Direct cash transfer may remain elusive for UPA-II

Written by SunnyVerma | Kirtika Suneja | New Delhi | Updated: Dec 14 2012, 04:17am hrs
From low Aadhaar penetration & technical glitches to administrative bottlenecks, govt staring at hurdles galore

The UPA government may have to put on hold its ambitious plan of rolling out cash transfer schemes for delivery of all major subsidies to the needy before the next general elections. With infrastructure and logistical arrangements being far from ready, not just independent observers, but even the government's own wings have expressed their inability to match the pace desired by the government, which wants to use direct cash transfer as a key electoral plank.

Major subsidies in oil, fertiliser and food account for about 95% of the country's total subsidy bill and about 15% of the total Central budget. Budget 2012-13 had estimated that the subsidy bill has to be pared to 1.9% of the country's GDP and, taking this further, the Planning Commission has projected that subsidies would be 1.2% of GDP in 2016-17. The proposed reduction in subsidies as percentage of GDP is an integral element of a new five-year fiscal consolidation plan in the works. Since the three major subsidies would be among the last to be fully shifted to the cash transfer scheme, this seems like a tall order.

Consider the odds stacked against the government's plan: The petroleum ministry has admitted that rolling out direct cash transfers in districts with Aadhaar penetration of less than 80% will be difficult. And even among the 51 districts identified for the first phase of the rollout from January 2013, only 20 have more than 80% Aadhaar penetration. The food ministry has acknowledged that transfers in lieu of subsidised food would be possible only in union territories in the first phase.

On Wednesday, food minister KV Thomas said: There is a large number of poor families who do not have savings bank accounts. So, launching direct cash transfer across the country would be difficult. As a result, the second phase of direct cash transfer for kerosene, fertiliser and food using the Aadhaar platform is likely to get delayed beyond the government's current tenure.

Banks have said their IT systems are not fully geared yet to implement cash transfers into bank accounts. Another problem is that they are yet to link existing bank accounts to the Aadhaar numbers. (The RBI recognised Aadhaar for both identity and address proof only on Tuesday.) Sources said that opening new bank accounts for Aadhaar-holders in the targeted 51 districts will take at least 2-3 months, making it difficult to implement the cash transfer scheme.

While banks have told the finance ministry that they will be unable to implement the scheme, the Unique Identification Authority of India (UIDAI) also accepts that direct cash transfers in districts with less than 80% Aadhaar penetration will be a tall order.

In fact, the Planning Commission in its recent report has said that the integration of Aadhaar into government programmes will increase from 2% coverage of participants in 2012-13 to 100% coverage in 2018- 2019. Sources in the fertiliser ministry say the government would be able to transfer subsidy directly to farmers only by March 2013, but this seems to be an overly optimistic projection.

The transfer in this case will be based on kisan credit cards, Aadhaar number and bank account number. As per the plan, the cash transfer of fertiliser subsidy would be done in phases, with the government tracking sales of urea up to the dealer level in first phase I, farmer level in phase II in December, while the actual transfer would not begin before March.

The oil ministry does not have a system integrator at present to implement the scheme and their subsidies are centralised. Other ministries do not have this problem as their scale is not as much and their subsidies are disintegrated. Fertiliser subsidy is complicated and the producer subsidy goes to at least 20 companies On the other hand, food is a controversial subject and there is no clarity on the Food Bill. Also, market availability is a problem in rural areas, said an official of the UIDAI.

In the Union Budget 2012-13, the government pegged the fertiliser subsidy bill at R60,974 crore as against R67,199 crore in 2011-12. The subsidy bill hasn't flared up this year (a major part of the subsidy meant to be disbursed under the revised estimate in the Budget last year was spent only this year). The fertiliser ministry has demanded an extra subsidy of R40,000 crore, but a good part of this is unlikely to reflect in this year's budget.