the respective departments & property records.

Once the list was verified all the identified persons were asked to open accounts (Something similar to that of UID project hopes to do in INDIA). As of February 2011, subsidy compensation of $45 per head per month was credited into each person’s account irrespective of whether the person was rich or poor. This way all people are treated alike, rather than attempt to divide population into economically backward, cast reservation.

The logic behind is simple – The rich man may get $45 per month from government but will end up paying a few hundred $ more for the unsubsidised oil & electricity that he purchases. For the poor man the $45 per month allows him to decide whether he will opt for bread or fuel. Each car owned now gets 60 liters of semi – subsidised petrol at Rs. 15 equivalent a liter against an electronic smart card, the rest he must purchased at the subsidised rate of Rs. 28 per liter.

          Iran’s one more interesting is the way it plans to encourage its young to raise family in decent surrounding. The government gave each child irrespective of gender as soon as it is born a sum of around $950 is paid as a trust fund into that child’s account. To that, the parents of the child must add another $20. The amount may not be withdrawn or mortgaged till the child turns 20 years of age. Every year government tops up this amount by around $200 with the parents contributing another around 1/3^rd of this amount. With passage of time & accrual of interest each child ends up with $60,000 - $75,000 by the time he turns 20 years of age. At the time the boy or girl decides to marry will have a corpus of around $120,000 which they could use either to purchase a house or to invest in business?

          To ensure that there is no shortage of houses government gave land free to developers on 99 years of lease for building houses using pre approval designs & plans. Developers are also given subsidised loan of $15000/ apartment to meet capital cost. If a person retires after 25 years of his service he is eligible to receive 30 days of his monthly income regularly even after retirement. If he retires after 20 years of his services he gets monthly retirement package equals to 25 days of his last drawn salary.

           Off course the retire plan & the child development plans is difficult to implement in our country but as far as the oil subsidy is concern it’s not so difficult, UID project is gaining popularity and once done the said method would be easy to implement and also could tam out some of the corruption related to subsidies. 

         I remember there is a country called Mongolia which is the best performing stock market over the last year and they are coming out of the privatization programme as the largest coal company and what they have done is that they have given every Mongolian 500 shares of that company with the mandate that whenever it gets listed you can sell and create wealth. You need to do something to kick start this kind of company. Here we are not saying give shares for free but you need to make a system that every Indian member or the public can apply for few hundred shares and guaranteed allotment at a favorable price that brings people back into the markets and create the favorable churn. You need something to kick start the disinvestment programme, otherwise it is going to remain high talk and low delivery.

           Hope some day our UID project helps to reduce our subsidy burden..