According to media reports, Aadhaar and Direct Benefits Transfer (DBT) are both back, or will be, after an announcement on 15th August. Again according to media reports, the benefits being talked about are MGNREGS, PDS, pensions, scholarships and LPG. First, subsidies can be explicit and also implicit. They can be from the budget, in which case, they are implicit. They can be outside the budget, in which case, they are explicit. The last study I know of (by NIPFP) on all subsidies is dated (2004/05). As share of GDP, the figure was 14% and as a share of GDP, the figure may not have changed that much. If subsidies are inefficient, all subsidies are inefficient, not just ones on consumption, or ones that are explicit. Production subsidies are just as inefficient. The 5% of GDP that is foregone as taxes (because of exemptions) is also inefficient. Second, there is a case for subsidizing the poor and we have gone round and round in circles trying to identify BPL. In my view, we know who the truly poor are, let’s call that segment the Antyodaya category. We also know who APL (above poverty line) are, those who don’t deserve any subsidies.
The debate and the going round and round in circles is because of the intermediate segment. Why have waters been muddied by the Planning Commission getting into poverty numbers? NSS is a survey, that too an infrequent one. Identification of poor requires a census, not a survey. The only way to do that is through decentralized identification, on the basis of ownership of assets and various other indicators. If that information is placed in the public domain, errors of omission and commission can both be addressed. The only reason the Planning Commission becomes involved is because that number becomes linked to how much the government in Delhi is going to fund State governments for subsidies. Subsidy reform is driven fiscally, not on efficiency grounds. I think that’s the wrong way of going about it. In deciding on criteria for Antyodaya inclusion, will Aadhaar help? No, it won’t. Those criteria are socio-economic. Aadhaar is just a tool. IT can’t resolve the underlying problem. Third, there are reservations about Aadhaar and the way it works. Have those been sorted out? Do we now have the legislation? Have privacy concerns been adequately addressed? Is Aadhaar for residents or Indians? Are there enough biometry readers, or is scanning limited to scanning photographs? As far as I can make out, those were valid questions. If they haven’t been sorted out, why are we rushing headlong into Aadhaar?
Fourth, what does Aadhaar do? It plugs multiplicity and no more. It ensures that there aren’t two Bibek Debroys with the same biometry at the same address. Nothing more. When one says that there is leakage under PDS, what does one mean? Of course, there is inefficiency associated with FCI’s distribution. But when one says that non-BPL people get subsidized food, are we clear about what it means? That would have been leakage had every BPL individual actually got a BPL card. If we haven’t been able to prevent errors of omission, this “leaked” food may very well be leaking to deserving households. Consider also the prices that ration-shop owners can charge. They are unreasonable and no ration-shop owner would have survived. They survive because leakage has been built into the system. Fifth, there is a conceptual issue. Pensions and scholarships are different. In any event, those are in cash. But think of the others. Every time, a subsidy is delivered through segmented and differential prices, both consumption and production markets are distorted, quite apart from the leakage problem.
Therefore, take something like PDS or LPG. If we are seeking to reform it, with or without Aadhaar, we don’t believe in cash transfers, conditional or unconditional. DBT is a polar opposite. There can be reservations about DBT, not just because of a patronizing mindset (the poor don’t know what is good for them), but also because of the way financial inclusion hasn’t worked. If DBT is the way to go, at least as a terminal goal, then what is this talk about reforming PDS or LPG delivery? One may wish to stay away from DBT, because systems aren’t ready, but then why bring it in? Only for pensions and scholarships? Whichever way I look at it, I don’t think any big subsidy reform is intended.
