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Economy Oct 19, 2012

Cong rush for UID-based cash subsidy is like legal voter bribery

By R Jagannathan

This is one reform that the UPA must be hoping will give it direct electoral benefits.

The Congress-led central government seems to be in big hurry to implement cash-based transfers using the Unique ID scheme (called Aadhaar) of Nandan Nilekani, Chairman of the Unique ID Authority of India.

Not without reason. In all areas where the UID is almost done, cash transfers will mean every family will get money in the range of Rs 3,000-14,000 per annum, depending on whether they are identified below-poverty-line (BPL) cases or people better off.

In a pre-election year, cash transfers could become a form of legalised bribery of the voter even though the aim in the long-run is noble: avoiding the siphoning off of money intended for the poor by middlemen and crooks.

The Congress party is getting ready to harvest votes.

Even though the Unique ID has reached around 21 crore people so far (around a sixth of the country's 121 crore population), Sonia Gandhi and Prime Minister Manmohan Singh will be attending a function in Dudu in Rajasthan tomorrow to preside over the integration of the UID with government-run schemes like the Mahatma Gandhi National Rural Employment Guarantee Scheme (NREGA), parts of the public distribution system, and provision of subsidised LPG cylinders.

In all areas where the UID is almost done, cash transfers will mean every family will get money in the range of Rs 3,000-14,000 per annum,

The UID scheme is one of the biggest reform projects undertaken by the UPA government since it is intended to prevent the leakage of social security benefits and subsidies to non-intended beneficiaries. Cash will be made available only to the person identified by the UID as the intended recipient.

However, the speed with which the Congress party has taken to the cash-based transfer scheme - just when the country is shifting to election mode - suggests that the primary motive may be political in the short run.

Consider a story today in The Times of India, which says that by 1 July 2013, those receiving six subsidised cooking gas cylinders (nine in some states) will get the money in their bank accounts in districts where Aadhaar is implemented.

The date is significant. The second half of 2013 is when all non-Congress political parties expect the UPA to either trip into a mid-term election and start implementing sops like cash-based transfers before the scheduled 2014 vote.

If a family is supposed to get six subsidised cylinders a year, it means over Rs 500 per cylinder will be paid out in cash. (The current price of a subsidised cylinder in Delhi is Rs 410.42 while the non-subsidised one is priced at Rs 921.50, which leaves a subsidy element of Rs 511.08).

For six cylinders, the cash subsidy payable will be Rs 3,066-and-odd per family. This is not a small amount even for a middle class urban family. Since some states are offering a further subsidy of three more cylinders, the actual money clinking into your bank account could be Rs 4,600. Or thereabouts, if you are a Delhiwalla.

Sure, this is not money for jam. You now have to buy cylinders at Rs 921.50, and not at Rs 410.42, but the pinch will happen in stages - as existing cylinders start getting used up. You may get the money upfront, and the higher price of cylinders may hit you only later - when the cash subsidy is used up.

Plus there is another issue: the UID card is supposed to weed out those ineligible for subsidies altogether, but it would be a rare politician - and Congress certainly doesn't have them - who will say separate the rich from the poor for subsidy eligibility.

But LPG isn't the only thing which will bring cash to the voter. If you happen to be a BPL rice-eating family, you also get 25 kg of rice, 10 kg of wheat, six kg of sugar and 12.5 litres of kerosene at subsidised rates. (Or some combo of subsidised stuff)

The issue price of rice is around Rs 6.30 a kg, and the subsidy element is Rs 18.53 per kg. In the case of wheat, the subsidy is 14.07 a kg, for sugar Rs 6 a kg and for kerosene Rs 12-15 a kg, according to a calculation by BusinessLine.

This adds up to Rs 789.95-827.45 (the range is because the kerosene subsidy varies from state to state) a month. Says the BusinessLine report: "Going by the current subsidy provisions on wheat, rice and kerosene, a BPL family of rice consumers is likely to get anything between Rs 9,400-9,900 a year while a wheat-consuming BPL family will get Rs 8,600-9,100 under the targeted public distribution scheme (TPDS)."

This is not taking the earnings of households that get employment under NREGA (every household is entitled to at least 100 days of high wage work a year, and these wages are indexed to inflation).

Add the LPG cash subsidy of Rs 3,066-4,600 per annum for six cylinders, and you can see why the Congress is suddenly eager to rush into UID-based cash transfer ahead of the general elections.

The party may well hope to reap huge electoral gains from it.

First, the cash could be sent in advance, or in instalments. BPL families could see anything from Rs 12,000-14,500 per annum (food subsidy of Rs 9,000-9,900, plus LPG subsidy of Rs 3,066-4,600) flowing into their bank accounts.

Second, since the LPG households are yet to be segregated in terms of those who really deserve the subsidy and those who don't, almost all urban households will end up getting cash in their accounts - unless states and centre take the unpopular decision to eliminate the rich from the subsidies. An unlikely event before the next elections. So add Rs 3,000-4,500 for you and me, who don't deserve it.

Third, if the next budget announces the Food Security Bill, where rice, wheat and coarse cereals are to be sold to BPL families at Rs 3, Rs 2 and Re 1 a kg, there could be even more cash coming into the accounts.

Fourth, since the UID will target the cash directly to the intended beneficiary, there is no better way to cut out leakages to middlemen. The voter gets it all.

The 2012-13 food subsidy bill is already heading for the moon. According to a report in Business Standard, the Food Corporation of India has already exceeded the food subsidy provision for the whole year (Rs 75,000 crore) in the first six months of the year (the FCI's calculation is Rs 1,01,879 crore for six months). Assuming the second half is not going to see any reduction in subsidies, the bill will hit Rs 2,00,000 crore - completely messing up the budget arithmetic.

In 2012-13, the food bill could become the biggest drain on the budget, beating even fuel subsidies.

The cash transfer scheme, which will fast-forward the payment of subsidies in cash to this year and the next, will thus end up being the biggest legal bribe payable to India's voters before the next general elections. Especially if no effort is made to separate the deserving from the undeserving.

by R Jagannathan

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