Subsidy payout via Aadhaar accounts can save 1.2% of GDP: UBS Securities

Written by PTI | Mumbai | Updated: Jan 9 2014, 03:18am hrs
Aadhaar programme, under which the government is carrying out Direct Benefit Transfer schemes, may lead to savings that could be up to 1.2 per cent of the GDP once it is rolled out in more areas, a report said.

"Savings (by way of DBT) in different scenarios could be from 0.2-1.2 percent of GDP, depending on the schemes targeted and whether all the states participate," said the report by UBS Securities.

Aadhaar is on the verge of attaining critical scale and tangible benefits, enabling meaningful financial inclusion, it said, adding that the savings from leakages from the government's benefits transfer system may start becoming visible from this year.

"We believe that the tangible benefits in terms of the Aadhaar enabling meaningful financial inclusion and savings from lower leakages from the government's benefits transfer system should start becoming visible in 2014. The key bottleneck to realising benefits, apart from not having a bank account in the first place, is lethargy in linking bank accounts to Aadhaar," the report said.

It added that the DBT can help plug leakages in the form of fakes/duplicates and generate huge fiscal savings for the government as it is transferring all its subsidies directly to the bank accounts of the intended beneficiaries.

Nearly half of the population (52 crore as of December end) has already enrolled for Aadhaar and 100 per cent coverage is possible in the next two-three years, it said.

The report said the financial inclusion can have huge productivity impact in under-banked markets, with its large informal economy, possibly more than 1 per cent of GDP. It can enable sharply higher rural penetration, in a profitable manner.

The Reserve Bank support remains the key for driving financial inclusion, the UBS report said, adding that it has been playing a proactive role, with the new Governor making this a top priority.

Electronic know-your customer (e-KYC) is a good example - online authentication can be used in place of current KYC documents to open a bank account, making the process simpler, with lower customer acquisition costs, it added.

Social welfare spending is high at 10-12 per cent of GDP for the Centre and states, and has inherently high leakages due to inefficient and arguably corrupt distribution machinery, which has led to intended users not receiving the benefits, the report said.

The beneficiaries of current leakages are the middle/high- income classes.

Plugging these leakages through DBT may thus adversely impact discretionary consumption and we remain underweight on that, it said adding direct beneficiaries of DBT may be fertiliser companies, and government oil companies.