Indian Cash Subsidy in Oil & Gas Sector: An Analysis for Implementation

Posted: 1 Mar 2014

Date Written: February 27, 2014

Abstract

The Government of India has offered cash subsidy for social sector benefits to the poor. The rationale behind this decision is to check that the amount of subsidy does not go in the wrong hands. This amount of cash paid to the OMC’s earlier will now be replaced by direct cash transfer to the BPL people. The government hopes that this decision to give the cash subsidy will reach the right person who actually deserve to poor.

With the back drop of rural illiterate and a gigantic Public Distribution System, it seems a difficult task to implement the cash subsidy framework. Subsidies for 2011-12 were declared to be Rs.216297 Cr which was 2.41% of GDP. In the past two years the subsidies have always surpassed the initial estimations.

Comparing with Bolsa Familia, a similar scheme implemented in Brazil, which was appreciated by World Bank and considered to have improved poverty in Brazil. About 12 million Brazilian families have benefited from this program. Under this, the largest number of people have been benefited. The Indian economy hopes to see a big change if the system works efficiently. With a larger income on the same demand, the volume of amount of subsidy is likely to decrease. The GOI is planning to keep the subsidy to less than 2% of the GDP. The amount spent on subsidies as allocated in the financial budget is expected not to increase alarmingly throughout the fiscal year being detached from the consumption profiles.

The rationale behind this study is the assumption that the techniques used for disbursing the cash still need time to develop. Under MNREGA many banks were incapable to disburse amount, where some remote branches are catering to around 15,000 workers. The importance of direct cash subsidy with respect to oil & gas sector and its impact on common man is also discussed. The paper also discusses about recent sanctions on the project by the election commission. With the current economic condition of India and the political action taking place in the country an economic analysis is required to understand the necessity of a project of this scale. This paper would analyze the implication of this policy decisions on the Indian economy & its effect on the common man.

Keywords: Cash subsidy, economy, MNREGA, GDP, Bolsa Familia, Public Distribution Systems

JEL Classification: Q20

Suggested Citation

Arora, Surbhi and Mullick, Indhan, Indian Cash Subsidy in Oil & Gas Sector: An Analysis for Implementation (February 27, 2014). Available at SSRN: https://ssrn.com/abstract=2402271

Indhan Mullick

Independent ( email )

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