Will Modi 'waste' his mandate? PDF Print E-mail
Wednesday, 16 April 2014 00:58
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Even in the BJP’s Chhattisgarh, the costs of running the PDS outweigh the benefits—Aadhaar is the obvious answer

The first nail in Aadhaar’s coffin, it has to be said, was driven in by none other than Nandan Nilekani. The day the father of the UIDAI’s Aadhaar decided not to be a technocrat anymore, and chose to become a Congressman, he gave Aadhaar a distinct political flavour. It was now officially a Congress project. To that extent, when senior BJP leaders talk of junking Aadhaar when—and if—they come to power, you can’t really blame them. Except, the BJP is going to continue several other Congress projects—the Food Security Act and the MGNREGA, to name just two—so there is no reason to single this one out. More important, the BJP leaders who have lashed out at Aadhaar don’t carry the burden of running the government; Narendra Modi does, and Aadhaar is the only tool that offers him the kind of help he needs to balance his budget.

The BJP’s response to the issue of rising subsidies—from 1.4% of GDP in the NDA years to 2.3% in UPA-2—has been that the best possible practices from all over the country will be incorporated into the PDS, for instance. The point is that this is nowhere near enough. The annual losses will still run into over a lakh crore rupees, a level of waste that a Narendra Modi can ill afford, were he to become prime minister. A look at even the data for Chhattisgarh, one of the country’s best examples in terms of how to run the PDS by using technology, makes this clear—the state uses GPS trackers on ration shop trucks to keep tabs on them, SMSs to individual ration shop consumers on the grain being dispatched with details of when it will arrive at the shops, and so on.

At an overall level, NSS data for Chhattisgarh suggests that around 30% of people’s overall consumption of rice in 2011 was met from ration shops—this was a much lower 11.2% in 2004, making it obvious the systems put in place by chief minister Raman Singh are clearly working. But more than the general populace, it is important to see how the poor are faring. The improvement here is even greater. Just 18.2% of the rice needs of the poor were met through the PDS system in 2004—that is, the poor got 2 kg of rice per capita from the PDS in 2004, of their total consumption of 11kg. In 2011, however, this figure had gone up to as much as 48%.

But, and here’s the problem, the poor reduced their consumption of rice in this period, to 9.8 kg—though, 4.7 kg of this was bought through the PDS in 2011. So, even if you assume there was a R10 subsidy per kg of rice, all the poor really got was R47 per month. The state where the poor bought the most rice was Tamil Nadu, and even here it was only 5.5 kg—71.4% of the total requirement of 7.7 kg. Contrast this minuscule amount got from the PDS with the cost of running it. According to initial estimates of the Planning Commission’s Independent Evaluation Office, the government spends R3.65 to deliver food worth R1. In other words, the poor would be a lot better off if the government gave them cash instead of wasting the money on FCI and the rats and other pests that eat up large portions of its grain each year.

As for Modi and his likely finance minister, the gains from an Aadhaar-based cash transfer system are huge. The exact amount depends on annual procurements by FCI—last year, for instance, FCI had around 42-43 million tonnes of extra foodgrain on July 1—at an average economic cost of R25,000 per tonne, that’s R1 lakh crore of money, or 1% of GDP, that the government can recoup by just selling the grain in the market. That, of course, is a stock, what’s more important is the flow. On average, FCI procures 60 million tonnes of grain each year, which costs it R1.5 lakh crore based on the economic cost of R25,000 per tonne. But, if the 250 million poor are to be given 5 kg of wheat and rice per month in terms of cash—that’s R100 per month @ R20 per kg of wheat/rice—that’s just R30,000 crore. In other words, we’re talking of Modi being able to save as much as 1% of GDP per year on just food subsidies if he moves to Aadhaar-based cash transfers.

Bring in LPG transfers, kerosene transfers or even fertiliser subsidies, and the need to use Aadhaar—if it is not robust enough now, it needs to be fixed—becomes even more compelling. LPG subsidies are around R40,000 crore right now and oil company estimates are about 15% of the users are fake—so that’s a R6,000 crore saving right away by just linking Aadhaar numbers, bank accounts and LPG connections.

In the case of fertiliser subsidies, roughly R1 lakh crore in FY14 once you include the balance carried forward, the bulk of the subsidy is used up by large farmers who double crop their farms and can easily afford to pay the market rates. Conservatively, Rs 30,000 crore can be saved here.

Or take MGNREGA where R33,000 crore was budgeted for spending in FY14. Even if you assume an impossible 100% targeting success, the fact is that around 30% of the funds are kept aside for buying cement/bricks/materials for the work to be done. Given the actual purpose of MGNREGA is to provide unemployment dole to participants, not to build roads, there is a 30% wastage built into the programme in its current form.

Slice it any way you like and, were Narendra Modi to become prime minister, it is in his interest to ensure Aadhaar is made to deliver. And to forget, in case it was ever an issue with him, that Nilekani is a member of the Congress party and that his project is one that was started by the UPA.

Last Updated ( Wednesday, 16 April 2014 07:51 )

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