Targeted payment of subsidies to the poor is one of the benefits of the government’s economic plan

Dr. “Yousef Mohammadifar”; Doctor of Business Management and faculty member of the Faculty of Economics and Entrepreneurship, Razi University of Kermanshah, in an exclusive interview with IRNA, answered questions in this regard regarding the implementation of the government’s new plan to target subsidies.

As an economist, what do you think about the government’s new subsidy plan?

Subsidy payment is one of the most challenging issues in the country’s economy. In the past, various governments have allocated a significant portion of their annual budgets to various sectors of production and consumption in the form of overt and covert subsidies. The purpose of the subsidy can be to increase welfare, food security for people, especially the poor; Promoting community health and other goals such as supporting domestic goods and so on. But today, according to the vast majority of experts, is the result of the distribution of subsidies, which has created many problems for the country’s economy and has become a serious problem for the Iranian economy, which necessitates a rational, scientific and calculated approach to this issue.

Statistics show that billions of tomans of subsidies are injected into different areas of the country’s economy annually. On the one hand, this has caused diseases such as rent and corruption in the economy, and on the other hand, the continuation of the current situation has not improved the living conditions of the poor. I came across a report that showed that the highest government subsidies in the country go to the upper economic deciles of the society. The richest strata of society, the tenth decile, receive more than 19 times the subsidy for medicine or 23 times the subsidy for energy and gasoline compared to the least privileged or the first decile. The situation is similar in the field of food.

What do you think are the drawbacks of paying subsidies in the current way that the government intends to change?

For a variety of reasons, “in the current situation, the government has to pay subsidies.” However, paying subsidies in the previous form will cause a lot of damage to the country’s economy in the medium and long term. For example, subsidies paid to the energy sector have led to the formation of misbehavior of individuals in society, smuggling and even the inefficiency of the industrial sector; The issue of environmental pollution and waste of resources is also a serious issue. We have seen similar conditions in other areas of consumption.

In the current world situation, due to the corona issue and especially the Ukraine war, the need for change has become more serious, because today in the world we are witnessing an increase in the global price of some strategic items that make the issue more acute and the government needs to implement programs faster. Consider, for example, that the price of wheat around the world has risen by about 40 percent over the past few months, if we do not react appropriately; The difference between the price of subsidized flour in the country and outside the borders of neighboring countries may pose a serious challenge for us in supplying, distributing and controlling smuggling.

Are there any other objections to the current trend and why was this issue not addressed sooner?

Perhaps the most important objection to injecting subsidies into the country’s economy was not in its existence but in its form; He knew the type of execution and its amount. As I mentioned, the previous process and form did not allow the subsidy to be paid fairly, transparently and without rent. For example, consider the issue of rent, which has created corruption issues for the country’s economy due to the non-transparency of the plan.

You believe that this plan should be implemented and even started late; But does not the implementation of this plan increase the pressure on the middle and weak classes? And how can the government succeed in targeting subsidies?

We have to admit that our economy is sick in this area and it has to be treated. Treating the sick economy can be painful, but we have to consider whether it is in the interest of the country and the people to continue the current trend or to change it. And that short-term issues are important to us or the medium and long-term interests of the country? Which one should we prioritize? Of course, we have another serious question: what should be the time, form and strategy of change if we want to change the current situation?

It has been argued that injecting subsidies into the economy is not inherently bad, and that many countries use it extensively or to a limited extent at times. The main question is what is this subsidy? Should this subsidy be injected into the production sector or the consumption or trade sector? What is the form of implementation, how, amount and level of coverage of this subsidy and how? These are serious questions that the government seems to be trying to correct the wrong practices that have prevailed in this area.

For the new scheme in general, criteria can be considered for the success of subsidy schemes and targeted. One of the most important issues is real purpose, which is partially pursued in the new plan. As mentioned, the subsidy is primarily intended to help the poor, and resource leaks to other groups reduce its effectiveness.

On the other hand, some experts believe that given the state of the inflation-stagnant economy, the implementation of the subsidy plan should not lead to a worsening of the economic situation of the people, worsening employment and rising inflation and larger government and market role in commodity pricing. This should be carefully considered and the necessary planning should be done in the face of it.

On the one hand, the appropriate context for the implementation of subsidy schemes and its purposefulness should be considered and considered in the medium-long term, for example, planning to adjust and realize the level of income is very important.

The political feasibility of implementation is also very important. Apart from political currents and orientations, it seems that the sympathetic experts of the country, who almost unanimously believe that the previous subsidy payment process is inefficient, should support this plan and its implementation, and guide public opinion to the success of the government in this plan. . Simply put, we now need an expert and media coalition to implement this plan.

To be more successful, we must use the previous experiences of our country and other countries in the field of subsidies and its purpose. This experience exists in many countries. Take China, or even Poland, for example. Targeting energy subsidies in Poland was part of the government’s economic reform program, which at the same time halted wage inflation, raised interest rates, and implemented price liberalization.

Inside the country, there have been several attempts to eliminate direct and indirect and covert subsidies or to turn them into overt or targeted subsidies. Of course, it is not 100% similar to the current situation. In the previous case, the area of ​​energy and gasoline subsidies was targeted, and in the new plan, the target area includes more food; But learning experiences can be. For example, in some cases, we faced short-term economic turmoil that temporarily disrupted, such as increasing the price of energy carriers in a chain, increasing the cost of goods and the costs of moving and distributing goods, but experience showed that after a while The situation was somewhat under control.

In what areas do you think you know the consequences of targeting subsidies in a new way and how?

In my opinion, the implementation of the new plan is necessary in the medium to long term and is in the interest of the country’s economy.

But clearly the most serious issue in the short term is the impact of the plan on inflation expectations. If we can manage this in the short term, the implementation of the plan will face less problems.

At the household level, we face two problems. On the one hand, a new targeted plan could lead to changes in the level of household demand for consumer goods, which could be inflationary; On the other hand, if the level of income does not improve and the current level of household income is not adjusted in proportion to the level of inflation and price liberalization; This may reduce the welfare of households in the long run, especially low- and middle-income households. But rest assured that in the medium and long term, the benefits of implementing this plan for all households and the country’s economy outweigh its drawbacks.

One of the possible harms is that the implementation of this plan should not depend on government economic expansion and government decisions and government allocation of resources and interference in market mechanisms, increasing government concentration and oversight instead of decentralization and increasing inflation, economic and political instability and public distrust. Government, will result.

We hope that the government will act with intelligence and expertise on these issues, and it is necessary for the people of our country to support the government’s decisions at this time.

Considering all the issues raised as a business and economic expert in general, do you agree with the change in the new subsidy payment process?

In general, in my opinion, the country should go through this path of change, and I hope that the government will be able to manage this issue in a desirable way with intelligence and expertise.

It seems that the government should implement something to increase the support coverage rate of the plan for the poor deciles, which it has planned to do to some extent. It is also important to note that the implementation of this plan does not cause the transfer of power from the people to the government, and the economy is not very government-owned, and there is no excessive interference in the natural processes of the market. He also managed social and political issues properly. That the economic pressure on the people should be balanced and the slope of implementation should not be too high.

Therefore, an accurate answer to your question is conditionally possible if we can carefully examine the form, time and manner of implementation and at the same time pay attention to the income sector of the society and also bring the society and public opinion with the government and the public opinion and experts. To convince; I completely agree with this plan.

I believe that this should have started after the war, and the longer it lasts, the deeper the problem and the challenge, and the harder it is to solve.