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LATEST NEWS UPDATES | Aadhaar sets stage for cash transfers by Surabhi Agarwal

Aadhaar sets stage for cash transfers by Surabhi Agarwal

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published Published on Mar 9, 2011   modified Modified on Mar 9, 2011

In line with finance minister Pranab Mukherjee’s budget announcement on Monday that the government is looking at direct cash transfers as an alternative to the current subsidy on kerosene and fertilizers and to prevent leakages, the Unique Identification Authority of India (UIDAI) is planning to open Aadhaar-linked bank accounts for the purpose. These can be used for other financial transactions as well.

The authority is in the process of empanelling banks that will open “no-frills accounts” or link existing ones, during enrolments for Aadhaar, as the unique ID programme is called. So far, UIDAI has enrolled around three million people and around 80% of them seek bank accounts.

UIDAI’s tender document states that the bank opening the account should have the capability to “provide electronic interface to facilitate disbursal of government benefits... Government may provide a list of Aadhaar numbers and amounts to the bank, and bank should be capable of routing payments to the linked bank account through an interoperable network”.

While the banks will be empanelled by April, the accounts are likely to be opened by May. UIDAI chairman Nandan Nilekani also heads a task force that’s working out the modalities for the proposed direct transfer of subsidy for kerosene and fertilizers, apart from liquefied petroleum gas (LPG).

The government subsidizes the price of the fuels and fertilizers in order to make them affordable to consumers. The government wants to plug leakages to ensure that the money reaches those that need it the most.

“To ensure greater efficiency, cost effectiveness and better delivery for both kerosene and fertilizers, the government will move towards direct transfer of cash subsidy to people living below poverty line in a phased manner,” Mukherjee said in his budget speech.

The report of the Nilekani task force is expected by June, while the system is expected to be in place by March 2012.

“Currently, there is no mechanism for direct transfers for social welfare schemes,” said A.P. Singh, deputy director general at UIDAI. “Aadhaar-linked bank accounts will create that infrastructure.”

The task force, which held its first meeting recently, is considering several options, including direct cash transfers to the account of the beneficiary, who buys the product at market price. Another option is to pay the merchant, who then sells at the subsidized rate to the beneficiary. “The task force is yet to formalize which way is more feasible,” said an official familiar with the discussions.

While a bank account is a key part of these options, a large part of India’s population is unbanked (60% according to Reserve Bank of India, or RBI data) and penetration in the rural areas is very low. Given the current rate of UIDAI enrolment and demand for bank accounts, there could be as many as five million new bank accounts in the country in April.

“Banks will have to open accounts for transferring the subsidies,” said M.V. Nair, chairman and managing director of Union Bank of India.

Indian Overseas Bank chairman and managing director M. Narendra said the process will mean more customers for banks and a larger base to cross-sell financial products to the rural population at a lower cost of customer acquisition.

Mukherjee said in his budget speech that UIDAI is expecting to generate around one million numbers from October. The authority has a target of enrolling 600 million people by 2014.

As per the tender document, UIDAI will empanel a set of banks in each area. People can choose which bank they want to open an account with when they’re being enrolled. Details of residents will be sent electronically to that bank, which will have to open an account within 30 days.

UIDAI has kept the selection criteria for banks at a bare minimum—it should be a scheduled bank and have at least one core banking-enabled branch in the district it seeks empanelment in.

Wherever enrolment is being undertaken in villages “adopted” by banks as part of the financial inclusion plan of RBI, the resident can choose between such lenders or the post office savings bank.

Under the financial inclusion initiative, the government had last year asked banks to provide facilities to areas having a population of over 2,000 by March 2012. The government had identified 73,000 such habitations. Banks expect to provide banking facilities to 20,000 villages this year and the remaining in 2011-12.

Where a bank is the registrar and conducting Aadhaar enrolment, accounts will be opened in that bank, unless it falls in areas where another lender has been appointed by RBI as the lead bank. In other cases, the customer will get a choice from the empanelled list. The bank will also set up at least one customer service point for every 2,000 accounts opened by it in a district, if this doesn’t already exist.

UIDAI is already conducting a pilot for the disbursement of Mahatma Gandhi National Rural Employment Guarantee Scheme funds in Jharkhand with Union Bank, ICICI Bank Ltd and Bank of India, where micro-ATMs will be deployed for payments. Meanwhile, the task force is considering a technology platform on which separate accounts for kerosene, LPG and fertilizers or subsequently other subsidies could be created for individual beneficiaries, tracking how much of the entitlement has been availed of.

“Separate accounts for entitlements such as kerosene, fertilizer, LPG can be maintained,” Nilekani said at a recent seminar in Delhi. “It will re-engineer the public sector delivery model by dealing with the underlining plumbing to prevent leakages in the social welfare schemes.”

Live Mint, 3 March, 2011, http://www.livemint.com/2011/03/03033141/Aadhaar-sets-stage-for-cash-tr.html?atype=tp


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