Source- Live Mint
Since it’d be politically unpopular for Modi to scrap subsidies for food and fuel, he’s accelerating use of biometric identity cards to eliminate waste.
New Delhi: At a roadside eatery along Delhi’s border, truck driver Anil Yadav walked straight through the dining room, past the kitchen and out to a backyard that held two large drums of kerosene. It was time to fill up the tank. Known as “The Depot,” the restaurant sells fuel stolen from India’s public distribution system (PDS), which doles out staples to the poor at below-market prices. Truckers mix the cheaper kerosene with diesel, saving some cash in a country where three of every five people live on less than $2 per day. “I get a lump sum from the truck’s owner and I have to pay for diesel, food and any incidental expenses on the way, including bribes,” Yadav said in the back of the restaurant, where hundreds of fuel containers lay scattered out of sight from the main highway. “Some money on the side helps me make ends meet.” Prime Minister Narendra Modi is racing to fingerprint 1.2 billion people in an effort to save about $12 billion a year by checking corruption, roughly what India spends annually on education. Since it’d be politically unpopular for him to scrap subsidies for food and fuel, he’s accelerating the use of biometric identity cards to eliminate waste and narrow one of Asia’s largest fiscal deficits. The card will make it harder for half a million government-run stores to sell subsidized kerosene, sugar, wheat and rice to anyone who doesn’t have one. Customers will need to prove their identity using fingerprints or eye scans, allowing the government to easily track sales of subsidized goods. June target “There is nothing else that we know can be done to control subsidies other than the Unique ID cards, and that’s the reason Modi took it on,” said Laveesh Bhandari, a director of Indicus Analytics, an economics research company in New Delhi. “This is his best bet and there are no new ideas. There will be nothing like ending subsidies.” V.S. Madan, director general of the Unique ID Authority, was unavailable for comment when called on his office phone and didn’t immediately respond to a subsequent email. Modi last month scrapped controls on diesel prices and increased natural gas tariffs in his biggest steps toward curbing subsidies. A parliament session starting next week will prove a key test for his reform agenda as he seeks to lift the cap on foreign investment in insurance, pass a new goods and services tax (GST) and make it easier to acquire land for factories. Few alternatives Modi has set a June target for all citizens to have a biometric identity card, according to two government officials who asked not to be named because the information is private. The programme has signed up 700 million people since it was started in September 2010 by the previous government, which hadn’t set a target to cover the entire country before it lost power in May. While enlisting another 500 million people in eight months won’t be easy, Modi has few alternatives if he wants to deliver a budget surplus for the first time since the central bank started compiling the data in 1986. Growth has lagged in the past two years at below 5%, compared with the 8% average over the past decade, as surging food prices kept inflation at more than 9%. India’s subsidy bill rose fivefold under Prime Minister Manmohan Singh as he implemented policies to buy farm produce at guaranteed prices, boost rural wages and distribute cheap food. In his first budget in July, Modi left subsidy targets largely unchanged while planning to create a commission that would recommend ways to better target food and fuel subsidies. India plans to spend $43 billion, about 15% of its total expenditure for the year ending 31 March , on programmes offering food, fertilizer and fuel at below- market prices. Only about half of public spending on basic services reaches the people because of inefficiencies in governance and execution, McKinsey and Co. said in a February report. Due diligence The biometric card is known by the Hindi word “Aadhar,” which means “foundation.” The programme will allow policymakers to track the poor and open linked bank accounts, paving the way for the public distribution system to eventually be dismantled in favour of direct cash transfers, a policy advocated by central bank governor Raghuram Rajan. Modi is seeking to sign up 70 million households for bank accounts to transfer cash directly, building on a policy started by the previous government. Holders of biometric identity cards will immediately be entitled to a loan and insurance facility, while those without an Aadhar card need to undergo further due diligence before getting those services, according to rules from the State Bank of India (SBI), the nation’s biggest lender. ‘Shiny new toy’ The money spent on Aadhar will result in a 50% return on investment, according to Ajay Shah, an economist with the government-funded National Institute of Public Finance and Policy who prepared a cost-benefit analysis for the government. The $12 billion in annual savings will come as soon as the public distribution system is linked with the card after everyone signs up, he said. “This generates cost savings right away, and sets the stage for deeper subsidy reform,” Shah said. Its other uses are endless: “Once you have built a unique ID database, you should be adventurous, saying what are all the cool things I can do with this shiny new toy.” Modi is already using it to track whether government employees get to work on time, part of his efforts to revive the bureaucracy. It’s also being used to make cash transfers for student scholarships, pensions and cooking gas subsidies, and plans are afoot to make it a key document for passports and driving licenses. Initial tests show the card will cut India’s subsidy bill. Two districts in the southern state of Andhra Pradesh saw food deliveries through the public distribution system fall by about 20 percent after beneficiaries started using the cards in April 2014, according to the Modi government officials. Targeting beneficiaries Ensuring that cheap food and fuel goes to the right place is essential to help India’s poor. Some 75% of the population doesn’t eat the minimum targets set by the government and one in three of the world’s malnourished children live in India. About 5,000 children aged 5 or younger die in the country every day because of poor diets, according to Unicef. “The potential for savings is great but what’s even more important” is that the money reaches the intended poor, said Onno Ruhl, country director for India at the World Bank. “Targeting is more important than saving because there are a large number of people in India who still need support because India has a big poverty problem.” Some hurdles remain. The Supreme Court directed the government in March to withdraw orders mandating that Aadhar cards are mandatory to receive government benefits, potentially eroding their effectiveness. Other concerns exist over privacy and inadvertently excluding beneficiaries. No guarantee “Implementing an untested system on food distribution is like playing with lives of the poor,” said D. Raja, a member of parliament from the Communist Party of India, which has been opposing the implementation of the biometric cards. “The distribution system needs reform and there is no guarantee this will overhaul it.” Although Modi scrapped diesel subsidies in September, he’ll have a tougher time doing the same with other goods. While kerosene accounts for about 1% of India’s subsidy spending, about 40% of supplies are stolen for truckers to mix with diesel, according to S.P. Singh, a fellow at the Indian Foundation for Transport Research and Training. “There is no chance of abolishing the subsidy on kerosene as it is politically sensitive for the poor,” said Singh, who has advised the government on freight transport. “Hopefully it will be checked with biometrics or cash transfer.” Truck drivers like Yadav say they aren’t doing anything wrong. Using the cheap kerosene allows him to save money on diesel, which costs nearly three times as much, allowing him to supplement his monthly salary of Rs.10,000 by about 60% to support his wife and three kids. “What I get is not enough to look after my family,” Yadav said of why he buys the cheap kerosene. “I am also poor—part of it is meant for me as well.” Bloomberg.