Subsidy payout via Aadhaar accounts can save 1.2% of GDP: UBS

Report says Aadhaar is on the verge of attaining critical scale and tangible benefits, enabling meaningful financial inclusion

Aadhaar programme, under which the government is carrying out Direct Benefit Transfer schemes, may lead to savings that could be up to 1.2% of the GDP once it is rolled out in more areas, a report said.

 

"Savings (by way of DBT) in different scenarios could be from 0.2-1.2 percent of GDP, depending on the schemes targeted and whether all the states participate," said the report by UBS Securities.

 

Aadhaar is on the verge of attaining critical scale and tangible benefits, enabling meaningful financial inclusion, it said, adding that the savings from leakages from the government's benefits transfer system may start becoming visible from this year.

 

"We believe that the tangible benefits in terms of the Aadhaar enabling meaningful financial inclusion and savings from lower leakages from the government's benefits transfer system should start becoming visible in 2014. The key bottleneck to realising benefits, apart from not having a bank account in the first place, is lethargy in linking bank accounts to Aadhaar," the report said.

 

It added that the DBT can help plug leakages in the form of fakes/duplicates and generate huge fiscal savings for the government as it is transferring all its subsidies directly to the bank accounts of the intended beneficiaries.

 

Nearly half of the population (52 crore as of December end) has already enrolled for Aadhaar and 100% coverage is possible in the next two-three years, it said.

 

The report said the financial inclusion can have huge productivity impact in under-banked markets, with its large informal economy, possibly more than 1% of GDP. It can enable sharply higher rural penetration, in a profitable manner.