12871 - Replacing welfare schemes with universal basic income to hit poor the most -

Replacing welfare schemes with universal basic income to hit poor the most

The study by Carnegie India opposed the Economic Survey 2016-17 proposal of delivering UBI through an Aadhaar-linked system

Indivjal Dhasmana  |  New Delhi 

Last Updated at February 21, 2018 07:15 IST

The study opposed the Economic Survey’s proposal of delivering UBI through an Aadhaar-linked system

A research-based study has countered Chief Economic Advisor Arvind Subramanian’s prescription on replacing existing social welfare schemes with universal basic income (UBI).

The study by Carnegie India, the centre here of a US-based institution, also opposed the Economic Survey 2016-17 proposal of delivering UBI through an Aadhaar-linked system.

The survey says an “annual transfer of Rs 7,620 ($120) to 75 per cent of India’s population will push all but India’s absolute poorest above the 2011–12 Tendulkar poverty line.”

It said the cost of such a scheme will be 4.9 per cent of gross domestic product (GDP).

And, that a budget-neutral transfer could only materialise after existing programmes are withdrawn.

“The Survey is unjustified in presenting India’s largest welfare schemes as candidates for replacement,” said Saksham Khosla, a research analyst with Carnegie India, who authored the study.

In his study, India’s Universal Basic Income: Bedeviled by the Details, he says several such programmes are intended to achieve long-term development goals and cannot be simply substituted by cash transfers.

“In addition, India’s national food distribution and public works programmes, which the survey singles out for their high levels of misallocation and leakage, have improved significantly over the past decade in terms of their coverage and targeting efficiency,” Khosla said.

He also said an exclusive reliance on Aadhaar-linked welfare payments is short-sighted.

“Pilot evaluations of direct benefit transfers (DBT) have found significant room for improvement in last-mile delivery, size of the subsidy, and grievance redressal, even as authentication failures and exclusion errors due to Aadhaar persist,” he pointed out.

Significant progress is still to be made before large-scale Aadhaar-linked transfers can be trusted to reach recipients, he cautioned

12174 - The Curious Case of the World Bank and Aadhaar Savings - The Wire

The Curious Case of the World Bank and Aadhaar Savings

BY ANAND VENKATANARAYANAN ON 03/10/2017 • 

The World Bank’s estimate that Aadhaar has the potential to save $11 billion in subsidies every year has repeatedly been used by the Centre to justify the programme. But does this figure hold up under close scrutiny?

The organisation has admitted that its referencing was incomplete but says that its $11-billion figure is based on an internal extrapolation of two other studies. Credit: PTI, Reuters

Evidence-based policy-making usually proceeds by outlining the problem at hand, discussing various solutions, conducting studies to understand the effectiveness of these solutions and then prescribing a course of action based on accumulated evidence.

It’s safe to say that the media and policy narrative surrounding India’s biometric authentication programme hasn’t followed this process at best and has been skewed in favour of speedy implementation at worst.

For instance, it is clear that both the previous UPA-II and current NDA government painted a highly-exaggerated picture of savings from direct benefit transfers for LPG – a narrative that was largely accepted by an unquestioning mainstream media.

Another figure that has floated around over the last two years is that the Aadhaar project has the potential to save $11 billion in subsidies every year.

There is enough evidence to show that this figure – which originates from the World Bank – doesn’t hold up against close scrutiny.

Most recently, this $11 billion statistic was used as part of the Centre’s argument before the Supreme Court, as part of its reply to a writ petition filed by Shantha Sinha challenging the government’s notifications that made Aadhaar compulsory for various welfare schemes.

A screenshot of the affidavit submitted by the Centre to the Supreme Court. Credit: The Wire

The affidavit by the government of India (shown above) also attaches the relevant portions of a 2016 World Bank report on digital dividends (page 195, shown below).

A clipping of the World Bank’s 2016 report. Credit: The Wire, World Bank

The World Bank study specifically talks about how India’s digital ID programme can potentially save “over US$11 billion per year in government expenditures through reduce leakage and efficiency gains”.

The reference for this sentence, as can be seen, is provided in a footnote (number 4) which refers to a separate study. Crucially, this other study referenced by the World Bank was not attached in the government’s affidavit before the Supreme Court.

What is this study that backs up the $11 billion savings figure? On page 197 of the World Bank report, the footnote 4 corresponds to a study carried out by Shweta Banerjee in 2015.

The term ‘CGAP’  referred to here is the Consultative Group to Assist the Poor – a global partnership of research organisations that is housed out of the World Bank.

On closer examination, the CGAP study mentioned in the link above shows a very different story than the one put forth by the Indian government in its Supreme Court affidavit.

A clipping from the 2015 Banerjee study. Credit: The Wire

The last sentence of the brief (shown above) is enlightening. The CGAP report does not talk about savings as a result of adopting a direct cash transfer model – but about the quantity or total value of the money that has been transferred.

If this is taken at face value, it shows that World Bank was quite clearly mistaken. Is it possible that the government was not aware of this mistake? Very unlikely, since this potential goof-up was extensively discussed and laid out by IIT Delhi professor Reetika Khera in July 2016.

Since then, the claim, however, has been repeated by IT minister R.S. Prasad (September 8, 2016) and by UIDAI’s CEO (May 13, 2017). Capping it off, of course, was reference to the $11-billion figure in the SC affidavit on April 27, 2017.  

So what gives? Did the World Bank make a mistake – or did it produce a different study and forget to cite it?

World Bank response

This author, and others, reached out to the World Bank in July 2017. The first email sent asked about the issue of the value of transfers versus value of savings. Specifically,  the organisation was asked how it referenced Banerjee (2015) as the source for the $11-billion figure when that study made no such claim.

The World Bank replied with the following response:

“The potential savings of over $11 billion in government welfare programs is an extrapolation based on two rigorous papers that estimated the reduction in leakages in the National Rural Employment Guarantee Scheme (NREGS) and the government’s domestic fuel subsidy program respectively due to Aadhaar. Muralidharan et al (2014) estimate that biometric registration, authentication, and payments in NREGs led to a 10.8 percentage point reduction in the leakage of funds (the difference between the wage payment outlays reported by government officials and those reported by households). Barnwal (2015) estimated the UID-based transfer policy reduced fuel purchases in the domestic fuel sector by 11-14%, suggesting a reduction in subsidy diversion. Extrapolating these leakage reduction rates to all Government of India welfare programs – amounting to roughly $70-100 billion in government expenditures—yields savings in the range of $8-14 billion. Instead of reporting this range, we reported the midpoint of $11 billion as potential savings.”

The words extrapolation, estimate and potential are important in this response. The World Bank response basically implies that there are two other inputs (research papers by Barnwal and Muralidharan), and these two inputs were extrapolated using a calculation to generate the final potential savings figure.

A follow-up question was consequently sent to the World Bank, asking it if the organisation’s extrapolation calculations could be shared and also as to why Banerjee (2015) was quoted as a reference in the 2016 report if the institution had actually performed separate research to support its claim.

The World Bank replied as below:

“It turns out we have shared with you all information we could. There is one small caveat to add – the footnote 4 is incomplete and should also have included a reference to Muralidharan et al (2014)  and Barnwal (2015), the latter two papers being cited elsewhere in the report.”

Let’s recap the Aadhaar savings narrative so far. The government has officially claimed $11 billion in potential savings based on a World Bank report. The actual report contains a reference to a study that does not talk about $11 billion in savings, but $11 billion in transfers.

When asked, the World Bank admitted that the referencing in its report was incomplete and pointed to two papers (one by Barnwal which is on LPG and the other by Muralidharan which looks at smart cards in NREGA).

Barnwal (2015)

Barnwal (2015) was first brought to the public’s attention when chief economic adviser Arvind Subramanian referred to in a New York Times article and used it as a basis to state that Aadhaar could potentially save $2 billion. The Barnwal study has since then been debunked by the Comptroller and Auditor General of India (CAG), the International Institute for Sustainable Development and various articles in Economic and Political Weekly.

The government itself has admitted that LPG savings were due to other factors in Parliament: “Lower subsidy during the successive years is due to various factors, including introduction of direct transfer of subsidies into the accounts of consumers (PAHAL Scheme), fall in international crude oil prices and “GiveItUp” campaign.”

Rahul Lahoti, who is associated with Germany’s University of Goettingen and has written extensively on the issue of Aadhaar savings, has pointed out that extrapolation of LPG savings to other schemes is “not advisable”.

“The current analysis of LPG savings are based on very big assumptions, which might not hold. If these assumptions about exclusion/identification of duplicates are violated the actual savings might vanish. But additionally there are several other important caveats. In LPG – it is not clear how much of the savings are due to Aadhaar vs. the direct bank transfer. It might be the case that DBT without Aadhaar itself was effective in eliminating a majority of the leakages claimed by Aadhaar. So Aadhaar might not be necessary in its implementation,” he said, in response to a questionnaire sent by The Wire.

Lahoti went to add:

“LPG subsidy as is well-known and I show in my previous EPW piece is mostly a benefit enjoyed by urban rich/middle class. This group of beneficiaries is different than ones using PDS/mid-day meal. PDS is enjoyed by relatively more rural and poor population where infrastructure is less developed.

In LPG subsidy there is only a one-time linkage between Aadhaar number and the bank account, whereas use of Aadhaar in PDS requires biometric authentication each time the benefit is availed and that process can be error-prone/dependent on infrastructure (electricity/internet connection). “

Muralidharan (2014)

The second paper the World Bank used as part of its extrapolation is by Muralidharan (2014) which studies not Aadhaar but the usage of biometric smart cards in the Centre’s NREGA programme.

The salient features of the Muralidharan paper are:

1. It measured the impact of introduction on biometric smart cards for NREGA and Social pensions and found that the introduction did not change the fiscal outlays (Section 4.2, Page 16).
2. It found a miniscule number of “ghosts” in the NREGA program after biometric smart cards were introduced and only 1.1% of ghosts in the Social pension scheme (Table 5, Page 36), which is entirely consistent with other studies.

The first point requires more explanation. What really is savings? There are two distinct categories of savings:

1. Fiscal savings implies that if ₹100 is spent on a particular program and if introducing biometric smart cards removed duplicates which reduced expenditure to ₹90, then savings is 10%.
2. Efficiency implies that If ₹100 is spent on a particular program and only ₹80 was reaching the beneficiaries, it means program efficiency is at 80%. If introducing biometric smart cards increases efficiency to 90% when ₹100 is still spent, it is efficiency improvement but does not affect fiscal outlays.

Muralidharan (2014) explicitly said that there are no fiscal savings because of introduction of biometric smart cards and there are only efficiency improvements. Hence using this paper as an input to forecast/extrapolate fiscal savings would be inaccurate.

On this point, Lahoti in his emailed response further clarified on the question of using Barnwal and Muralidharan as basis for calculating Aadhaar savings on other social welfare schemes as “unclear”.

“The problem with using Barnwal’s findings to extend Aadhaar to other spheres is that LPG subsidies are different as argued before. Maybe both in NREGA and LPG, having just a direct benefits transfer to the bank might reduce leakages and it’s not clear if biometric authentication (smart cards or Aadhaar) adds any value,” Lahoti said.

World Bank and Aadhaar savings

Taking a step back, there is no publicly available information that shows how an extrapolation of these two papers can be used to derive potential Aadhaar savings in the range of $8 to $14-billion.

The World Bank has refused to share these calculations – and indeed glosses over the fact that the Banerjee article that was actually referenced talks about value of “transfers” and not “subsidy savings”. Further attempts made by The Wire to reach out to World Bank officials and World Bank chief economist Deepak Mishra went unanswered.

In the absence of a specific study or proof-of-work, the simplest explanation is that the World Bank mistakenly equated value of “transfers” with “savings in subsidy” in its 2016 study.

In the right to privacy case, the attorney general made two specific references to the World Bank report to argue against right to privacy, implying that it would impact the state from pursuing its economic and welfare goals of lifting it’s citizens from poverty.

Further Justice Chandrachud while ruling with other judges in the same case that privacy is indeed a fundamental right observed the following:

Data mining with the object of ensuring that resources are properly deployed to legitimate beneficiaries is a valid ground for the state to insist on the collection of authentic data. But, the data which the state has collected has to be utilised for legitimate purposes of the state and ought not to be utilised unauthorizedly for extraneous purposes.

The raison d’être for the Aadhaar project in welfare is that it allows the government to target the subsidies to legitimate beneficiaries.The study by the World Bank that Aadhaar can potentially save $11 billion every year is one of the most important intellectual scaffoldings on which such a claim stands as it was repeatedly cited by the government in multiple public forums and also in the Supreme court.

That the stakes have risen so high over a potentially murky claim is troubling and raises the following questions: If the World Bank had conducted independent research, why did it not make that clear in its 2016 report?

Secondly, if the research report’s referencing was incomplete, as it admits, why was it not corrected or an explanation put out after pointed out by Khera?  Thirdly, if it erred in not making it clear in the first place, why does it refuse to make the study and its calculations public now?

Lastly, and perhaps more importantly, if the origin of the data is murky, why does the government cite it so often?

Anand Venkatanarayanan is a Senior Engineer at Netapp. Views expressed here are personal and do not reflect the views of his employer. 

The author would like to thank Reetika Khera for her inputs on the World Bank savings claim, twitter user databaazi for this thread which formed the basis for this report and Sam Jawed for the original follow up questions to the World Bank.

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12152 - EAC or CEA: Know the difference between Bibek Debroy and Arvind Subramanian's role

EAC or CEA: Know the difference between Bibek Debroy and Arvind Subramanian's role

Key role of Economic Advisory Council is to analyse any issue, economic or otherwise, referred to it by the Prime Minister and advising him thereon. 

 Bibek Debroy (L) and Arvind Subramanian (R). Photo: IANS

By Hitisha Jain

Updated: Tue, Sep 26, 2017

05:19 pm

Mumbai, ZeeBiz WebDesk

Taking account of current economic situation, Prime Minister Narendra Modi on Monday formed Economic Advisory Council (EAC) which will be headed by current member of NITI Aayog, Bibek Debroy. 

Other members of the Council are Ratan Watal, former finance secretary, Surjit Bhalla, CMD, Oxus Investments, Rathin Roy, Director, NIPFP and Ashima Goyal, Professor, IGIDR. 

Key role of EAC is to analyse any issue, economic or otherwise, referred to it by the Prime Minister and advising him thereon. Also, to address issues of macroeconomic importance and presenting views thereon to the Prime Minister. This could be either suo-motu or on reference from the PM or anyone else, the statement said. 

PM Modi forms Economic Advisor Council, Bibek Debroy to be the Chairman

Interestingly, this move came in just after a week when the government decided to extend term of chief economic advisor to Government of India Arvind Subramanian, by one year. 

The question is: How the committee is different from Subramanian's role?

EAC is an independent body which will advise the prime minister on economic and related issues. 

Madan Sabnavis, Chief Economist, Care Ratings said that having more such think-tanks is always useful as it will lead to debate, discussion and decisions.

"Having an economic advisory council is useful as it would work as advisor to the PM, which is different from CEA who advises Ministry of Finance," he said. 

"The Niti Ayog is already there to carve out broader policies for the government while specific issues pertaining to the PM or FM would be taken up by the other two posts. The canvas for economic discussion is really large and there are fixed roles for various such outfits/positions," Sabnavis explained. 

Subramanian, was the mind behind the term "JAM trinity" (Jan Dhan, Aadhaar and Mobile numbers), pitched ideas to deal with "bad bank" as rise in bad loans severly affect the balance sheets of banks. Moreover, he also proposed the concept of Universal Basic Income. 

Now, it will be interesting to see what decisions EAC body takes to boost the economy. 

12114 - FinMin denies reports about CEA Arvind Subramanian’s resignation - Money Control

Sep 21, 2017 01:03 PM IST | Source: Moneycontrol.com

FinMin denies reports about CEA Arvind Subramanian’s resignation

There is speculation that Subramanian may be given an extension, making his tenure co-terminus with the NDA government’s current term till 2019

Moneycontrol News

The finance ministry on Thursday dismissed reports that Chief Economic Adviser (CEA) Arvind Subramanian has resigned.

There is speculation that Subramanian may be given an extension, making his tenure co-terminus with the current term of the Narendra Modi-led National Democratic Alliance (NDA) government till 2019.

Subramanian was appointed on October 16, 2014 for three years as the CEA, a post that had been lying vacant since September 2013 after Raghuram Rajan took over as the Reserve Bank of India (RBI) governor.

Over the last three years, Subramanian has assumed the role of the main go-to person for advice for finance minister Arun Jaitley on macro-economic matters and has been the principal author of the annual Economic Surveys.

He also authored the highly acclaimed “Report on the Revenue Neutral Rate and Structure of Rates for the Goods and Services Tax (GST)” in December 2015, which laid down the broad contours for implementing GST in India from July 1, 2017.

Subramanian has used the Economic Survey to recommended policy changes, sometimes even sweeping measures. This year, for instance, the survey recommended the rollout of Universal Basic Income (UBI), a poverty alleviation plan involving direct money transfer to people’s bank accounts.

In 2015, he introduced the phrase ‘JAM’—Jan Dhan, Aadhaar, Mobile—to the Indian policy lexicon. The ‘JAM agenda’ refers to the potential of largescale, technology-enabled, real-time cash transfers to improve the economic lives of the poor, and raise efficiency by reducing leakages and market distortions. Over the past two years much progress has been made in spreading JAM across India’s economy, also because of the push towards digital payments following demonetisation.

In 2016, the Economic Survey constructed an index to measure states’ preparedness to implement two varieties of JAM programmes: direct benefit transfer (DBT) and BAPU—Biometrically Authenticated Physical Uptake. BAPU differs from DBT in that there is no transfer of money. Beneficiaries simply authenticate their identities and physically collect benefits or subsidised goods as they do presently.

He also brought in a changed structure in the Economic Survey, presenting it in two parts. The Survey’s first part was tabled in the last of week of January following the budget’s advancement by a month, prompting a modification to a new construct of two volumes presented nearly six months apart.

Also read: Downside risks to 6.75-7.5 % growth; RBI has overestimated inflation risks, says Economic Survey

The second volume was presented in August. This is a departure from the past where the survey, often described the government’s official economic report card, came as a single volume divided into two parts—commentary and outlook in the first, and statistics in the second.

Subramanian, whom the Foreign Policy magazine had named him as one of the world's top 100 global thinkers in 2011,  has also been ranked amongst the top 1 per cent of the world's academic economists in terms of citation of research, according to the widely used REPEC rankings. He has studied at St. Stephens College, Delhi; the Indian Institute of Management at Ahmedabad, India; and University of Oxford.

11080 - Universal basic income can work only if welfare schemes are phased out: CEA Arvind Subramanian - Financial Express

Universal basic income can work only if welfare schemes are phased out: CEA Arvind Subramanian

The radical idea of giving free money under a universal basic income plan to reduce poverty can work in India only if the plethora of welfare schemes are phased out, Chief Economic Adviser Arvind Subramanian has said.

By: PTI | Washington | Published: April 19, 2017 3:51 PM

Universal basic income (UBI) will guarantee all citizens enough income to cover their basic needs and would be easier to administer than the current anti-poverty schemes, which are plagued by waste, corruption, and abuse. (Reuters)

The radical idea of giving free money under a universal basic income plan to reduce poverty can work in India only if the plethora of welfare schemes are phased out, Chief Economic Adviser Arvind Subramanian has said.  Subramanian — who had mooted the idea of universal basic income or a uniform stipend paid to every adult and child, poor or rich, in the annual survey of the economy this year — said such a move will have to be completely financed from within and implemented at a mass scale. Universal basic income (UBI) will guarantee all citizens enough income to cover their basic needs and would be easier to administer than the current anti-poverty schemes, which are plagued by waste, corruption, and abuse.According to The Economist, India’s proposal to give every citizen a cash transfer using the digital platform Aadhaar could reduce absolute poverty from 22 per cent to 0.5 per cent. “The Indian setting is completely different in two three different ways. One is that this is not going to be donor-financed at all (like in some African countries). It is going to be completely financed (from) within,” Subramanian said in his appearance at the Center for Global Development, a top American think-tank.

“So the issues that come up, relate to is do we have the fiscal space to do? Secondly, if it happened this is going to be kind of a scaled-up version. It’s not going to be 80 villages, what is the impact and then we think about scaling up. It will be a scaled-up kind of a thing,” he said, observing that this was something that does not necessarily need to be implemented by the centre like one scheme.

Also Watch:

States can start on their own, noted Subramanian, who is currently in the US to attend the annual Spring meetings of the International Monetary Fund and the World Bank. Observing that providing UBI would amount to between four and five per cent of GDP, he said the Indian government cannot afford that.  “So the only way it can work is to potentially we can phase down some of the existing programmes, otherwise it does not work,” he said.

“Then you get into the political economy of questions like can you phase down other subsidies…the fertilizer subsidy, the employment guarantee scheme. Can you phase those programmes politically or now? When you can’t phase it down an extra four-five per cent of GDP is not very meaningful,” he said.  Subramanian also noted that some people think that India has built in a reasonably well social welfare programme in terms of giving away subsidised food.

“Would this undermine that? And the third big question is, is the infrastructure to implement this…the whole biometrics, financial inclusion, and mobile,” he said in response to a question.

“India currently has 1.1 billion people covered under biometrics. At the same time 250 million have banking financial accounts and about 60 per cent of those are linked to the AADHAAR numbers,” Subramanian said.

In terms of mobiles, 250 million people have smart phones, 300 million people have regular phones and 350 million people have no phones, he noted.  Ideally one would like to have the biometric number, bank account and mobile phone linked with each other, he said.  “That is the kind of dream, we call it the JAM (Jan Dhan-Aadhaar-Mobile) infrastructure. At the moment, it is very patched in the way it is developed,” he said.

Noting that in principle nothing prevents a state government from going on its own, Subramanian said, what some of the states, which are thinking about it seriously, do want is federal money for this.  The states might ask for untied money from the Centre, he said.  “That is the kind of conversation that is beginning to happen, because that would make it easier for the state governments to finance this,” Subramanian said.

One of the starting points for this in India is the various social welfare schemes, like the employment guarantee scheme, the food or kerosene subsidy are very leaky and they do not do a very great job in reaching the poor, he said.

UBI can easily be an improvement on that, the chief economic adviser said.  Responding to a question, Subramanian said that it would be very difficult to phase out the existing subsidy programmes, because of the potential political opposition to it. 

 “That’s true across the world, very difficult to withdraw entitlements,” he said.  “So unless you phase down existing programmes…you can’t really (implement UBI)…because the magnitude is so big,” he said.

11079 - CEA Arvind Subramanian on Demonetisation, UBI and Aadhaar - The wire

CEA Arvind Subramanian on Demonetisation, UBI and Aadhaar

BY THE WIRE STAFF ON 19/04/2017 • LEAVE A COMMENT

In a recent discussion in Washington, the chief economic adviser talked on Aadhaar failure rates, pushing Universal Basic Income forward and how demonetisation’s popular response humbled him.

Chief Economic Adviser Arvind Subramanian. Credit: Reuters

New Delhi: The full impact of demonetisation will only be known over the course of the next few months, according to Chief Economic Adviser Arvind Subramanian.

In a talk at the Centre for Global Development, Subramanian also pointed out that the note ban’s impact on the informal sector “will be difficult to assess”, in an allusion to how recent GDP data may not be able to how India’s informal economy performed in the months after demonetisation.

In his talk, Subramanian expands on an issue close to his heart: Universal Basic Income. According to the chief economic adviser, a number of states are currently in discussion with the Centre over how best UBI can be implemented.

In the discussion, he admits that Aadhaar authentication failure rates may have to be looked at again and that there are legitimate privacy concerns arising from the UID initiative. 

The Wire has collated edited excerpts of the discussion below. The full talk can be accessed here.

On demonetisation’s impact and the popular response

So I think yeah, demonetisation had a number of interesting things. We wrote about in the Survey. Firstly, there has been an impact on the informal sector which will be difficult to assess. We just aren’t going to be able to get a handle.

But I think it’s pretty much over because it was related to cash not being in the economy. Now cash is back, so those short-term costs are behind us.

That being said, I do think the headline numbers may not give a full sense of the actual impact of demonetisation. I think we will get to know over the course of the next few months what the actual impact is going to be.

Cause remember, there is going to be an impact on the downside but also an impact on the upside. Like, are we going to get more digitalisation as a consequence? Because people have been moving into credit…and digital payments are taking off. Are we going to see a situation where we are going to be more tax compliant? In some ways, demonetisation on the part of the government does signal a kind of regime shift. Which basically says, “guys if you are not going to be compliant on your tax payments, the government is going to take extra effort to make sure you do so”.

So I think a lot of these impacts of demonetisation, it’s a case of too early to tell. Except in the case of impact on informal sector which I think we don’t really are going to get a handle on.

On tax compliance, it’s something we are going to find out what the impact has been. A lot of this whole demonetisation… its part economics, part politics. I think that there are quite different lenses and perspectives with which to view demonetisation.

Could it have been done better? I think that’s something I am going to leave for the historians and not for me to discuss in any great detail.

But it does raise some really interesting questions about… The thought that crosses my mind is that is there an analogy between what’ve you seen on demonetisation, in terms of the popular response, and the kind of thing we see here [in America]. Why is it that people vote for a party that is going to deprive it of medical assistance? Kind of the ‘What’s Wrong With Kansas?’ kind of thing. I think there is a kind of counterpart here [in India, with demonetisation] as well.

I think it’s ‘What’s Wrong with Kansas’ blown up. Because… if you think there was a cost, why is it that the popular reaction to this [demonetisation] has been so overwhelming? It’s certainly humbled me in terms of my understanding of Indian politics and even Indian economics to a certain extent.

On whether Indian states can start UBI on their own..

At the moment, it’s very patchy in terms of how this has [JAM infrastructure] developed. Some of the states, where many poor people live, those are the states where last mile infrastructure is not as advanced as it should be.

But there are a lot of places where it is getting there. You can conceive of states where you can start that. [It] may be not be perfect…but [there are] places where you can reach a large percentage of the poor.

In principle, nothing prevents a state government from doing it [UBI] on its own. They can just do it. So they can do it on their own. But I think what some of the states that are thinking about this seriously do want federal money for this. One way this could work, under our constitution, the Centre transfers money to different state governments but often in the form of tied money, saying that we give you ‘X’ amount of money, but this is tied to certain schemes.

One possibility is for states to tell the Centre “don’t give us more money” but “give us this money as untied money and let us use it for say a UBI”.

That is the kind of conversation that is beginning to happen. That would make it easier for state governments to finance this. There are some states which could just say “If we can get some money from the Centre, we can go ahead and do this because this infrastructure is largely in place”.

But I should’ve said this earlier. Remember, one of the starting points for this conversation in India is the fact that existing social welfare schemes (food subsidy, employment, fertiliser subsidy) are very leaky. They don’t do a great job of reaching the poorest. In some senses, if you say well with UBI there are last mile problems… it has to be compared against the existing scheme where it is even less perfect in terms of reaching the poor.

If some states could make the case, as they are, that the existing schemes… in fact we have these calculations in the Economic Survey which shows how weak the targeting can be for these programmes [India’s existing welfare schemes]. UBI can easily improve upon that. So at least, in a relative sense, it can be shown as a substantial improvement.

On why Aadhaar can’t be used to improve targeting

The attraction of UBI in some conceptual sense is that…targeting has proved to be highly inefficient and ineffective.

If you want to say but ‘no, we have new technology so let’s use that for better targeting’, I think it’s going to kind of run into the same issues that you get with conventional targeting as well.  So maybe there are solutions where you can improve targeting, but I can give you one example why it happens that targeting will always run into problems.

Take our employment guarantee scheme. Anything that has to be accessed by the state governments for example. You have a programme and they [the states] have to implement it in some way or the other. It turns out that the very states that are better at doing that, by definition, are going to be the states that have the least amount of poor! If you have better governance, by definition, you have less poor in that state.

That’s what we find in the employment guarantee scheme [NREGA] for example. And that’s true for schemes across the board. That the states that are better off, that are better able to take advantage, are the ones who need it the least!

If you take a state like Bihar, which is probably the second poorest state in India, the employment guarantee scheme virtually doesn’t function there. Whereas in a state like Andhra Pradesh, where there are fewer poor [people] or Tamil Nadu, is where most of the money is actually taken up even under the employment guarantee scheme.

That’s always going to be there. That’s why universality… the advantage of a Universal Basic Income is that someone from ‘up there’ just sends a cheque to a bank account and you kind of bypass all the intervening stages of the bureaucracy which is where all the leakages and corruption that take place.

On confidence of overcoming last-mile infrastructure problems

So as you said, the only experiment that has taken place on UBI is in the state called Madhya Pradesh. It’s a very small thing.

What I think gives us confidence that actually a scheme that our friend here implemented here. It is the Indian cooking gas subsidy.

So think of it this way. You have cash transfers for specific subsidies. You have kerosene subsidy and so on. And then you have UBI. Basically, if you scale up cash transfers it kind of approaches an UBI.

We’ve had success with the cooking gas subsidy which has reached hundreds of millions of people. That’s the infrastructure that we want to build upon… which gives us confidence that we can actually overcome the last-mile problem. It’s not so much that the Madhya Pradesh experiment as the success with the other cash transfer programmes.

Mind you, not all of them are going great. I think the cooking gas is doing well, but the food and kerosene programmes are not doing as well. But we know we have a successful programme and we want to build upon that.

Aadhaar’s privacy concerns

It’s not about UBI. It’s about biometric identification that underpins that. I recognise that I’m in Republican America, having to take this question… So look, I don’t know a whole lot about this to be honest with you. But I think ideally what we would want to do is recognise that there are huge benefits from having this, especially in a poor country like in India to better deliver services.

That’s the starting point. That’ what underlay the bill that the Govt passed last year, to codify the Aadhaar… and there was a lot of legal uncertainty.

However, I recognize that that cannot override considerations of privacy and we need to balance the two. Where that balance should be and how that’s going to be achieved is going to be very much country-specific. And I suspect that this is going to be an on-going conversation in India. I don’t think we’ve seen the last of this convo. There are people who have legitimate concerns about privacy and I think it’s going to be an ongoing conversation.

The courts once again have to render their verdicts on this. So how it’s going to evolve is difficult for me to say.

There are always hacking issues. So the question is do we have sufficient safeguards against hacking. You can never get a perfect system. In India I think there have been some issues on hacking. But again I’m not a expert. I defer to Nandan on this and he said recently it’s a pretty secure system as systems go. Whether this prevents hacking, I don’t know. The concerns in India are less hacking and more privacy.

Fidelity and robustness of Aadhaar

The fidelity of Aadhaar. Maybe we should have had Nandan [Nilekani] here. In the last two weeks or so, I have also heard reports of things not being as… you know, the authentication rate is not as high as it should be. Because remember, this was touted as initially you would get a failure rate of even less than 0.5%!

I haven’t looked at the evidence carefully… they say in some parts the failure rate are much higher. It’s possible that we may have to reassess that. And… I think then it would be a matter of just getting the technology right and investing more in the technology. I don’t think at this stage that any of this suggests that we should abandon this scheme or anything like that.

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10740 - CEA wants real estate, electricity charges to be part of GST - The Hindu

CEA wants real estate, electricity charges to be part of GST

TCA Sharad Raghavan

DECEMBER 15, 2016 11:58 IST

Arvind Subramanian says the Indian economy, as far as macroeconomic condition is concerned, is very stable.

As the country comes to terms with the demonetisation of Rs. 1,000 and old Rs. 500 notes, Chief Economic Adviser Arvind Subramanian spoke at an Assocham event on various issues.

Excerpts from his speech:

>> It's fair to say that the Indian economy, as far as macroeconomic condition is concerned, is very stable.

>> Both the Consumer Price Index (CPI) and the Wholesale Price Index (WPI) have come down. Current account deficit is very low and is being financed by Foreign Direct Investment. We have been reducing the fiscal deficit consistently.

>> From the domestic point of view, there are many legislative achievements in 2016. Aadhaar Bill is very important for the Jan Dhan Yojana, Aadhaar, Mobile numbers (JAM) mission.

>> Legislation has been passed to institutionalise monetary policy.

>> The bankruptcy code is very important in enabling exit from operating in India. Entry has become very easy, but exit is still a problem.

>>GST constitutional amendment bill is the 'mother of all achievements'.

>>FDI policy has been liberalised considerably. FDI surged in Q2, which is a very encouraging sign.

>>Domestic challenges: how to manage demonetisation over the next weeks/months until remonetisation can be done fully.

>>Then there is the twin balance sheet problem of the corporates and the banks.

>>International challenges: US interest rate rising and dollar getting stronger. But I am less concerned about this since the Indian economy is still strong macroeconomically.

>>The other challenge is to keep an eye on the currency situation in South East Asian countries and in China.

>>Third international challenge is that if we need strong growth, then exports have to grow 15-20% every year. But the question is, can the advanced economies buy our exports? Can they handle service exports from us?

>>GST: We should aspire to simple, clean rates that are lower rather than higher. This will help in fight against black money.

>> Sale of land and real estate need to be part of GST. That way the input tax credits can enter the system. Stamp duty can be kept separate.

>>Need to bring electricity charges as part of GST.⁠⁠⁠

>>Manufacturing push: if China did manufacturing for 25 years, why can't we do services for 25 years?

>> Fed rate hike: it was anticipated and expected. The Indian economy is very well cushioned to handle it. The RBI took the possibility into account during its latest review.

>> Rising oil prices: don't focus on the ups and downs. When oil prices go up, nimble producers will also increase production. Don't think oil prices will surge to a level that the Indian economy can't handle.

10407 - The great GDP fudge - Indian Express

The great GDP fudge

Same data, opposite conclusions, Dr Subramanian?

Written by Jairam Ramesh | Published:September 10, 2016 12:00 am

After the new GDP series was rolled out under the current government, it revealed that India’s GDP growth in 2013-14 was 6.9 per cent compared to the reported 5 per cent, as per the old methodology.(Illustration by: C R Sasikumar)

“I am puzzled by the new GDP growth numbers. This is mystifying because these numbers, especially the acceleration, are at odds with other features of the macro economy. Import of goods declined. typically growth booms are accompanied by surges in imports not declines… similarly, real gross capital formation declined”. This was the chief economic advisor (CEA) Arvind Subramanian in an interview to the Business Standard on February 3, 2015. Lest you be fooled into believing that the CEA was being intellectually honest about the state of the current economy, he was actually talking about the revised GDP number for the year 2013-14, when UPA 2 was in power.

After the new GDP series was rolled out under the current government, it revealed that India’s GDP growth in 2013-14 was 6.9 per cent compared to the reported 5 per cent, as per the old methodology. A 6.9 per cent GDP growth in 2013-14 would have meant that India was the second fastest growing large economy in the world, after China. But the CEA expressed bewilderment at that number because he said this was in dissonance with the actual macro-economic reality. He explained meticulously how other economic parameters such as imports, gross capital formation etc are truer indicators of GDP growth and dismissed the view that India’s GDP could have grown as fast in 2013-14.

Fast forward to September 2016. India’s imports have fallen for 20 straight months. In April 2016, India’s imports touched a six-year low. Exports are still at 2011 levels, down significantly from the 2013 peak. Industrial production which creates real jobs in the economy is actually shrinking. Gross fixed capital formation has fallen. What does the same CEA have to say this time about the same macro-economic indicators — “It signals improvement in underlying real economy, holds out hope for the corporate sector”.

In a poorly disguised attempt at face-saving, the CEA has waxed eloquent about how most commentators have misinterpreted the latest GDP numbers showing 7.1 per cent growth, driven almost entirely by government spending (IE, September 8). He says “Nearly all commentary has focused on decline in constant price GVA and GDP. But real story lies in nominal magnitudes”. This is the first time that we are being asked to judge the economy’s health by nominal GDP and not real GDP, that is GDP adjusted for inflation. In a hair-splitting effort, he argues we should focus on nominal growth, then argues that the nominal growth should not be assumed to be solely due to increase in prices but also an increase in quantity but does not explain if that was the case, then why not just use real growth directly.

Instead, he makes a convoluted point about corporate revenues growing faster than interest costs which could boost the currently anemic credit growth, going forward. He then lays out a string of conditions — if monsoons boost agriculture growth, if falling exports have bottomed out, if the construction sector can perk up due to “reforms” — then we can be cautiously optimistic about GDP growth.

Technical mumbo-jumbo and caveats aside, he essentially surmises that we should be ecstatic that nominal GDP growth is now in double digits. One really had to scrape the bottom of the barrel if one had to go back to the basics of nominal and real GDP growth and take solace in a nominal double-digit growth, albeit with cute quotes about “nominal being real” and “real being nominal”, this time.

All this hiding behind economic theory misses the simple point — using exactly the same yardstick that the same CEA applied in passing judgment about India’s 2013-14 GDP growth calculated under the same methodology. India’s current state of the economy is in utter disarray. While we all endorse the Bernard Shaw quip that “if all economists were laid end to end, they would never reach a conclusion”, this one is about the same economist in the same position reading the same set of numbers but taking two diametrically opposite views. If the CEA had a well-argued position on his reservations about India’s 2013-14 GDP growth, then how can he be optimistic about the state of the current economy using exactly the same macro-economic parameters?

We have been repeatedly witness to this dangerous trait of the current government and its inhabitants becoming delusional with their own rhetoric. We saw that with the government’s claim of savings of Rs 15,000 crore in the LPG subsidy scheme due to Aadhaar based Direct Benefits Transfer (DBT), which, again, the CEA endorsed healthily through similar articles in the English press. It turned out, as the CAG pointed out last month, that a meagre Rs 1,764 crore (approximately 10 per cent) of the subsidy savings was due to DBT and the remaining 90 per cent of the savings was due to the fall in global oil prices. The government and its CEA were simply disingenuous and resorted to such misleading claims to falsely justify their decision to table the Aadhaar bill as a money bill and pummel it through Parliament. The current claims of the CEA about the health of the economy are similarly misleading.

I have known Arvind Subramanian to be a fine and fearless economist for almost three decades. I have myself tried in the past to lure him back but the timing was not ripe for him. He has never been an apologist for anything dubious. My piece of unsolicited advice to him: Spin is a powerful tool in both cricket and politics but not in economics. Leave it to those who have made a brilliant career out of it — such as his senior minister.

The writer is a Congress MP in the Rajya Sabha

8233 - NDA govt kicks off PDS reforms with direct cash transfers - Live Mint

NDA govt kicks off PDS reforms with direct cash transfers

Starting September, govt will usher in direct cash transfers to Aadhaar-linked bank accounts of beneficiaries in Puducherry, Chandigarh, Dadra and Nagar Haveli

 Asit Ranjan Mishra 

Photo: Ramesh Pathania/Mint

New Delhi: The government has decided to bite the bullet on public distribution system (PDS) reforms.

Starting September, it will usher in direct cash transfers to the Aadhaar-linked bank accounts of beneficiaries in Puducherry, Chandigarh and Dadra and Nagar Haveli. In Daman and Diu, PDS benefits will be provided on the basis of Aadhaar-linked biometric verification.

“We are taking the measure on the request of members of Parliaments of these Union territories. While initially, Rs.500-700 per household will be transferred to the bank accounts of beneficiaries as food subsidy, at a later stage, kerosene will also be brought under DBT (direct benefit transfer). There will be no option of availing foodgrain through PDS. It will be totally based on cash (transfers),” Peeyush Kumar, joint secretary in charge of DBT in the finance ministry, said.

He was addressing a conference on DBT organised by the United Nations Development Programme (UNDP) on Thursday.

A high-level committee on the state-owned Food Corporation of India’s (FCI’s) restructuring, chaired by former food minister Shanta Kumar, had recommended an overhaul of the FCI-managed PDS earlier this year. The panel estimated that cash transfers could save the exchequer Rs.30,000 crore annually. For 2014-15, the central food subsidy bill is estimated at Rs.1.15 trillion.

So far, DBT had been rolled out for transfer of cooking gas (LPG) subsidies. Called the Pahal scheme, it has covered 11.89 crore of the 14.54 crore active LPG consumers till March, according to petroleum minister Dharmendra Pradhan’s statement in Parliament.

But unlike Pahal, where the cash transfer to the Aadhaar-linked bank account of the beneficiary is based on consumption, in the case of PDS, the amount will be transferred each month irrespective of the beneficiary’s past consumption history.

Earlier, chief economic adviser to the finance ministry, Arvind Subramanian, speaking at the conference, described DBT as a “game changer” for India. He pointed out how DBT in the case of LPG subsidy had resulted in a 24% reduction in the sale of subsidised LPG, as “ghost beneficiaries” had been excluded. The savings to the government were to the tune of Rs.12,700 crore in 2014-15, he added.

Kumar said the centre has directed state governments to fully digitize their Aadhaar enrolment sheets and link them to the PDS database by the end of December, failing which their PDS supplies would be stopped. “We have also told the state governments that by December you identify one district and start a pilot project for PDS through biometric identification so that you are aware of the issues that come up,” he added.

Once states link Aadhaar numbers with the PDS database, biometric devices will be made available at fair-price shops, so that verification of beneficiaries can be done within seconds.

“At present, 89% of the Aadhaar database is digitized. But unfortunately, Aadhaar seeding is on the lower side, only around 10-15%. In Delhi and Andhra Pradesh, it is 100%,” he said.

In Delhi, 25,000 fair price shops have been entirely digitized and linked to Aadhaar. In Krishna district of Andhra Pradesh, PDS is completely based on biometric authentication since May.

“The initial results of one month are quite encouraging. Savings in the first month itself is Rs.8 crore, meaning almost Rs.100 crore in savings from one district in a year,” Kumar said.

On taking DBT beyond the Union territories, Kumar clarified that the central government could not take a decision on rolling it out in states as the matter is a state subject.

Dipa Sinha, fellow at the Centre for Equity Studies, a Delhi-based research and non-profit advocacy group, and convenor of the steering committee of the Right To Food campaign, said at a time when the coverage of PDS is improving, the government is sending confusing messages by pushing for cash transfers, shutting down PDS.

“PDS plays multiple roles by ensuring basic food security for the poor and support for farmers. Dismantling PDS will mean foodgrain procurement and, in turn, production will go down, which could be dangerous for the country,” she added.

The National Sample Survey Office data released last week showed that more rural households are buying from PDS, and their purchases of subsidised food have doubled in the past seven years. Nearly 28% of rice eaten by all rural households in 2011-12 was from the PDS, more than double the share of 13.2% in 2004-05. Also, nearly 46% of rural households across India bought subsidised rice from PDS in 2011-12, up from 24.4% in 2004-05 and 39% in 2009-10.

FIRST PUBLISHED: FRI, JUL 03 2015. 12 39 AM IS