October 7, 2014 / 9:08 PM / in 4 years

Factbox - India's complex welfare system

NEW DELHI (Reuters) - Prime Minister Narendra Modi has promised a bank account for every Indian household under a push to end “financial untouchability” that could revolutionise how the state aids poor people.

Children holding plates wait in a queue to receive food at an orphanage run by a non-governmental organisation on World Hunger Day, in Chennai May 28, 2014. REUTERS/Babu

Yet the complexity of India’s $50 billion in transfer schemes, from fertiliser subsidies for farmers to cheap bags of rice and cooking gas canisters for households, will make reform a huge challenge.

Here is an overview of India’s main welfare, food and farm aid programmes, with reform milestones:

PROGRAMME ANNUAL COST

FOOD $18 billion

** Families are entitled to 5 kg of food grains per person per month at a subsidised cost of 2-3 rupees per kg.

** Plan: Overhaul the Food Corporation of India in six months to one year.

** Milestone: Reduce grain purchases and partly introduce cash payments to poor households in cities over the next 2-3 years.

MINIMUM SUPPORT PRICES $12 billion

** The government subsidises wheat and rice farmers by paying above-market minimum support prices, as well as offering subsidies for credit, power and irrigation. This has led India to accumulate vast surplus stockpiles.

** Plan: Reduce the rate at which minimum support prices are increased to 4 percent a year, down from an average of 10 percent over the last five years.

** Milestone: Implemented in June.

FERTILISERS $10 billion

** The government pays a subsidy to fertiliser producers, leading to overproduction and indiscriminate use by farmers of urea, the only fertiliser that India does not have to import.

** Plan: Government considering making money payments to farmers’ bank accounts to cover their fertiliser costs.

** Milestone: Reviewing payment of subsidies to retailers on fertiliser sales. Cash subsidies could be paid into bank accounts by 2018/19.

RURAL EMPLOYMENT SCHEME $6 billion

** India’s previous government promised to provide 100 days’ work a year for the rural poor.

** Plan: Expedite payments and cut out corruption by paying wages straight into bank accounts of day labourers.

** Milestone: Already happening in some states. Seeking to roll out in other states over the next one to two years.

COOKING GAS $3 billion

** Oil marketers incurred 465 billion rupees ($7.6 billion) in revenue losses on the sale of subsidised cooking gas to 160 million households last fiscal year, about half of which was funded by the upstream companies.

** Plan: India last year launched direct payment into bank accounts towards the cost of cooking gas in about a third of districts, paying 20 billion rupees ($327 million).

** Milestone: Officials believe that within a year, the government could roll out the direct payment scheme across the country.

KEROSENE $3 billion

** The central government supplies subsidised kerosene to the state governments, which distribute it to consumers through state-run shops.

** Plan: Officials are still not clear how this subsidy could be directly transferred into bank accounts as an earlier attempt in some states failed.

(1 US dollar = 61.0450 Indian rupee)

Reporting by Manoj Kumar and Douglas Busvine

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