PM delivers a game changer

Written by fe Bureau | New Delhi | Updated: Nov 27 2012, 08:01am hrs
Manmohan SinghManmohan Singh, Prime Minister
Come January, the eligible population in 51 districts will receive cooking gas, kerosene and food subsidies in cash in their bank accounts, apart from pension and wages under the rural job guarantee scheme. The Aadhaar-enabled rollout will be expanded quickly to cover 18 states/Union territories effective next April and the entire country by the end of next year.

Though the salutary impact of the move on this years Budget will be minimal, the direct cash transfer scheme would doubtless give a potent tool to the government in subsequent years in its fiscal consolidation efforts. The scheme could help curb the subsidy outgo and reduce leakage in social infrastructure funding.

Prime Minister Manmohan Singh-headed National Committee on Direct Cash Transfers on Monday decided to roll out the cash transfer programme across the country. Apart from disbursal of various subsidies, doles related to health, education and financial inclusion would also be distributed using this platform.

According to government sources, Mondays meeting of the committee saw discussions on how to move forward and operationalise direct cash transfers. Devising detailed rollout plans and ensuring rapid rollout for better coverage were also discussed and plans have been more or less finalised.

As per the programme, all departments engaged in transferring benefits to individual beneficiaries will quickly move to an electronic direct cash transfer system, based on an Aadhaar Payment Bridge or APB and identify the schemes to move to this system. They will also prepare a roadmap for the rollout to be smooth and fast.

As far as the current fiscal is concerned, with the 2G spectrum auction raking in a far-less-than-estimated Rs 9,408.crore and the Hindustan Copper stake sale being salvaged only after state-run Life Insurance Corporation came to its rescue, the government is hard-pressed to find ways to reduce the fiscal deficit to the revised target of 5.3% of GDP and avoid a rating downgrade. Finance minister P Chidambaram has issued directives to all ministries to tighten their spending, given the uphill task ahead. Independent analysts peg the fiscal deficit this year to be close to 6%.

The committee also decided that to facilitate all this, there is a need to constitute other committees including a technology committee, a financial inclusion committee and implementation committees within each ministry so as to ensure coordination and quick implementation.

The platform has been developed by the Unique Identification Authority of India (UIDAI) which will be used for pushing these social security and entitlement payments to the targeted users.

APB is a repository of Aadhaar or unique identification number of residents and their primary bank account number used for receiving all entitlement payments from various government agencies. It facilitates seamless transfer of all welfare scheme payments to beneficiary residents Aadhaar-enabled bank account (AEBA). APB requires using the Aadhaar number as the primary key for all entitlement payments, thereby weeding out all ghosts and ensuring that the benefits reach the intended beneficiaries.

The government has pegged its subsidy outgo on food, fuel and fertiliser for the 2012-13 fiscal at over Rs 1.79 lakh crore, but this figure is evidently a gross underestimate, given that under-recoveries of oil marketing companies, a great part of which has to be met with budgeted subsidies, are alone pegged at Rs1.67 lakh crore against the budgeted petroleum subsidy of Rs 43,580 crore. The fertiliser subsidy is now expected to be at least 40% higher than the budgeted Rs 60,974 crore.

Although the government has budgeted the food subsidy bill at Rs 75,000 crore for 2012-13, sources said the burden could well cross Rs 1 lakh crore thanks to a 16% hike in the procurement price of paddy even if the wheat procurement price is kept unchanged at last years level. The food subsidy bill could drive up the governments annual food subsidy bill to Rs 1,19,000 crore. Substantial savings in these subsidies are aimed to be achieved through the cash transfer scheme from 2013-14 onwards.