Press Information Bureau

Government of India

Ministry of Finance

05-July-2011 15:32 IST

Interim Report of the task Force on Direct Transfer of Subsidies on LPG, Petroleum and Kerosene Submitted to Finance Minister; Recommends an Implementable Solution in a phased Manner;Core Subsidy management platform (CSMS) also Recommended

The Union Finance Minister Shri Pranab Mukherjee has said that the direct transfer of subsidies on LPG, Fertiliser and Kerosene will help in curbing pilferage and leakages. He was speaking on the occasion of submission of the Interim Report of the Task Force on Direct Transfer of Subsidies by the Chairman of the Task Force and Chairman, Unique Identification Authority of India (UIDAI), Shri Nandan Nilekani, here today. The interim report recommends an implementable solution, in a phased manner, for direct transfer of subsidies on LPG, Fertiliser and Kerosene.

The Finance Minister Shri Mukherjee said that the matter of distributing solar lanterns /solar cookers through LPG outlets and petrol pumps should be looked into. He further said that the success of direct transfer of subsidy on kerosene would also depend on State Governments as its distribution is being done through State Governments. He stated that subsidy on kerosene should be linked to PDS reforms.

Also present on the occasion were Shri Sharad Pawar, Minister of Agriculture, Dr. Farooq Abdullah, Minister of New and Renewable Energy, Shri S. Jaipal Reddy, Minister of Petroleum & Natural Gas and Shri Srikant Jena, Minister of State for Chemicals and Fertilizers. Besides, Shri Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, Smt. Sudha Pillai, Member Secretary, Planning Commission alongwith senior officials of Ministry of Finance and other concerned Ministries were also present.

The Interim Report of the Task Force is available on Ministry of Finance website www.finmin.nic.in. and has been submitted as per schedule. Pilots would be implemented in the next 6 months. The learnings from the Pilots during its implementation in the coming months will form the basis of the Final report. The Task Force would oversee and supervise the implementation of the pilots to come out with an “implementable solution” for direct transfer of subsidies in its Final Report by December 2011.

Regarding LPG, the Task Force discussed three phases. In Phase I, a cap on subsidized cylinders was discussed. Though this is a policy decision of the Government and not a specific recommendation, the Task Force recommended that the cap be introduced with a robust authentication framework. In Phase II, which does not depend upon Phase I, direct transfer of subsidy to customers’ bank account was recommended. In Phase III, the Task Force recommends segmentation and targeting of customers and direct transfer to these customers. A Transparency Portal of all customers of LPG of the three OMCs with details of their consumption was also strongly recommended.

Regarding Fertiliser, the Task Force in Phase I recommended complete information visibility of the supply chain upto the retailer level. This would enhance transparency across the supply chain. In Phase II, direct transfer of subsidy is recommended to the retailer’s bank account while in Phase III, direct transfer of subsidies is recommend to the farmer’s account. A transparency portal was also recommended for Fertilizer movement and stocks.

Regarding Kerosene, the Task Force recognizes that wider consultation with State Governments is required. Direct transfer of subsidy for kerosene will depend to a large extent on PDS reforms which are being implemented by the States. The Task Force recommends direct transfer of subsidy through State Governments/UT Administrations in Phase I and direct transfer to the beneficiary’s account in Phase II.

The Task Force was also mandated to suggest a common framework to adopt the above solution of direct subsidies in cash or otherwise for other Government welfare schemes. It has suggested a generic subsidy framework that can be applicable across subsidy programmes in Government. It prescribes the desired elements (Empowerment and choice for beneficiaries, Transparency in subsidy administration and information visibility, One price for subsidized goods, Efficiency in production , Convenient and effective grievance redressal, Support all types of direct subsidy transfer models, Fully electronic service delivery, Incentive-compatible solution for all stakeholders and Effective MIS Reporting) that a proposed subsidy platform must consist of.

The Task Force recommends a Core Subsidy Management Platform (CSMS) as part of the proposed solution architecture that automates all business processes related to direct subsidy transfer. The core subsidy management system would maintain bookkeeping information on entitlements and subsidies for all beneficiaries. The CSMS will also provide increased transparency in the movement of goods, levels of stocks, prediction and aggregation of demand, and identification of beneficiaries. It will be able to use analytics to detect fraud and diversion. It can also integrate with a contact centre for grievance handling. Beneficiaries can report malpractices to the Government directly making it possible for the Government to react in a timely manner.

Achieving full financial inclusion is crucial for implementation of direct transfer of subsidies, since the subsidies will be transferred to the bank accounts of beneficiaries. The Task Force has recommended providing choice of banks to beneficiaries, along with an interoperable network of Business Correspondents for convenient access to subsidy funds. The roll-out of the Government’s financial inclusion plan across India, along with the roll-out of Aadhaar, will provide a foundation for the implementation of direct transfer of subsidies.

Earlier, the Finance Minister Shri Mukherjee in his Budget Speech of 2011-12 had referred to a Task Force constituted to work out the modalities for the proposed system of direct transfer of subsidy for Kerosene, LPG and Fertilizers. This Task Force was constituted by the Ministry of Finance in February 2011 under the Chairmanship of Shri Nandan Nilekani, Chairman, UIDAI. The Task Force was mandated to submit its Interim Report by June 2011.

DSM/SS/GN

Direct transfer of subsidies to beneficiary accounts to enhance transparency, targeting and fraud detection across fuel and fertilizer programmes. The Interim Report recommends a phased implementation of Direct Transfer of Subsidies for LPG, Fertiliser and Kerosene to reduce diversion and improve transparency. It prescribes phased measures for each commodity-capping and authentication plus direct bank transfers and targeting for LPG; supply chain visibility, retailer then farmer transfers and stock transparency for Fertiliser; and state linked phased transfers for Kerosene. A generic subsidy framework and a Core Subsidy Management Platform (CSMS) are proposed to automate entitlements, enable analytics, detect fraud, and integrate grievance redressal, contingent on financial inclusion and interoperable banking access.