Aadhaar: Direct cash transfers

When the AADHAAR scheme was introduced by UPA the BJP was against it. Today the Prime Minister is a strong advocate of the scheme. The UPA Government had the foresight to visualize the benefits of having unique identification cards and set up the Authority to introduce AADHAAR cards to the citizens. The UPA roped in the services of Nandan Nilekani to head the Authority that was to introduce AADHAAR cards. The scheme continues to make good progress till date even under the supervision of a new government at the center.

The greatest benefit arising out of the AADHAAR scheme is that it facilitates direct cash transfers to beneficiaries of welfare schemes. Anybody eligible to a welfare payment like pension can get the funds transferred to a bank account linked to an AADHAAR number. The benefit of linking the concerned bank account to an AADHAAR number is that such a number is unique and only one individual can have a particular AADHAAR number which is ensured by the biometric process of allotting AADHAAR numbers.

When payments under various government schemes are made under AADHAAR linked bank accounts the unique identity of the beneficiary of the individual receiving the payment can be established. Thus we can avoid duplicate beneficiaries under the same name and address receiving the benefit. An instance where it is important to have beneficiaries linked to AADHAAR identified accounts is the PDS scheme. Under the public distribution system today there are several individuals having multiple ration cards and they receive an undue benefit from the PDS scheme. This can be avoided by linking ration cards to AADHAAR numbers.

Under the public distribution system benefits are distributed in kind – in the form of rice, wheat sugar, kerosene and so on. An alternative to this could be distribution of cash to the poor instead of rice, wheat, sugar, kerosene and so on. It would serve the same purpose as the PDS, but without having the need to maintain buffer stocks of food grains and having ration shops across the length and breadth of the country.

Such direct cash transfers can be made by the government to AADHAAR linked bank accounts of the poor people and the people can buy whatever they want, including rice, wheat, sugar and kerosene from the open market. This would be a cost effective and administratively superior method of replacing the PDS. The cash transfers need not cover the full cost of rice, wheat etc. meant to be distributed to the poor, but can be in the form of a subsidy where only a certain portion of the cost of items to be distributed is transferred.

AADHAAR numbers are a powerful tool which, if properly used, can eliminate a great deal of the corruption that is rampant in the society today. The PDS is only one of the systems where corruption is widespread and where introduction of the AADHAAR link can make a great difference. Direct cash transfers of AADHAAR linked bank accounts should become a way of life in the case of payment of all sort benefits under government schemes. Its potential of reducing corruption in government is immense.

One medium which will facilitate direct cash transfers will be the spread of mobile banking or the institution of payment banks. Many semi-literate people today do not own a bank account due to the complexities involved in becoming customers of a commercial bank. The payment banks will be more people friendly and will facilitate semi-literate people becoming bank customers. The scale of expansion of the mobile telephone network is an indicator of the possible expansion of mobile telephony among the poor and semi-literate in the country. Mobile telephony and direct cash transfers will flourish as two sides of the same coin among the poor and semi-literate in India in the days to come.