If the government can?t get it right on LPG, it can?t get direct benefit transfers right anywhere

When only R40 crore got transferred in 43 districts in three months of the direct benefit transfer (DBT) scheme?s first phase, most assumed bureaucratic/political sabotage. After all, if the scheme works, a lot of theft along the way of the government?s R3 lakh crore spending on subsidy/entitlement is in danger of getting wiped out.

Even if you assume there is no direct sabotage, there is the issue of bureaucratic lethargy/incompetence. Secretary, Planning Commission, and project-in-charge of the DBT scheme, Sindhushree Khullar, held a meeting of district collectors a few weeks ago to identify precise glitches. In many cases, beneficiaries didn?t have bank accounts; in others, post office accounts existed, but since these are not digitised they cannot be used for DBT; in yet others, district officials didn?t have the list of beneficiaries of scholarship and pension that were identified for the first phase of transfers ? the list is long.

Which is why the plan to distribute cash subsidies directly to those buying subsidised LPG cylinders is critical?petroleum minister M Veerappa Moily said the scheme will be rolled out throughout the country and a beginning will be made on June 1 with 20 districts. In the case of LPG, none of the hurdles cited above really apply. All 14 crore LPG customers are registered with three oil companies, all of which are PSUs run by the Centre, all have a healthy corporate culture and all have digitised records.

Moreover, there will be a huge response, since customers gain R50,000 crore or so each year of subsidy (considering all 14 crore consumers get about R400 per cylinder subsidy on the permitted quota of 9 cylinders in a year). A single letter from IOC/HPCL/BPCL to customers, saying he/she will get the R3,600 subsidy only if they supply their Aadhaar and bank account numbers, would do. In case the customers don?t have bank accounts, their LPG supplier can write to RBI or a designated official to get bank account created.

Besides the fact that the three companies involved in LPG cash transfers are tech-savvy, another critical factor that should allow a seamless functioning is the complete absence of state government interference?the Centre will be transferring subsidies to the beneficiary accounts directly through oil companies using the services of government-owned banks?in other words, if DBT doesn?t work for LPG cash transfers, no one else can be blamed. A top government functionary associated with the project says ?LPG will be the real proof?. Indeed, if the government fails to implement cash transfers in LPG successfully, the chances of any improvement in its DBT performance in other sectors would further weaken.

Petroleum ministry is hopeful of a R10,000-12,000 crore reduction in LPG subsidy, which stood at R40,000 crore in FY13, once the scheme is implemented throughout the country. Though the scheme is taking off in 20 districts from next month where Aadhaar penetration is high, there are still a few months left for both the customers and the government to get the Aadhaar and bank accounts seeded with the LPG connection records?subsidy payments through Aadhaar number connected bank accounts only will start from September 1.

How much political mileage DBT will give to the UPA government is something which only time can tell, but merely in terms of savings that the government is looking at, its derailment would mean huge losses. The ?Regional Economic Outlook: Asia and Pacific? report of the International Monetary Fund has projected an impressive potential savings of 0.5% of GDP due by DBT-Aadhaar combination as it can eliminate 15% leakage in subsidy and entitlements? payments. This would mean a savings of over R27,517 crore taking into consideration the GDP at factor cost at constant (2004-05) prices in FY13. A National Institute of Public Finance and Policy study, after taking into account all the costs and making modest assumptions about leakages, found that the Aadhaar project would yield an internal rate of return of 52.85% to the government.

The stakes, apparently, are much higher than anybody?s imagination and there is no room for faltering in LPG DBT as it will have major implications on the rest of the plan. The government has planned to launch the second phase of DBT from July 1, covering various social sector schemes in another 78 districts, taking the total number of districts covered to 121. If the government can?t get it right on LPG, it can?t get direct cash transfers right anywhere.

santosh.tiwari@expressindia.com