Re: NIT- reply

[Abhijeet Pradhan <perdi420@yahoo.com>]

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Dr. Sabhlok,

Having read your notes on NIT (finally) I would like to support your
proposal fully.  Every problem that the NIT might face (leakage etc) already
afflicts the other government schemes and hence can be discounted. Replacing
tens of subsidies programs with a single one will definitely be in line with
the KISS (keep it simple stupid) motto.  Certain questions arose in mind and
I will jot them randomly...

A.  The first one that came to mind was that the removal of subsidies esp.
of food and kerosene will definitely affect the cost of primary inputs into
the poor household.  The poverty line will definitely have to be
recalculated (which you have accepted), and also, more people will now be
under the poverty line (which I did not find a mention of)(since the line,
at least initially will be moved upwards).

B.  I am not sure whether a more comprehensive form of your proposal exists.
   Which subsidies do you propose to eradicate when NIT is implemented ?
How much do these cost?  Which are the most failed and disastrous ones.
They should be the first to go...  Are there any subsidies which are crucial
and the effects of removing which will not be mitigated by the direct
transfers?

C.  Regarding implementation:  How would the money be distributed, to a
family or to an individual?  For a family of 4 for example, how would the
money be disbursed.  I would suggest that money given to a couple, be
equally distributed to the husband and wife, so that money is not controlled
by an alcoholic husband or the like.  At what age (18 ??) would dependants
be eligible to receive their own share vs. as part of the household.

D.  You estimate that NIT will cost about 20% of current subsidy levels.
What will happen to 80% that will remain.  Will there be a corresp. decrease
in taxes.  This should be the case since the prices of basic commodities
will definitely rise (albeit to what extent is unknown).  We will have to
ensure that this 80% savings will corresp. to a rise in the expendable
income at the tax contributing households inspite of the rise in basic
commodity prices.  And this should be the selling point for the scheme.

E.  I most definitely request that you consider the removal of subsidies in
a phased manner.  Though in the long run the removal of subsidies and
increased efficieny of distribution will definitely be positive, a sudden
and massive disruption of the current economic equilibrium has the potential
to be disastrous, and NIT may be scrapped as a failure without it having the
chance to prove itslef in the long run.  For eg. a phased removal of fuel
subsidies will help transportation companies slowly adapt to increasing fuel
prices.  Whereas a sudden rise in fuel prices may causes enough cash
liquidity problems to banrupt many a transportation company, and the result
shortage of transport vehicles may greatly exacerbate the rise in basic
commodity prices.  This is just an example, but it is definitely possible,
and NIT will be blamed and scapegoats will be hung by the public.

Thanx
Abhijeet Pradhan
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