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Letters: Cash instead of subsidies

Business Standard  |  New Delhi 

This refers to the report “Kaushik Basu warns of inflation shadow on direct cash transfer” (December 20). Chief Economist Kaushik Basu’s statement that the direct cash transfer scheme might create a risk of inflationary pressure on the economy is not based on a rational analysis of macroeconomics. His logic is that since more money will go into the hands of the people, their purchasing power will increase. It’s important to consider that the cash transfer scheme will substitute two elements — subsidy and waste. Now, subsidies are transferred through the public distribution system and other schemes. On the other hand, waste has come to be built on several schemes, such as food and fertiliser — the enormity of which is not quantifiable but easily imaginable as large.

I want to share my first-hand knowledge of two cases that I adjudicated as an appointee of the Indian Council of Arbitration. In both cases, paddy was provided by the Food Corporation of India (FCI) to some rice mills, which did not return the full quantity of rice. During the litigation, the rice mills ultimately won, either because they were untraceable (they operated in other names) or because the contracts were defective. There are hundreds of such cases. A battalion of lawyers for FCI did not properly represent these cases. A new lawyer appeared every time. Everybody made money here, except the government and the people. All these factors need to be taken into account.

So, from a macroeconomic point of view, the direct cash transfer scheme will not only save subsidies but also curtail waste. In fact, the government will be spending less on the poor now, and the effect will be much more. It’s time that FCI, its band of lawyers, middlemen and bureaucrats are kept out of the way of providing benefits to the poor.

Sukumar Mukhopadhyay New Delhi

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First Published: Fri, December 21 2012. 00:02 IST