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Re: NIT- reply
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Thanks, Abhijeet. All your concerns are valid; some of these are found in
my writeup (about poverty increasing initially, as per definition and see
Year 1 - Year 2 analysis); other issues will be part of the Experimental
project - details which are critical, but not in the concept level paper
yet. You have asked for details of subsidies to be removed - as mentioned
earlier, this is what one Joint Secretary, Plg. comm. asked me to furnish
too, tho' it is the job of Finance Ministry (THEY wrote the paper showing
the huge amount of non-merit subsidy). I can only try.
Details are important, and if there are at least some in the govt. who have
an open mind and wish to study if for the sake of understanding the issue,
they can do it since they (and not I) have full-time jobs for doing
precisely this!
But I'll try, if I feel sufficiently optimistic about anyone being
concerned about this issue of wastage of public money without being able to
remove poverty. SS
At 12:37 PM 7/12/00 -0700, Abhijeet Pradhan <perdi420@yahoo.com> wrote:
>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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>
>
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