NITI Aayog plans subsidy regime revamp
5 min read 17 Apr 2015, 12:12 AM ISTPlanning body wants to use data from Aadhaar, Jan Dhan scheme and census to better target subsidy regime
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New Delhi: NITI Aayog, the successor to the Planning Commission, proposes to marry data from the unique identity project Aadhaar, the Jan Dhan accounts opened by banks as part of the government’s eponymous financial inclusion drive and the socioeconomic and caste census to better target subsidies.
The plan has been inspired by the so-called JAM (Jan Dhan, Aadhaar, Mobile) trinity proposed by the finance ministry.
Once effected, this approach will provide a fillip to the direct transfers of food and fertilizer subsidies to their intended beneficiaries and eliminate intermediaries and leakages. Given recent statements, including by Prime Minister Narendra Modi, urging the rich to voluntarily give up subsidies, the creation of such a database may eventually make it easier for the government to not only better target subsidies but also restrict them.
In an interview, Niti Aayog member Bibek Debroy said that thus far, direct benefit transfers (DBT) have been confined to cooking gas subsidies and the transfers of pensions and student scholarships.
“We are trying to take stock of how and to what extent we can marry different sets of databases (to push the DBT agenda). The matching is difficult, but I am setting this out as a target. There is the Aadhaar database, there is the Jan Dhan Yojana database, there will be a database of the socio-economic survey," Debroy said.
The JAM trinity was originally proposed by chief economic adviser in the finance ministry Arvind Subramanian in the Economic Survey 2014-15. A day later, finance minister Arun Jaitley said in his budget speech that the government would focus on the JAM trinity to implement DBT.
“The JAM Trinity will allow us to transfer benefits in a leakage-proof, well-targeted and cashless manner," he said.
The estimated direct fiscal cost of both central and state government subsidies on products and services such as rice, wheat, pulses, sugar, kerosene, cooking gas, naphtha, water, electricity, fertilizer, and iron ore is about â‚ą 3.78 trillion, or about 4.2%, of gross domestic product (GDP).
A panel constituted by the Modi government under former food minister Shanta Kumar to overhaul the 50-year-old Food Corporation of India (FCI) has recommended direct cash transfers of food subsidy in the name of the female head of the family, linking it to Jan Dhan bank accounts and Aadhaar unique identity numbers.
The committee, which submitted its report in January, has estimated that this can save the government up to ₹ 35,000 crore “which can be ploughed back to agriculture through investments in irrigation and building better roads and markets network". The panel also suggested that the fertiliser subsidy be given directly to farmers in cash and the fertilizer sector be completely deregulated.
Debroy said implementation of the plan will take time as states are still verifying the socio-economic and caste census data.
The socio-economic and caste census has surveyed all rural households in the country to collect data on literacy, housing, assets and caste. Once done, data for each administrative region has to be presented before the gram panchayats (village councils), which need to verify it.
Still, the merger of the streams of data will be useful in expanding DBT to food and fertilizer subsidies as well as to areas such as issuing soil health cards and kisan credit cards, Debroy said.
Himanshu, an associate professor at Jawaharlal Nehru University, Delhi, and a Mint columnist, said while the concept is good, the data of the socio-economic and caste census need to be tested for beneficiaries of the National Food Security Act.
“It also needs to be remembered that the survey will only give you data, but will not tell you who is poor and who is not poor. The government needs set benchmarks to create the target groups," he added.
Former Planning Commission member N.C. Saxena said one problem is that most of the Jan Dhan accounts that have been opened are not operational and bank branches are far from the villages, making it difficult for a large part of the rural population to access accounts. The socio economic and caste census is yet to be completed, he added.
“The methodology under which the survey is being carried out is faulty and hence if the government relies on these survey results, it will end up targeting the well-off," Saxena said. .
More than 130 million Jan Dhan bank accounts have been opened and 757 million Aadhaar numbers issued in India, which has some 904 million mobile phone connections.
“It is possible to envisage that when the JAM trinity becomes linked, the goal of periodic and seamless financial transfers to bank accounts after identification through the Aadhaar number can be implemented with immeasurable benefits to helping the lives of the poor," the Economic Survey said.
“Even as it focuses on second- and third-generation reforms in factor markets, India will then be able to complete the basic first-generation reforms. This will be the grand bargain in the political economy of Indian reforms," it added.
The Economic Survey, critiquing the present subsidy regime, said cash-based transfers based on the JAM trinity offer possibilities to effectively target public resources to those who need it most. “Success in this area will allow prices to be liberated to perform their role of efficiently allocating resources and boosting long-run growth," it said.
According to the survey, electricity subsidies benefit mainly the relatively wealthy 67.2% of households that are electrified and a large fraction of subsidies allocated to water utilities are spent on subsidizing private taps when 60% of poor households get their water from public taps.
The Economic Survey said that while at first glance, kerosene seems a good candidate for price subsidy as it is popularly conceived to be consumed mainly by the poor, 59% of subsidized kerosene allocated through the public distribution system (PDS) is actually consumed by households, with the remainder lost to leakages. Only 46% of total kerosene consumption is by poor households, it said.
“Even in the case of the food distributed via the PDS, leakages are very high (about 15% for rice and 54% for wheat, with most of these leakages concentrated in the above the poverty line segment)," the survey added.
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