NOVEMBER 30, 2012

By TIOL Edit Team

THE Prime Minister Dr. Manmohan Singh has put the Government in fast gear on the grandiose project for direct cash transfers (DCT) to beneficiaries of various subsidy-centric and other welfare schemes.

He exuded over-confidence the other day while addressing the first meeting of the National Committee on Direct Cash Transfers (NCDCT).

Dr. Singh stated: "Direct Cash Transfers, which are now becoming possible through the innovative use of technology and the spread of modern banking across the country, open the doors for eliminating waste, cutting down leakages and targeting beneficiaries better. We have a chance to ensure that every Rupee spent by the government is spent truly well and goes to those who truly deserve it."

He should moderate over-confidence with ground realities, provide answers on ticklish and contentious implementation issues.

He should also direct the Government to simultaneously pursue other options to reduce subsidy leakages and thus make DCT a triple medicine o ensure that benefits reach targeted segments of population, reign in corruption in delivery system and reduce expenditure and fiscal deficit.

Take the case of fertilizer subsidy. A cost-benefit study of Aadhar project undertaken by National Institute of Public Finance and Policy (NIPFP) at the behest of Planning Commission has projected a modest saving of 7% in fertilizer subsidy scheme through DCT.

Savings many times more than estimated 7% can be achieved simply by re-engineering fertilizer subsidy mechanism by weeding out fiscal bias for certain nutrients such as nitrogen and products such as ordinary prilled urea. It would not cost Government anything to bring urea under nutrient-based subsidy scheme!

The Government can easily save a few thousand crore rupees by ordering mandatory production and use of coated urea and urea super-granules and by promoting use of nitrates-based nitrogenous fertilizers that cause lesser losses of nitrogen through air, runs-offs and seepages in the crop field.

A truly nutrient-based and product-neutral subsidy scheme, coupled with mass popularization of drip irrigation should not only cut subsidy bill by half but also ensure efficient use of irrigation water. This is the key to food security and sustainable agriculture.

UPA Government should not neglect such options and create an impression that aadhar is the magic wand for inclusive growth and expenditure reforms. It must decide whether it would cash subsidy to land owners or to the share-cropper (the actual farmer) or to both.

The Government should also disclose whether and how often it would revise cash subsidy taking into account the increase in global prices of fertilizer and raw materials and rapid depreciation of rupee.

Such concerns are equally relevant to kerosene and liquefied petroleum gas (LPG) that are primarily derived from imported crude. Would aadhar card-enabled DCT provide for automatic increase or decrease in fuel subsidies to reflect global price and forex changes?

And the acid test for the Government would be food subsidy. Would the Government automatically increase DCT/per person to reflect the regular increase in food procurement prices and the resulting rise in open market prices?

Would Aadhar mechanism have built-in mechanism to capture the inflation-caused swings in the number of potential beneficiaries especially who live on the threshold of dubious poverty line?

Yet another issue that can't be pushed under the carpet is the urgent need to make the definition of poverty realistic and provide for inflation-indexing of poverty line.

As for implementation issues, a country bedeviled with power shortages and frequent breakdown of servers and telecom link can make aadhar-enabled electronic banking a pain in the neck for poorest of the poor.

When banking terminals at times fail in public sector banks in Delhi for hours, what is the guarantee that they would function in villages where power is supplied only for 6-8 hours as per the rural electrification norms.

There also many other challenges on the DCT road. The Government must list all concerns and disclose how it would resolve them. Credible and wholesome communication on Aadhar should replace government hand-outs to the media.

NIPFP study should have factored in all concerns and challenges before coming out with goody-goody projections.

The study claims: “We find that substantial benefits would accrue to the government by integrating Aadhaar with schemes such as PDS, MNREGS, fertiliser and LPG subsidies, as well as housing, education and health programmes. The benefits arise from the reduction in leakages that occur due to identification and authentication issues. Our analysis takes into account the costs of developing and maintaining Aadhaar, and of integrating Aadhaar with the schemes over the next ten years. Even after taking all costs into account, and making mod- est assumptions about leakages, of about 7-12 percent of the value of the transfer/subsidy, we find that the Aadhaar project would yield an internal rate of return in real terms of 52.85 percent to the government.”

The Government should commission a fresh study that should factor in all hidden and unrecognized costs of Aadhar-enabled DCT.