Moving away from physical subsidies is critical
Though the government has made impressive strides in its direct benefits transfer (DBT) programme, just about a third or so the money transferred is by way of the Aadhaar Payments Bridge or to bank accounts that are seeded with the Aadhaar numbers of beneficiaries. The main reason for this is the legal uncertainty that surrounded Aadhaar so far, but with the Aadhaar (Targetted Delivery of Financial and Other Subsidies, Benefits and Services) Act of 2016 now in place, this ambiguity has been removed. Which is why, as The Economic Times has reported, the government has done well to fix a deadline of December 2016 for 100% Aadhaar seeding of the bank accounts for MGNREGA, LPG subsidy and National Social Assistance Plan—only around 16% of MGNREGA payments, for instance, are made through the Aadhaar Payments Bridge right now. All ration cards are to be made Aadhaar-enabled by March 2017 and it is only for fertilisers that an end-2018 target is set.
Given the huge leakages that take place in all government schemes, being able to harness the potential that Aadhaar can offer will not only help save tens of thousands of crore rupees, it will be a big vote catcher as well once crores of poor start getting what is their due. Though Andhra Pradesh has already got 100% Aadhaar seeding of ration cards in most districts, the full potential of Aadhaar will only get harnessed when the system moves away from the physical one it is today. Once MGNREGA benefits are sent through bank accounts, for instance, families can take up a low-paying job elsewhere and supplement this with MGNREGA dole—right now, they have to sacrifice any other employment to be able to work on MGNREGA projects. If money spent on government schools are replaced with cash payments using Aadhaar, similarly, the poor can demand more accountability from government schools since they will be free to move to private schools with the money they get from the government. In the case of the food subsidy, once the subsidy amount is credited to bank accounts, the government will no longer need to maintain the large foodgrain stocks it does today. If, as a result, FCI can lower its stocks by 20-25 million tonnes, that’s a one-time saving of R50,000-60,000 crore immediately; carrying costs will come down by another R7,000 crore or so immediately. And once, as a result of the savings, the government can start giving farmers cash based on their land holdings, a truly big farm revolution can take place since farmers will then grow the crops the market wants and not just the crops—wheat and rice, primarily—that FCI wants to purchase.