Iran to begin second stage of subsidy reforms

The Iranian government has announced the impending launch of the second phase of the subsidy reform plan which aims to rejuvenate Iran’s economy.

The initial stage of the plan, which aims to gradually remove subsidies on gasoline, natural gas, electricity and food over a five-year period and instead give families cash handouts as compensation, was implemented in October 2010 when payments were deposited into the bank accounts of the heads of Iranian households.

Yahya Al-e Eshaq, head of Tehran Chamber of Commerce, Industries and Mines, described the subsidy plan as a national project that the government successfully implemented its first phase.

This comes as Iranians have shown different reactions to the targeted subsidy plan.

Some believe the plan has failed to bridge the gap between the poor and the rich and has, instead, increased inflation while others maintain that the positive effects of the plan are evident in rural areas where energy consumption is low and cash payment is of great help to people.

According to the original subsidies reform bill, which was passed by Iran’s parliament, half of the revenues earned through reallocating subsidies were to be distributed among families in the form of cash. Some 30 percent of revenues were to be allocated to the industrial and agricultural sectors. The figure was subsequently reduced to 20 percent.

Despite government promises to support manufacturers, many say their expectations have not been met. Davoud Soheili, an Iranian producer says manufacturers did not directly or indirectly receive any financial support in the first phase of the plan.

“In the second phase, we expect the government to adopt proper policies to make production cost-effective and help Iranian products to compete with imported ones,” he noted.

Mohammad Reza Farzin, deputy Minister for Economic Affairs and Finance, says the government aims to provide more serious support to the production sector in the second phase of the plan.

The government has also announced that three million affluent Iranian families will be cut off from cash handouts in the second phase so that more cash can be given to the economically-stranded social strata.