General
1.The Govt from time to time has introduced various subsidies, incentives and welfare schemes especially to support the weaker sections and to give directions to the growth of specified economic activities vital to the country. However it is seen from experience that after a period of time some of these schemes have led to market distortions, lose their effectiveness and sometimes affect performance of other sectors adversely.
2. Surya Founadtion Think Tank comprising of eminent experts carried out the review of some subsidies, incentives and welfare schemes in the fields of Power distribution, Agriculture, Fertilizer, Public Distribution System of food grains, Cross-subsidization in Electricity, Railway tariff and some key welfare schemes. The issues, challenges and key recommendations and this regard are given in the following paragraphs
AGRICULTURAL AND DOMESTIC POWER SUBSIDIES AND PRESENT DISCOM FINANCIAL DISTRESS
Issues & Challenges
2. A high level of cross-subsidization of tariff between
sectors is leading to extremely high
Industrial tariffs (Rs. 8 to 10 per unit) affecting India’s Manufacturing Global Competitiveness.
3. Periodic Capital infusion
(like UDAY scheme,
2015) has failed
to make an impact on substantial resolution of the issue.
Simultaneously, the Govt gave them a
Financial Restructuring Package (FRP) with relief to Discoms’ staggering debt of about Rs 4 lakh crore
(75% of this was taken over by the states,
for the balance, they were allowed to issue bonds at a preferential interest rate) stipulating some performance mile stones, that were not met.
4. In her FY22 Budget speech, FM announced that under the
proposed Electricity (Amendment) Bill, 2021, the government intends
to de-license the distribution
business, bring in competition, and give the consumer power to choose its supplier. She also unveiled Rs
3.06 Lakh Cr ‘Reforms-Linked, Result-Based
Scheme for Distribution’, a five year period initiative, aimed at helping
discoms trim their electricity losses
to 12-15% and narrow the deficit between
the cost of electricity and the price at which it is supplied to ‘zero’ by March
2025. It will also have a compulsory pre-paid and smart metering component to be implemented across the power supply chain. The Electricity Act Amendment Bill, 2020, proposes Security mechanism / advance payment for power supplies, Regulators ensuring cost reflective tariffs without subsidy, introduction of Direct Benefit Transfer
(DBT) Scheme for subsidies direct by the State Govts to targeted consumers, Establishment of a contract enforcement authority.
Recommendations
5. Pending prepaid smart metering proposed, which may take a few years to execute, a scheme of advance deposits(say for two months) by consumers to Discoms (with provision of some interest) and up the value chain-Discoms to generators and similar advance subsidy support from Govt to Discoms may be legislated. The investment for smart metering may straight away include installation of fast response “Smart Grids” as well to reduce cost later, keeping in view, large scale introduction of Renewable energy in the National Grid (450,000 MW by 2030/52% of generation capacity). Smart grids will be vital to balance highly intermittent variable nature of renewable energy with storage systems and base load thermal power.
6. It may be noted that during recent
talks of farmers
with Govt, they have objected to DBT of power subsidies
direct to farmers
considering the enormous delays in release presently of
fertilizer subsidies. The Govt may consider a mechanism for net billing
with gross billing
and subsidies simultaneously affected by Discoms using a
month subsidy advance from the Govt.
7. Regarding separation of Distribution activities from Sale of Power, this
may initially be confined to bulk consumers at HV and EHV levels,
as already provided now Extending to small consumers
may bring in division in responsibility
for quality and reliability in power supply .With increasing intermittent variable renewable energy,
the Discoms will have to introduce smart
grids to balance with based load thermal supply and will be dealing with more complex
situation apart from need for building some local storage
capacity as well.
8. The “KUSUM Solar irrigation” initiative (MoP) for provision of solar pumps (with 60% central / state grants and balance easy credit to farmers) may be hastened and connected to grid as far as feasible and farmers given attractive grid feed in tariff for surplus energy. This will incentivize them to save power, help ground water depletion issue. This will also help Discoms recover from financial sickness. It will however be important that Ministry of New and Renewable Energy undertakes some pilot projects to start with experimenting with different models and arriving at some optimal solutions to suit different regional needs, in consultation with concerned stake holders.
9. It may however be pointed out that Discom ineffeciency
alone is not the sole cause of high
cost of retail electricity today. There is simultaneous need to address
other factors like Coal India continuing to operating uneconomic coal mines, Railways increasing
coal freight rates to cross- subsidize
losses in passengers operation, continued operation of over aged inefficient thermal plants etc. There is a case to review
“Rate of Return”
built in tariff for
generation, with cost of capital going down. An inter-ministerial task force can go into the issue. Some
developed countries have adopted a common regulator
model for energy sources and electricity sector.
10. The Govt may hasten the budget proposals for privatization of Discoms in the Union territories, so that these could serve as models for State Govts to follow not only in the Electricity Sector but also in other utility services. It is important that these reforms are closely monitored with the States and progress periodically reviewed in the Inter State Council meetings with the Chief Ministers.
REALISTIC PRICING OF WATER SUPPLY, SEWAGE SERVICES AND OTHER UTILITY SERVICES
Recommendations
1. In the context of high air and water pollution obtaining now in India, a massive programme on Waste Management (segregation at source, treatment, spread in land refills, installation of burning / heat recovery systems) and installation of Sewage Water Treatment plants / supply of recycled water for secondary use will have to be launched. It is important that State Govts / Corporations / Municipalities should consider raising water supply & sewage charges to cover actual cost with adequate margin to cover support for expansion and further investments in the field. The States should also consider increasing the property taxes, levy of special cess for creation of dedicated funds in this regard.
2. It is important to progress increasing PPP models in investments/ managing above services. Namame Gange Mission has developed good PPP model in Kanpur Sewage treatment measures building operation & maintenance costs over extended periods in the initial project cost itself. In Mathura, long term contracts have been entered with IOC Refinery for supply of Recycled water.
3. Steps on realistic pricing on water at base levels, will establish the “true value” of water, (with Climate Change experts predicting water stress/water scarcity by 2025/2050) to planners & country’s decision makers, and facilitate “Water Trading” on lines of Power trading today. This will lead to Interstate accords for Water Storage Dams.
FERTILIZER SUBSIDIES FOR CROP YIELD IMPROVEMENT
Issues
1. High subsidies to urea and high cost of imported phosphate / potassium have led to imbalance in use of N/P/K (Nitrogen / Phosphate / Potassium) ratio deteriorating from 4.7:2:1 in 2010-11 to 7.1:2.8:1 in 2019-2020. There is need for a balanced nutrient-based subsidy scheme focused on increasing crop yield. This can be evolved from soil-test card results / crop chosen, agro-climatic conditions and research inputs from ICAR / Agricultural universities / KVKs) for maximizing agricultural production to specified targeted levels.
Recommendations
2. The fertilizer subsidy evolved from above should be
graded, more to small farmers and
farmer groups. Economic Survey, 2016 had cited that only 11% of the extant fertilizer support expenditure was used
by small and marginal farmers
accounting for 85% of land holdings. Large farmers are now already benefiting
from MSP benefits disproportionately.
3. There is also a need for quick introduction of DBT
(direct to farmers instead of to the companies) which due to competition will bring down cost.
Further, there is a case to raise the urea retail price by indexing with inflation as these have not been raised since 2012. Urea subsidy which used to be 10-20% of cost fertilizer in 1970s now account for 75%.
1. Govt should also increase coal based fertilizer production, with success of new Talcher plant using coal
gasification adopting clean coal technology,
to reduce oil / gas feed stock
import. Govt may also encourage Indian PSU’s to invest more in overseas ventures
on imported fertilizers/raw materials.
REVAMPING THE PUBLIC DISTRIBUTION SYSTEM (PDS) FOR FOOD GRAINS
Issues
1. The criticism against the PDS has been on leakages in procurement, excessive procurement (under populist pressures), inadequate storage perishing of food grains during storage, ghost ration cards, eligible being left out from enrolment, supply of substandard grains, higher cost of operation etc. It must however be acknowledged that the PDS system with excess storage came to the rescue during the pandemics supplying a large sector of population with higher quantity of food grains including some free supplies. Regarding excess procurement, the root cause of the problem, i.e. average agricultural production over the years in some cereals leading to a surplus scenario (despite some drought years) really needs to be tackled. Developed economies like USA, Canada are planning agricultural production ahead and farmers are compensated for not producing some surplus crops. The Govt will have to support some diversification of crops for such contingencies and do hand holding for farmers for the associated risks.
Recommendations
2. The Shri Shanta Kumar High Level Committee (2014) to suggest ways of revamping the FCI has advocated, outsourcing of key storage and transportation activities, and devising a transparent liquidation policy that can kick in when stocks rise way above the buffer norms. Other important recommendation include - Antyodya households (40%) can be given grains at Rs 3/2/1/kg for the time being, but pricing for priority households (40 to 66% of population) must be linked to MSP, say 50% of MSP, introduction of cash transfers (Food Coupons) in PDS in large urban centers and surplus state to start with, saving Rs 30,000 crores annually. The targeted beneficiaries can be given six months ration immediately after the procurement season ends to reduce storage. It is recommended that PPP models may be encouraged for sharing FCI activities and some substantial increase in sale price of food grains effected to Non-Antodya Group and nominal increase to Antodya group.
3. Besides bringing in, End to End computerization of
targeted PDS operations to address
some of its shortcomings, the Govt is implementing “Integrated Management of PDS- (IMPDS)” to introduce One Nation
One Ration Card (ONORC) system in 12
states (2020). The approach should be to
convert ONORC to ONODRC (One Nation One Divisible Ration Card) to enable divisibility of entitlements to help 40 million migrant workers in different cities to draw their ration separately from their families.
4. Fine tuning “Price Differential Programme” for MSP
(experimented in MP in Bhavantar
Bhugtan Yojana but with some problems of price manipulation by traders of MSP) can be tried to enable
private sector participation in procurement
and their supply chain assisting PDS. The demerits in the programme viz farmer’s having no
motivation to strike higher prices from buyers will need to be addressed.
5. In the past suggestions had come from time to time to replace the PDS by cash transfer / food grain coupons but arguments have been put forth that cash can be frittered by men in the families in drinking etc. Also in scarcity conditions, food grain in kind is the best support as there could be hoarding/abnormal price rise in the market. Cash Transfer Scheme can be considered in surplus states on a pilot basis, with woman in family made the beneficiary. Even for deficit states, a component may be given as Cash transfer with choice to buy some items e.g. pulses etc.
INCREASING AGRICULTURAL PRODUCTION THROUGH OUTCOME - BASED SCHEMES
Recommendations
1. While “Doubling of Farmers’ income by 2022" is
being pursued, it is now important
to progressively shift towards
some “Outcome based schemes” for increase in Agricultural
productivity / crop yield, Conservation of water used etc.
2. There is need to urgently introduce Production Linked Incentives (PLI) schemes for Agriculture as well (like in Industry) for higher yields in Cereals, Oilseeds, Pulses, Cotton, Sugar Cane, etc by integrated use of nutrients and appropriate techniques. PLI is also needed for micro irrigation, fertigation in Rain fed/Semi–arid regions pursuing the Mantra- “More crops per drop of water”. “Diversification of crops” should be similarly encouraged. The PM Bima Fasal Yojana, Weather Insurance programmes will have to be tuned to cover farmer’s risks particularly during transition. The PLI schemes for Agriculture must have a component for supporting R&D for Climate resilient, high yield hybrids, bio-fortified varieties etc. The Secondary side of Agriculture e.g. bio-mass conversion, production of fuel pellets, bio fuels, compressed bio gas should also be covered. Proper segregation of waste and organic compost production especially in urban areas should also be encouraged.
3. Unlike PLI initiatives in manufacture, where foreign technology groups are
incentivized for setting up production base in India or Indian firms encouraged to manufacture key imported products, in Agriculture, the models will have to be different (and experimented) to motivate small farmers, farmer
organisations, innovative technique providers, Corporates involved in contract farming, agro processing firms and NGO’s
etc involved in extension work, with a broad based, distributed incentive
scheme.
4. In case there is slippage in Doubling Farmer’s income by 2022, the Govt can consider enhancing relief in PM Samman Nidhi scheme, by additional around Rs 1,500to cover 50% of production cost averagely for marginal farmers. However in the long run income support in cash should be restricted towards purchase of fertilizers, special agro chemicals, pesticides and quality seeds and other critical inputs. The ultimate aim should be to convert the scheme to outcome based initiative towards yield improvement and natural resource conservation. There is need to announce launching of a Second Green Revolution focusing on the eastern sector, with good water availability for production of paddy, sugarcane and ethanol as well as on the Rainfed regions / semi-arid regions supporting micro-irrigation.
REMOVING CROSS SUBSIDIES IN RAILWAY TARIFF
Issues
1. Presently passenger / suburban operations in Railways are contributing to Rs 33, 000 Cr loss per
year due to subsidies. For years passenger tariff has not been raised. These are being cross-subsidized by raising
freight on coal, leading to
increase in Generation cost. The resultant high industrial tariff
is affecting Indian
Industries Global Competitiveness.
Recommendations
2. If passenger tariff can be quickly / progressively increased to cover actual cost and reasonable return, Railways can use these funds to reduce Coal freight rates and offer some discounts to attract sensitive traffic from Road. With large number of Road Expressways under construction, Railways face the danger of losing further share of their freight traffic. This is not in country’s interests as Railways are more energy efficient.
WELFARE MEASURES
PM Ujjwala Yojana (PMUY) May 2016 (Outlay Rs. 80000 Cr)
1. The scheme has distributed 80 million LPG connections to women of Below Poverty Line (BPL) families with 50% of the total cost of Rs 1600 being provided to purchase an LPG Stove. Some studies indicate some families did not avail the service beyond the first refill, mostly due to economic and affordability reasons (for PMUY beneficiaries, the subsidy has been increased from Rs 174.86 to Rs 312.48 per cylinder). Survey in 2019 in Bihar, UP, MP indicates 36% households used solid fuel while 37% for both LPG and solid fuel. Half the beneficiaries ordered less than 4 refills a year. In some cases there has been abnormal consumption indicating diversion.
2. Considering that gas is essentially imported and is a globally depleting resource, for the long term Govt should plan in a big way biomass development under afforestation schemes and promote compressed biogas, smokeless fuel pellets etc. bringing down import and cost.
PM Sahaj Bijli Har Ghar Yojana and Deen Dayal Gram Jyoti Yojana
3. It will be useful to conduct periodic studies to ascertain how much electrical energy has been consumed by the beneficiaries and analyze reasons for shortfall if any. Establishment of a common service type center with high speed internet and computer facilities, lighted area for children to study can be considered in every village, accessible to all.
MGNREGA
4. In the pandemic year 2020-21, one in four of India’s workforce got employment under MGNREGA against one in six earlier. There were earlier complaints on fraudulent labour muster rolls and inclusion of in fructuous works. The Govt in 2014 decided to focus on creation of productive assets under this programme. In the pandemic year 2020-21, the actual expenditure of the scheme was Rs 1.11 lakh crores. In FY 22, the budget has provided 35% less. Considering the benefits of the scheme, there is a case for increased allocation to benefit landless labour.
Against those who registered only 43% got employment in Bihar and 37.6% in UP. It is recommended where national infrastructure pipeline works are far away there is a case to increase allotment of funds for MNREGA and reduce where enough NIP works are available nearby. There are also complaints of wage rates not being linked with Minimum Wages Act and delays in payment. There is also need to increase Women’s participation.
PM Awas Yojana (Nov 2016)- “Housing for all by 2022”
5. Under Pradhan Mantri Awaas Yojana-Gramin (PMAY-G), Out of 1.91 Cr houses sanctioned and construction of about 1.33 crore houses have been completed so far by 2021, benefiting 1.46 lakh landless beneficiaries as well. Under PMAY-Urban out of 111.03 Lakh sanctioned, 45.01 lakh have been delivered so far. The Scheme has boosted cement, steel consumption. However, the scheme should also cover low cost interventions with appropriate local technology e.g., use of bamboo in North East, coconut leaves that chet in south making them into strong, leak proof fire resistant composites. This is included in the Global technology platform of the Yojana but needs greater financial support to benefit the BPL.
Pradhan Mantri Kisan / Vyapar / Shram Yogi Maandhan (PMSYM) Pension Schemes
6. The beneficiary group (18-40 years with income less than 15000 per month) joining the pension scheme at 18 years needs to contribute as little as Rs 55 per month (with matching contribution from Govt) to get a monthly pension of Rs 3,000 after attaining the age of 60 years. However the schemes have seen lower enrollment since its inception.
7. Probably economic recession, impact of pandemics leading to loss of jobs could have contributed to the lower response. Considering these are important social security schemes, these need to be publicized further. Instead of targeting individual sections of population with separate schemes Govt. can consider a universal scheme with different level of support based on the economic conditions of the target group. The concept of family pension after the death of the insured, may also be built in.
General Recommendations on Welfare Schemes
8. In all the welfare measures, periodic analysis should be carried out regarding their effectiveness in delivering the intended benefit in an efficient manner. It is proposed that an internal team of Union- State Govt may conduct “Performance audits” in addition to CAG performance audits. With regard to high value technical works, concurrent neutral technical quality audits may be instituted. The NITI Aayog programme evaluation division can become nodal organization for this purpose and can look into the subject holistically keeping in view press reports, NGOs studies, complaints etc besides Govt’s own inputs.
Public Accountability in Govt Schemes - Jal Jeevan Missi
9. JJM has a mobile-friendly dashboard which gives details of the households, schools and anganwadis provided with taps for potable water right from village level upwards, details of utility management team (Gram Panchayat, Pani Samiti members), women identified for field testing, details of samples tested in the preceding three months for contamination and results, quantity of water utilized using sensor-based Internet of Things (IoT), grievance reporting etc. This approach will have to be emulated by other welfare measures.
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