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FM ushers in cash transfers of direct subsidies through UID by Surabhi Agarwal

Finance minister Pranab Mukherjee ushered in a regime of cash transfers for the payment of subsidies for food, fertilizers and kerosene, along with social welfare payments, by accepting the recommendations of a panel headed by Nandan Nilekani, chairman of the Unique Identification Authority of India.

The recommendations, submitted last month, had prepared a blueprint for transferring cash directly into the bank accounts of the beneficiaries by linking these to their unique identification or Aadhaar numbers.

In his speech presenting the Union budget for 2012-13, Mukherjee said Nilekani’s recommendations on the “task force have been accepted”, and that Aadhaar-enabled cash payments for various government schemes will be rolled out in at least 50 districts within six months.

Subsidy payments and benefits under different schemes amount to almost Rs. 3 trillion, roughly 3.5% of India’s gross domestic product, according to government estimates.
Mukherjee said that based on the recommendations of the task force, “a mobile- based fertilizer management system (mFMS) has been designed to provide end-to-end information on the movement of fertilizers and subsidies, from the manufacturer to the retail level”.

He added that this will be rolled out across the country and subsequently extended to farmers. “This step will benefit 120 million farmer families, while reducing expenditure on subsidies by curtailing misuse of fertilizers,” Mukherjee said.

The government implemented a pilot project in Mysore to sell cooking gas at market price, and a similar project in Alwar, Rajasthan to transfer the subsidy for kerosene directly into the bank accounts of the beneficiaries, he said. “These pilot projects show that substantial economies in subsidy outgo can be achieved by the use of Aadhaar platform.”

To ensure that the objectives of the National Food Security Bill are met, a public distribution system network is being created using the Aadhaar platform, Mukherjee said. “A national information utility for the computerization of PDS is being created. It will become operational by December 2012,” he said.

Nilekani’s report had also recommended that all cash payments above Rs. 1,000 be eventually transferred electronically into Aadhaar-linked bank accounts. The panel had also proposed creating a network of one million interoperable micro-ATMs operated by business correspondents across the country for easier access of bank accounts, and a payment of a transaction fee of 3.14%, with a cap of Rs. 20 per transaction, to banks for each government payment.

To facilitate this, the Reserve Bank of India recently allowed a bank’s business correspondent to offer services to customers of other banks. This interoperability of business correspondents will ensure customers in rural areas can access banking services from anywhere in the country on the lines of ATM facilities.

The UID project, launched in 2009 to provide a unique identity to each resident of the country, has already enrolled 200 million people and issued numbers to around 140 million. Recently, the Cabinet extended the UID’s mandate to enrol 600 million people.

Mukherjee has proposed allocating “adequate funds to complete another 400 million enrolments starting from 1 April, 2012”.