by Raghav Bahl Jun 28, 2014 20:10 IST
The paramount reform in Prime Minister Modi's first budget has to be the elimination of wasteful subsidies over 36 months. Not in one shot, not in one year, not in a knee jerk upping of prices, but in a calibrated, gradual, unremitting, all pervasive adjustment using three instruments:
one, correctly identifying beneficiaries;
two, providing them a biometric identity cum bank account in an Aadhaar plus India Post joint venture;
and three, using gradual price increases over 3 years to completely eliminate non-targeted, non-merited subsidies.
This is not as incredible as it sounds. It is doable. What's more, it is an imperative - remember, from Rs 25,000 cr or 1.25 per cent of GDP at the turn of the century, subsidies have ballooned to over Rs 2,55,000 crore or 2 per cent of GDP this year. Quite simply, if the budget does precious little, but delivers on this single reform, India could virtually live happily ever after.
Take the example of fertiliser subsidy - this year, it will be at Rs 67,970 cr, up from Rs 60 cr in 1976-77. Much of this is for urea whose price is fixed, unlike two other nutrients (where prices vary but subsidy is fixed). Because of this, in irrigated areas, farmers use three times the quantity of urea per hectare as in rain-fed areas. This damages the soil. We cannot do away with fertiliser subsidies as small and marginal farmers will suffer the most. But a fixed cash payment per hectare would encourage farmers to be frugal, with the cash paid directly into their Aadhaar-IndiaPost accounts, even as fertiliser prices are set free.
Queue to apply for Aadhaar card. Representational image. Reuters
I am aware that the BJP is not happy with Aadhaar in its present form. The Standing Committee of Finance headed by BJP leader and former Finance Minister Yashwant Sinha had made some sharp observations. These had sprung from the previous government's confusion about the purpose of Aadhaar; the security of data when it did not have statutory status and was the creature of an executive order; the reliability of using finger prints when a large number of people were engaged in manual labour; and provision of social security entitlements to illegal immigrants with Aadhaar numbers.
But it did not reject the idea entirely; it only called for a review of the scheme and for a new bill that would reflect its concerns. A bill will have to be presented anew in any case now that a new Lok Sabha has been constituted.
The Supreme Court has also said that Aadhaar needs to have a legal underpinning. So the government must clarify that Aadhaar IDs are not proof of citizenship; they only denote domicile in India. This is not that outlandish - nothing, for instance, stops illegal aliens from taking benefits even now, since a ration card is easy to procure. Because Aadhaar does not make it any easier to do that, it's unfair to debunk it on that count alone.
In fact, cash transfers fit in neatly with the Prime Minister's focus on e-governance. These cash transfers should be rolled out in cities and towns to begin with as they are well banked. Renana Jhabvala, the national coordinator for SEWA, an NGO working with self-employed women, has reported encouraging results from direct benefit transfer in West Delhi.
Raghubir Nagar is a poor neighbourhood. In 2011, about 450 below poverty level card holders there were asked whether they wanted to participate in a year-long pilot study, which had the Delhi government as partner. One hundred families that agreed got Rs 1,000 as subsidy every month; it was transferred to the bank accounts of women.
The results showed a marked improvement in nutrition as households given cash were able to buy 60 percent more non-vegetarian food and pulses than those who were on PDS, while the amount of cereals and sugar consumed by both groups remained the same. The cash receivers bought grain of their choice cheaper from wholesale markets. The quality was better than rationed supply they said.
The women felt empowered. Alcoholism did not increase in these families; it did not decrease either. Men said they did not touch the money meant for food. Some women used a part of the money for medical expenses. The behaviour of ration storekeepers changed because of perceived competition; they kept the shops open every day and improved the quantity and quality of grain sold to those on the PDS list.
Jhabvala says cash transfers worked in Delhi because the city has a dense network of banks. This may not be the case in rural areas. "After decades and decades of experimentation in food security it is time to listen to the people and decide what they want," she said.
In April this year, researchers from the Poverty Action Lab of the Massachusetts Institute of Technology made a presentation in Delhi on the learnings from five years of evaluation of NREGA payments in Andhra Pradesh through biometrics-based smart cards. The time to collect payments for those using smartcards fell from 34 days on average to twenty days. Government outlays were unchanged but more households got payments. Access to work increased because jobs were not falsified to siphon out money. Corruption could still happen as ghost workers could collude with officials but since wages were transferred to the accounts of the ghost workers, the balance of power shifted to them. Rather than corrupt officials parting with money, they had to plead with ghost workers for their cut.
Unique identification for each citizen also ensures a basic right - the right to 'an acknowledged existence,' says Nandan Nilekani, the architect of Aadhaar, 'without which much of the nation's poor can be nameless and ignored, and governments can draw a veil over large-scale poverty and destitution.'
So here's hoping that Prime Minister Modi and Finance Minister Jaitley will make this their Idea Number One on the tenth of July. It shall be as much an act of statesmanship as genuine economic reform.
