Thursday, March 12, 2015

Subsidy leakage - JAM Trinity

Subsidy in India
Government of India provides subsidies to the needy people on several commodities like rice, wheat, pulses, kerosene, sugar, LPG, water, fertilizer, iron ore, etc. The estimated direct fiscal cost of subsidies is approx Rs. 3.78 lakh crorewhich is almost 4.24 % of GDP.

Now you can see, how enormous is the subsidy in India. But the real question is - does the subsidy reach the target household properly? Unfortunately, a significant portion of this subsidy is wasted due to leakage. Let's look into an example -

Kerosene is provided to the poor in a highly subsidized rate, as it is the primary fuel for cooking and lighting in the Below Poverty Line (BPL) households. Government distributes kerosene to the beneficiaries through Public Distribution System (PDS). But it is found that approx 45 % of subsidized kerosene does not reach the intended beneficiaries. This is just an indication of subsidy leakage on kerosene. Think about other commodities!

Government's steps to reduce leakage
Government has now taken some significant steps on reducing the subsidy leakage problem. Prime Minister Shri Narendra Modi's pet scheme of Jan Dhan Yojana (PMJDY) and Direct Benefit Transfer (DBT) are indeed good ones, as these mechanisms can eliminate leakage and ensure that subsidies reach those who deserves.

JAM Trinity
The 'JAM Trinity' is intended for the very purpose of restricting the subsidy leakage problem, and efficient transfer of subsidies to the beneficiaries (directly, rather than through intermediaries). In the Budget 2015-16, government proposed this. It consists of three schemes - 
JAM allows the state to offer subsidy support to poor households in a targeted and less distorting manner. 

Now the subsidy amount for LPG is directly credited to your bank account, rather through intermediaries. Thus government can keep track of the subsidy flow, and whether it reaches to the intended beneficiaries or not.

Post Offices
Apart from the above mentioned ways, Post Offices can be effectively utilized for this purpose, since India has the largest postal network in the world with over 1,55,015 Post Offices of which approx 90 % are in the rural areas

JAM Trinity
JAM Trinity

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