M RAJSHEKHAR,ET BUREAU
D-day is 18 days away. On January 1, the Congress-led UPA government will start migrating the delivery of welfare services to a new architecture: straight into an individual's bank account, verified by a unique identification (UID) number called Aadhaar.
It's a soft launch. The first of the three stages will unravel in 43 districts where a large percentage of people have bank accounts and Aadhaars. Also, in the programmes earmarked for stage I, worth about Rs 20,000 crore, transfers to bank accounts is already happening; what will change is that they will now be linked to the Aadhaar number to reduce, if not eliminate, duplication.
The complexity of the exercise will increase manifold as more of India is covered in the other two stages, in April 2013 and April 2014. This will also increase as more programmes are added, especially food, oil, fertiliser and employment. In full flow, the money flowing through those pipes could go up to Rs 300,000 crore. So, is the government ready?
It is moving with urgency to tie up loose ends for stage I: opening bank accounts, issuing Aadhaar and matching the two. It is also trying to drum up support. One such private forum on December 17 will see two champions of cash transfers in the government—Jairam Ramesh and Nandan Nilekani—brief the National Advisory Council (NAC) and select members of the media on the government's plans. Here are six questions, gauging the government's preparedness for cash transfers, the duo need to answer conclusively.
It is moving with urgency to tie up loose ends for stage I: opening bank accounts, issuing Aadhaar and matching the two. It is also trying to drum up support. One such private forum on December 17 will see two champions of cash transfers in the government—Jairam Ramesh and Nandan Nilekani—brief the National Advisory Council (NAC) and select members of the media on the government's plans. Here are six questions, gauging the government's preparedness for cash transfers, the duo need to answer conclusively.
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1. Will everyone receive their Aadhaar number in time?
In the new system, every beneficiary needs an Aadhaar and a bank account. In three years, the government has issued about 280 million Aadhaars. That still leaves another 800 million numbers to be issued before April 2014.
Senior officials of the two government entities in charge—the National Population Register (NPR) and the Unique Identification Authority of India (UIDAI)—say they will meet their respective targets in the next 15 months, and that everyone will have an Aadhaar. The officials spoke on the condition of anonymity as they are not authorised to speak to the media. UIDAI chairman Nilekani declined comment. An email to Ramesh, minister of rural development, went unanswered.
However, past experience with enrolments suggests 800 million enrolments in 15 months might be a tall ask. So far, enrolments have focused on urban and population-dense areas. As the authorities go further into rural areas—where most beneficiaries of welfare programmes reside—the pace of enrolments might be slower. "There's a certain degree of realisation that unless something happens urgently, this will be an incomplete exercise by the next elections," says Abhijit Sen, member, Planning Commission, one of the government entities pushing cash transfers.
Aadhaar has so far been marketed as optional. This is changing now. State governments like Rajasthan and Delhi are talking about Aadhaar becoming a must to access government benefits and services, even as the UIDAI Bill remains to be passed. "The law is imperative to ensure the UID does not become a barrier to accessing entitlements," says legal researcher Usha Ramanathan.
2. Will everyone be issued a bank account in time?
Data from the banking regulator shows there's much ground to be covered on bank accounts too. In a November 5 speech on financial inclusion, Dr KC Chakrabarty, deputy governor in the Reserve Bank of India, noted that only 40% of Indians have bank accounts. Once again, most who don't reside in villages and have a greater imperative for cash transfers. According to Harun R Khan, also an RBI deputy governor, about 188,000 villages had banking connectivity in June 2012. India has about 700,000 villages.
The experience with bank accounts in the 43 stage-I districts may not be an appropriate benchmark for the rest of India. "These are all districts with better-than-usual banking penetration," says MS Sriram, visiting faculty at IIM Bangalore's Centre for Public Policy. In the lead up to January 1, the government has reportedly handed electoral rolls to PSU banks, and told them to ensure that every household in these 43 districts has at least one bank account. So, for example, Punjab & Sind Bank has announced 'camps' to open bank accounts in north-east Delhi and north-west Delhi districts, both earmarked for stage I.
Saral Money, a prepaid card tailored for cash transfers launched yesterday in the National Capital Region, also targets banking access (Read: Saral Money a step towards cash transfers, UID & financial inclusion).
Elsewhere, earlier this week, the RBI eased procedural norms for opening bank accounts. It said that Aadhaars and job cards of the National Rural Employment Guarantee Scheme (NREGS) can be used as address proof for opening a bank account. Further, it has done away with the 'introducer system', which mandates a reference from an existing account holder in a bank branch. Whether this will provide a bank account in time to those who need it remains to be seen.
3. Will the last-mile banking channel be ready in time?
Money coming into the bank accounts of beneficiaries— verified by Aadhaar—is one half of the cash-transfer architecture. The other half is how beneficiaries withdraw that money. The question acquires greater relevance for those who have don't have access to bank branches or ATMs, and rely on roving agents, called 'banking correspondents'.
Government efforts to organise and scale up this BC architecture have been punctuated by mis-steps. This May, the department of financial services (DFS) in the finance ministry, announced a plan to split the country into 20 clusters for BCs. Each cluster was to be managed by one BC company, to be chosen by a price-based auction. The auctions saw aggressive bids by BC companies, amplifying the fear of monopolistic behaviour. In a meeting in late-November, Ramesh, Nilekani and Planning Commission officials met finance minister P Chidambaram to share their reservations about the common BC model. "The DFS model is now history," Ramesh had messaged ET after that meeting.
It now appears the last mile will be based on an alternative model proposed by the Nilekani panel on micro-payments— a network of 1 million micro-ATMs (portable handheld machines, like credit card readers). "We need a dense network of BCs so that no one becomes a power centre," says a UIDAI official, speaking on the condition of anonymity. Aadhaar will be the basis of authentication.
So, when a person in a village wants to withdraw money from his account, he will approach a BC in his area and give his fingerprint on a micro-ATM. The fingerprint is verified instantly and the BC pays the person. For any new system, banks have to be assigned areas, companies have to bid, and they have to buy equipment and train staff.
"Accountability cannot be created without a lot of systems," says Himanshu, a JNU professor who has worked on poverty estimates. "Without systems, leakages will go up." Sanjay Kuberkar of Bartronics, a BC, does not see the expanded network by April 2014. He points out that BCs currently cover only 70,000 villages—a 10-fold expansion is needed. "So many devices are not available so quickly," says Kuberkar, president, financial inclusion. "Also, there are only a few BC companies. And even if we have the capacity, we still have to find people and train them."
According to Kuberkar, the main issue for BCs, who are facing a "crisis of confidence", is the "invisibility of revenues"—it cannot be ascertained how much money will flow through cash transfers and when. "BCs are waiting to see if banks will raise rates," he says. "Banks are waiting to see what the committee on financial inclusion says in its guidelines."
4. Will the UID payment system work flawlessly on scale?
Over the past year or so, UIDAI has been running a handful of pilots that cover money transfer to a bank account, biometric authentication and transactions. The pilots covered NREGS in Jharkhand, pensions in Tripura and Maharashtra, public distribution system (PDS) in Andhra and LPG in Karnataka. (Two other pilots, kerosene in Kotkasim and fertilisers in Karnal, were not Aadhaar-enabled.) Sen says the number of pilots are "not sufficiently large in number". There is also little information on how these pilots have fared.
While the UIDAI claims they are working well, news reports and civil-society researchers have flagged problems with biometric identification, resulting in exclusion of beneficiaries. "There have been no independent evaluations by the government," says Himanshu. It is unlikely evaluations will happen now. "Given that there is a certain urgency, the bias is now towards action," says Sen.
At least one pilot—the Jharkhand one—has struggled to scale up. When it was kicked off early this year, UIDAI officials in the state told ET it would cover 174,000 NREGS workers in 12 blocks; almost a year on, the pilot is running in some panchayats in four blocks and covers 5,000 workers, says a senior UIDAI official in the state, not wanting to be named.
Yet, the government is aiming for a full rollout. "The scale of pilots is indeed small," says the UIDAI official quoted earlier. "But obviously, the government would test it out as the rollout starts. That said, is there anything in the architecture that is not scalable?"
Money coming into the bank accounts of beneficiaries— verified by Aadhaar—is one half of the cash-transfer architecture. The other half is how beneficiaries withdraw that money. The question acquires greater relevance for those who have don't have access to bank branches or ATMs, and rely on roving agents, called 'banking correspondents'.
Government efforts to organise and scale up this BC architecture have been punctuated by mis-steps. This May, the department of financial services (DFS) in the finance ministry, announced a plan to split the country into 20 clusters for BCs. Each cluster was to be managed by one BC company, to be chosen by a price-based auction. The auctions saw aggressive bids by BC companies, amplifying the fear of monopolistic behaviour. In a meeting in late-November, Ramesh, Nilekani and Planning Commission officials met finance minister P Chidambaram to share their reservations about the common BC model. "The DFS model is now history," Ramesh had messaged ET after that meeting.
It now appears the last mile will be based on an alternative model proposed by the Nilekani panel on micro-payments— a network of 1 million micro-ATMs (portable handheld machines, like credit card readers). "We need a dense network of BCs so that no one becomes a power centre," says a UIDAI official, speaking on the condition of anonymity. Aadhaar will be the basis of authentication.
So, when a person in a village wants to withdraw money from his account, he will approach a BC in his area and give his fingerprint on a micro-ATM. The fingerprint is verified instantly and the BC pays the person. For any new system, banks have to be assigned areas, companies have to bid, and they have to buy equipment and train staff.
"Accountability cannot be created without a lot of systems," says Himanshu, a JNU professor who has worked on poverty estimates. "Without systems, leakages will go up." Sanjay Kuberkar of Bartronics, a BC, does not see the expanded network by April 2014. He points out that BCs currently cover only 70,000 villages—a 10-fold expansion is needed. "So many devices are not available so quickly," says Kuberkar, president, financial inclusion. "Also, there are only a few BC companies. And even if we have the capacity, we still have to find people and train them."
According to Kuberkar, the main issue for BCs, who are facing a "crisis of confidence", is the "invisibility of revenues"—it cannot be ascertained how much money will flow through cash transfers and when. "BCs are waiting to see if banks will raise rates," he says. "Banks are waiting to see what the committee on financial inclusion says in its guidelines."
4. Will the UID payment system work flawlessly on scale?
Over the past year or so, UIDAI has been running a handful of pilots that cover money transfer to a bank account, biometric authentication and transactions. The pilots covered NREGS in Jharkhand, pensions in Tripura and Maharashtra, public distribution system (PDS) in Andhra and LPG in Karnataka. (Two other pilots, kerosene in Kotkasim and fertilisers in Karnal, were not Aadhaar-enabled.) Sen says the number of pilots are "not sufficiently large in number". There is also little information on how these pilots have fared.
While the UIDAI claims they are working well, news reports and civil-society researchers have flagged problems with biometric identification, resulting in exclusion of beneficiaries. "There have been no independent evaluations by the government," says Himanshu. It is unlikely evaluations will happen now. "Given that there is a certain urgency, the bias is now towards action," says Sen.
At least one pilot—the Jharkhand one—has struggled to scale up. When it was kicked off early this year, UIDAI officials in the state told ET it would cover 174,000 NREGS workers in 12 blocks; almost a year on, the pilot is running in some panchayats in four blocks and covers 5,000 workers, says a senior UIDAI official in the state, not wanting to be named.
Yet, the government is aiming for a full rollout. "The scale of pilots is indeed small," says the UIDAI official quoted earlier. "But obviously, the government would test it out as the rollout starts. That said, is there anything in the architecture that is not scalable?"
5. Can legitimate beneficiaries be excluded?
Sen believes exclusion is happening in areas even where the pilots are showing a decline in leakages. Exclusion can happen if any of three details of a person are not in place: an Aadhaar, a bank account, and the person's name in the programme rolls.
Sen feels exclusion is happening because UIDAI does not necessarily cover all people in a locality and because people may have Aadhaar but not proof of eligibility for the scheme—like a BPL (below poverty line) ration card. Says Sen: "I asked the pension people (IAS officers in the pilot districts), 'did you look for all 60-80 year olds to see if they are all getting pensions, or did you focus only on existing pensioners and get them to apply for an Aadhaar?' It was the latter."
According to Sen, if the motivation is to show that leakages are coming down, there will be exclusion unless you also expand the supply side. "But where is the mechanism through which people can go and apply for a ration card, etc?" he asks. This problem, says Himanshu, should be sizably addressed once the socioeconomic caste census data is available.
6. Can the government identify the poor accurately?
A large chunk of India's welfare programmes— like old-age and widow pensions, Indira Awaas Yojana—are targeted at BPL households. To identify the poor for welfare programmes, the government relies on periodic surveys of poorer households. The last BPL census was done in 2002. Its next iteration, which had to be completed by 2006, was converted into the socio-economic caste census (to capture caste information about these households as well). It is still underway.
According to Sen, primary data about these households has been collected for 83-84% of the country; it's 50% for UP and Bihar. After the data has been collected, it has to be put up in a public place—like a gram sabha— for the locals to validate the census findings. According to rural development minister Ramesh, the new BPL list will be ready by July 2013. "Jairam is being optimistic," says Himanshu. "The earliest they can get this data is next December," he says.
Over the years, as successive governments linked more and more welfare programmes to the BPL list, relatively affluent households have elbowed the poor aside, and pushed their way into these lists. In 2009, a panel led by NAC member NC Saxena had estimated that only 39% of households assessed as 'poor' had a BPL card or an antyodaya card.
One of the questions facing the government (read, Congress) is: should it do cash transfers based on the existing census or wait for the new one? It can continue with the 2002 database, but money will keep going to those who should not be receiving it. Or, for now, it could leave the BPL programmes—the main one being food—out of cash transfers, and stick to non-BPL programmes like scholarships for girl students, or pensions for the disabled.
In both cases, says Himanshu, cash transfers can backfire on the Congress. "If the Congress goes into elections claiming that it has reformed welfare delivery, but nothing has changed for the poor, they will get angry."
