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Finmin moots sweeping changes in subsidy schemes
August, 10th 2006
Introducing smart cards for every citizen by March 2009, allowing states to announce a cash transfer scheme for food and kerosene supplies to poor families and a complete switchover to natural gas feedstock for the fertiliser industry against costlier fuels like naphtha are some of the highlights of the finance ministrys draft Cabinet note on national policy on subsidies. The note also includes restricting fertiliser subsidy only to small and marginal farmers, setting two separate prices for paddy and wheat for each season and complete elimination of LPG subsides. Stressing the need to facilitate delivery of the entitlements only to the poor and needy, without leakages, the draft policy note of the ministry proposes an overhaul of subsidy schemes for food, fertiliser and fuel. The note suggests the scheme for introducing smart cards for identification of every citizen, incorporating important characteristics like subsidy entitlement in all urban and selected rural areas,with sizeable population and adequate infrastructure, may be announced by March 2009. An expert committee should be appointed to suggest a detailed road map for this purpose. As there is no effective way of stopping a below the poverty line (BPL) family from converting subsidy into cash and spending it on other items, states should be given the option to introduce a cash transfer scheme to BPL families for food and kerosene in select districts through post offices and bank branches against production of smart cards. Direct credit to the beneficiaries account has also been proposed until the introduction of such cards. Proposing a reimbursement scheme for kerosene, the policy recommends that in lieu of subsidised kerosene through the public distribution system (PDS), states may be given the option of introducing cash transfers to rural BPL households using kerosene for lighting purposes in non-electrified villages. These states may be reimbursed the cost of this cash transfer on the basis of the difference between the export parity price of kerosene and the retail selling price (RSP) at PDS outlets. The details of the reimbursement scheme can be worked out by the ministry of petroleum, it said. Ruling out subsidies on LPG, the note said, The fact that subsidy on domestic LPG is not targeted to the poor is well documented. Smart Move? To introduce smart cards for every citizen by 2009 States be allowed to introduce cash transfer scheme to BPL families Two separate prices to be set each season for paddy and wheat Cash reimbursement scheme for kerosene LPG subsidy to be completely phased out To finetune the existing mechanism of food subsidies, the policy has proposed fixing two separate prices for paddy and wheat for each season. An minimum support price (MSP) and a procurement price higher than the MSP as discovered through the initial limited tender at the designated consumption centers may be fixed for paddy and wheat for each season, said the policy note. The procurement price may be tailored to ensure procurement of the amount needed for PDS and buffer stocks. Any amount offered in excess of the procurement target should be at the Commission for Agriculture Costs and Prices (CACP) determined MSP. CACP should fix MSPs at levels corresponding to simple average costs of the major producing states excluding the top four or five higher end outliers for the relevant crop, the note said. For delivery at consumption centers, the policy recommends that initially five million tone each of wheat and rice may be procured in 2007-08 and 2006-07 by the standard procurement procedure i.e open tender and selection on the basis of lowest price offered. An expert committee can fine tune the normative principles, as recommended by the Tariff Commission recently, for reimbursement of costs for food procurement, storage and distribution and to introduce reimbursement of costs of Food Corporation of India on this basis.
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