Column: It’s all in a coupon

Food inflation is a difficult issue for the government. At pre- and post-Budget meetings, charismatic Kaushik Basu has been explaining it in his enigmatic style. His trump card is up there, right at the top, jacketing the economic survey he so deservedly owns. It’s a graphical caricature of a Coupons Equilibrium—something that has impressed Pranab Mukherjee so much so that he mentioned it thrice at a post-Budget meeting with over 600 industry captains. The concept roughly means giving coupons to a target audience is much better than tweaking the market price of a product so as to benefit the poor.

This is a first step towards direct transfer of food subsidies to the poor, and Basu would have us believe it can be extended to fertiliser and other subsidies, too (see Chapter 2). The coupon gives the poor the freedom to choose the product that they want to buy and from whom they want to buy. It eliminates the hassle-factor in buying from a specific PDS outlet. Coupons, Basu believes, will cut corruption and aid food security.
But this is just one side of his magic card. The other is its unlimited utility when correctly combined with the UID being developed by another pied piper, Nandan Nilekani. Basu believes a switch to the coupon system is possible by 2012. The idea isn’t brand new. What is refreshing, though, is how convincingly Basu conveys it to the decision makers, most notably Pranab Mukherjee.

The FM no longer believes in the concept of leviathan but in a government that is an enabler. “The actors are ready, we need to provide the screen,” he stresses. That the FM is in tune with Basu’s plan is captured in the Budget fine print. For the first time in a decade, subsidies next year are projected to be lower (by 12%) than in the current year (the projections can go wrong, but I am an optimist). A beginning has already been made in the case of fertilisers, by moving to a nutrient-based subsidy from a product-based one. I hope this will get us balanced, nutritious food—something not smelling of urea.

Coupon system will be effective, bring savings, involve negligible cost, and provide succour to the poor when prices jump.
It shall be a game changer.