Including food subsidies will improve its impact hugely
That the number of bank accounts opened under the Pradhan Mantri Jan Dhan Yojana (PMJDY) is over 295 million—of these, 176 million are in rural areas—is no mean achievement. Equally impressive is the fact that over Rs 74,600 crore was deposited by the government into the accounts of beneficiaries as subsidies for cooking gas or payments for MNGREGS or scholarships in FY17. Given subsidies comprised around 44% of the fiscal deficit in FY17, such direct benefit transfers (DBT) not only reduced the large theft levels associated with subsidy expenditure, it also facilitates the move to a market-pricing mechanism across product—subsidies have only distorted the market, whether for grain, fertiliser or kerosene, and DBT will ensure products are sold at market prices.
Given this, it is unfortunate that little progress has been made in distributing food subsidies via the DBT mechanism. As FE has reported today, even after two years of prodding by the Centre and a couple of pilot projects, states remain reluctant to even experiment with the DBT model in a district or in a block. This is despite the fact that more than 230 million ration cards have been digitised and 180 million or a good 80% of these have been seeded with Aadhaar. States may have their own reasons for not initiating a DBT transfer; they may not want to shut down the local corporations that buy and distribute grain, given it is a source of livelihood. However, now that 70% of beneficiaries are buying their supplies from the ration shops after their fingerprints are authenticated against the Aadhaar database, it is surprising the Centre isn’t switching to DBT. Given 810 million people have to get 5 kg per month of wheat/rice under the Food Security Act, and the subsidy is around Rs 22 per kg, this means the Centre needs to spend Rs 107,000 crore versus the Rs 145,000 crore it spends right now under the FCI-ration-shop system.
Once food subsidies are disbursed through PMJDY accounts, banks may find these accounts to be a less of a drag on their business since the balance should rise from the current average of Rs 2,231. According to data provided State Bank of India, approximately three-fourths of the lender’s financial inclusion accounts have a positive balance. And while it could be years before many of the account-holders are able to get a loan, coming into the formal banking system itself should help them access credit from other formal sources such as a microfinance institution or a small finance bank (SFB). Given how quickly banks have been able to open the non-frills accounts that are linked with Aadaar numbers, the government’s target of seeding a billion bank accounts with Aadhaar—and linking these to a billion mobile numbers—doesn’t seem ambitious.