The intentions behind governmental subsidy is good. It is supposed to help control the prices. But the government has adopted the wrong delivery mechanism, which breeds inefficiency and the ultimate beneficiary ending up not getting the intended benefits.
Let us take the case of Fertilizer subsidy. The Government fixes the price of the fertilizer and then bears the difference between what the fertilizer companies should charge and the control price. This difference is given to the company. One might ask what is wrong with this, as the farmer benefits from the lower price. The trouble here is that there is no incentive for the fertilizer companies to improve their efficiency and reduce the cost. Over a period of time, they keep on claiming that higher input costs have affected their margins, and the government keeps on increasing the subsidy, not for once checking to see whether the claims of the fertilizer company on input costs are really justified or whether the companies are using it as an excuse to cover up their operational inefficiencies. Increased subsidy, which is in effect a compensation for the inefficiency, has to be ultimately born by the country through higher taxes. This scenario is repeated whether in the case of Public Distribution System (PDS), Education, Hospitals, LPG and even State Road Transport Corporations.
In the current political scenario, it is next to impossible to reduce the subsidies and it is not advisable too, since the Below the Poverty Line (BPL) citizens need governmental support. Now, rice and essential items are given at subsidized rates to the BPL citizens through PDS or ration shops. The card holder is tied to a particular ration shop and more often than not taken for a ride. The rice, sugar,kerosene etc are regularly diverted and inferior quality product given to these people, if at all. The ration shop owners indulge in hoarding and are arrogant. It is demeaning to anyone with self respect to stand in long queues in a Ration Shop to get his dues. And poor people's self respect is trampled with regularity.
A solution could be to allow the BPL citizens to choose avail the ration from any ration shop of their choice. For this, the supply chain has to be strengthened and more outlets opened. This would ensure that only those ration shop owners who provide good service and quality products will survive in the long run. This is the same argument I put forward in an earlier post regarding LPG cylinders - to allow the LPG customers to choose their distributor.
Similarly, Government should allow more low cost private schools offering primary and secondary education to come up all over the country. The poor students can be given Education Coupons worth, say Rs 1500 per term, which they can use at any of these schools. This shall encourage competition, as if the school dont give good services like employing quality teachers or if the operation is inefficient, the student will simply transfer himself to another school at the end of the term or year.
It is time we dispensed away with subsidies given to the service provider. Give the subsidy directly to the ultimate beneficiary, be it LPG customer, Farmer, School Childre or BPL citizen. Let him/her make an informed choice. This will empower them and make the provider accountable, which is sorely lacking today.
After all, Democracy is all about making a free choice, isn't it?
