Interview with Economist
Sanjeeb Mukherjee April 4, 2014 Last Updated at 00:47 IST
Since the United Progressive Alliance (UPA) government decided to put on hold the Aadhaar-based subsidy transfer for domestic liquefied petroleum gas (LPG), questions have been raised about the future of one of Congress' most ambitious initiatives aimed at plugging leakages. Two months after the government move, a pioneering study by economists Karthik Muralidharan, Paul Niehaus and Sandip Sukhtankar showed leakages dropped 12 per cent when smart cards were used. In an interview with Sanjeeb Mukherjee, Karthik Muralidharan, an assistant professor in the University of California, said direct benefits transfer (DBT) was rolled back because of pressure from groups with vested interests. Edited excerpts:
In India, Aadhaar-based cash transfers were put on the back-burner because of questions over its effectiveness. What do you think went wrong with Aadhaar and DBT?
I don't think it's correct to say things went wrong. It is a massive and complex project and teething troubles are inevitable. Also, effective integration with delivery requires strong implementation-leadership from states, which might not have been present in the case of the few pilot projects. As the Andhra Pradesh smart card project shows, it takes many years of patient and persistent work to effectively integrate a new biometric payment system with a major welfare programme, and doing so yields substantial benefits over time. So, I think the DBT pilots were (a) not implemented well enough (b) subject to political-economy pressures for a roll-back by vested interests and (c) shelved too soon. I am reasonably confident that the work done on Aadhaar will not be wasted, and it will be used to build a better service delivery architecture.
Many social economists complain that once the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) payments started getting linked with Aadhaar, work participation fell and there were complaints of non-payment of wages. Do you think Aadhaar per se could be blamed for this?
I don't think Aadhaar can be held responsible for this as there are considerable problems with MGNREGA payments in general, and it's not clear if Aadhaar made things worse (though it is definitely possible that there were teething troubles with the integration). This is where our study is so useful, because it shows that a well-implemented programme of integrating biometric authentication and CSP-led payments into MGNREGA payments (in the AP Smart card programme) reduced time lags in payment, an increase in access to work, and an increase in amounts received by beneficiaries.
There is also a perception that the political economy, which stands to benefit from the leakages in subsidy or benefits transfer system, has been standing in the way of effective implementation of Aadhaar-based transfer. Is it the right perception?
This is probably true to some extent. The problem is there are some genuine concerns that need to be addressed (such as implementation issues and privacy guidelines), and others which are really vested interests. But the second type will hide behind the first and try to derail the full project. So, it is important to have genuine political leadership to implement the project, but also to be open to criticism and put in continuous effort to fix legitimate problems.
Do you think the government moved in haste to link benefits transfer through Aadhaar? Should it have waited for the enrolment to reach a certain threshold before starting DBT?
This is tricky as you have to both build out the system and build out applications. Perhaps, one thing the government could have done differently was focus on saturating enrolment in five-10 districts in the first two years (in addition to the broader national rollout), and then building applications on top of it in the next two years, so that voters could see a broader set of benefits from the new system. Now, these benefits are not really visible, and so there may be uncertainty among voters regarding the value of investing in the Aadhaar platform.
With murmurs growing for the need to junk Aadhaar, how should the new government proceed?
I think some of this is political posturing prior to elections. My hope is that our study and the strong benefits we are finding will help create a bipartisan political consensus to proceed with the project. Of course, some tinkering and fine-tuning will be required. But I am optimistic the new government will not shelve the project.
What makes you so hopeful the Aadhaar rollout will continue irrespective of who comes to power?
One source of optimism is that there are strong voices across political parties in favor of the broader idea of delivering government benefits directly to beneficiaries through a secure payments infrastructure. Nandan Nilekani is, of course, the most public champion of the idea and is with the Congress. But our study, which was funded by the Omidyar Network, was strongly championed by Jayant Sinha (who was then the head of Omidyar Network in India) and he is contesting elections on a BJP ticket. Other non-Congress and non-BJP chief ministers with a strong track record in governance - including Nitish Kumar and Chandrababu Naidu - have also supported the idea at various points in time. More broadly, I think voter demands for service delivery are becoming strong enough for India to be close to an inflection point where we move from the politics of patronage to the politics of service delivery. As this happens, political leaders will need to deliver services effectively, and will be seeking means to do so. DBT, with a secure payments infrastructure, can be a key tool in enabling this.
The Supreme Court said in one of its judgments that Aadhaar was not mandatory for availing government benefits. Do you think that effectively takes the sting out of the ambitious project? If not mandatory, what will be the future of Aadhaar and benefits transfer?
The Andhra Pradesh government also did not make smart cards mandatory for receiving payments, though it strongly encouraged it. Our results show that even without this and even with only 50 per cent coverage, there were large gains to beneficiaries. Thus, the gains were large enough and the programme was popular enough that over time, you could probably get to high rates of coverage even without making it mandatory.
Your study shows that in MGNREGA, smart cards reduced transaction time and leakages. In what other programmes can this be replicated?
That will depend on the programme. But any public programme that has leakages and/or significant hassles for the beneficiary in availing entitlements is likely to benefit from a system of authenticated payments and transactions.
In your analysis, you have said funds worth $4.44 million were saved because of the use of smart cards, as time to reduce payments was reduced. How did you arrive at this conclusion?
We simply take the time savings per payment collection episode, multiply it by the number of payments/year and price the value of time at the equivalent of hourly agriculture wages of Rs 20/hour. The total value is calculated on the basis of the total number of payments made in the MGNREGS in the eight study districts.
How much percentage of total annual allocation under MGNREGA could be saved if payments are linked to smart cards?
In our study, there was no change in the amount the government spent, but there was a significant increase in what beneficiaries received, thereby leading to a significant reduction in leakage. So the impact was not to reduce outlays as much as to increase the fraction of those outlays that reached the beneficiary.
You are now conducting an analysis of smart cards in PDS in Bihar. At what point do you think smart cards could be used. Also, the government has conducted some pilot projects and the results were not encouraging for want of bank accounts with beneficiaries. Do you think distributing PDS subsidy through smart cards could be a viable option in India?
A lot of work is needed for proper implementation. Several programmes have their own attempts at enrolling beneficiaries and issuing ID cards. The value of Aadhaar is in streamlining all these efforts and only requiring enrolment once, with robust de-duplication architecture to streamline beneficiary lists across programmes.
In India, Aadhaar-based cash transfers were put on the back-burner because of questions over its effectiveness. What do you think went wrong with Aadhaar and DBT?
I don't think it's correct to say things went wrong. It is a massive and complex project and teething troubles are inevitable. Also, effective integration with delivery requires strong implementation-leadership from states, which might not have been present in the case of the few pilot projects. As the Andhra Pradesh smart card project shows, it takes many years of patient and persistent work to effectively integrate a new biometric payment system with a major welfare programme, and doing so yields substantial benefits over time. So, I think the DBT pilots were (a) not implemented well enough (b) subject to political-economy pressures for a roll-back by vested interests and (c) shelved too soon. I am reasonably confident that the work done on Aadhaar will not be wasted, and it will be used to build a better service delivery architecture.
Many social economists complain that once the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) payments started getting linked with Aadhaar, work participation fell and there were complaints of non-payment of wages. Do you think Aadhaar per se could be blamed for this?
I don't think Aadhaar can be held responsible for this as there are considerable problems with MGNREGA payments in general, and it's not clear if Aadhaar made things worse (though it is definitely possible that there were teething troubles with the integration). This is where our study is so useful, because it shows that a well-implemented programme of integrating biometric authentication and CSP-led payments into MGNREGA payments (in the AP Smart card programme) reduced time lags in payment, an increase in access to work, and an increase in amounts received by beneficiaries.
There is also a perception that the political economy, which stands to benefit from the leakages in subsidy or benefits transfer system, has been standing in the way of effective implementation of Aadhaar-based transfer. Is it the right perception?
This is probably true to some extent. The problem is there are some genuine concerns that need to be addressed (such as implementation issues and privacy guidelines), and others which are really vested interests. But the second type will hide behind the first and try to derail the full project. So, it is important to have genuine political leadership to implement the project, but also to be open to criticism and put in continuous effort to fix legitimate problems.
Do you think the government moved in haste to link benefits transfer through Aadhaar? Should it have waited for the enrolment to reach a certain threshold before starting DBT?
This is tricky as you have to both build out the system and build out applications. Perhaps, one thing the government could have done differently was focus on saturating enrolment in five-10 districts in the first two years (in addition to the broader national rollout), and then building applications on top of it in the next two years, so that voters could see a broader set of benefits from the new system. Now, these benefits are not really visible, and so there may be uncertainty among voters regarding the value of investing in the Aadhaar platform.
With murmurs growing for the need to junk Aadhaar, how should the new government proceed?
I think some of this is political posturing prior to elections. My hope is that our study and the strong benefits we are finding will help create a bipartisan political consensus to proceed with the project. Of course, some tinkering and fine-tuning will be required. But I am optimistic the new government will not shelve the project.
What makes you so hopeful the Aadhaar rollout will continue irrespective of who comes to power?
One source of optimism is that there are strong voices across political parties in favor of the broader idea of delivering government benefits directly to beneficiaries through a secure payments infrastructure. Nandan Nilekani is, of course, the most public champion of the idea and is with the Congress. But our study, which was funded by the Omidyar Network, was strongly championed by Jayant Sinha (who was then the head of Omidyar Network in India) and he is contesting elections on a BJP ticket. Other non-Congress and non-BJP chief ministers with a strong track record in governance - including Nitish Kumar and Chandrababu Naidu - have also supported the idea at various points in time. More broadly, I think voter demands for service delivery are becoming strong enough for India to be close to an inflection point where we move from the politics of patronage to the politics of service delivery. As this happens, political leaders will need to deliver services effectively, and will be seeking means to do so. DBT, with a secure payments infrastructure, can be a key tool in enabling this.
The Supreme Court said in one of its judgments that Aadhaar was not mandatory for availing government benefits. Do you think that effectively takes the sting out of the ambitious project? If not mandatory, what will be the future of Aadhaar and benefits transfer?
The Andhra Pradesh government also did not make smart cards mandatory for receiving payments, though it strongly encouraged it. Our results show that even without this and even with only 50 per cent coverage, there were large gains to beneficiaries. Thus, the gains were large enough and the programme was popular enough that over time, you could probably get to high rates of coverage even without making it mandatory.
Your study shows that in MGNREGA, smart cards reduced transaction time and leakages. In what other programmes can this be replicated?
That will depend on the programme. But any public programme that has leakages and/or significant hassles for the beneficiary in availing entitlements is likely to benefit from a system of authenticated payments and transactions.
In your analysis, you have said funds worth $4.44 million were saved because of the use of smart cards, as time to reduce payments was reduced. How did you arrive at this conclusion?
We simply take the time savings per payment collection episode, multiply it by the number of payments/year and price the value of time at the equivalent of hourly agriculture wages of Rs 20/hour. The total value is calculated on the basis of the total number of payments made in the MGNREGS in the eight study districts.
How much percentage of total annual allocation under MGNREGA could be saved if payments are linked to smart cards?
In our study, there was no change in the amount the government spent, but there was a significant increase in what beneficiaries received, thereby leading to a significant reduction in leakage. So the impact was not to reduce outlays as much as to increase the fraction of those outlays that reached the beneficiary.
You are now conducting an analysis of smart cards in PDS in Bihar. At what point do you think smart cards could be used. Also, the government has conducted some pilot projects and the results were not encouraging for want of bank accounts with beneficiaries. Do you think distributing PDS subsidy through smart cards could be a viable option in India?
A lot of work is needed for proper implementation. Several programmes have their own attempts at enrolling beneficiaries and issuing ID cards. The value of Aadhaar is in streamlining all these efforts and only requiring enrolment once, with robust de-duplication architecture to streamline beneficiary lists across programmes.
