Look before you leap

The Aadhaar smart card is a good idea, but it needs fine-tuning

The long search for an effective system to target subsidies on food, fertiliser and fuel has finally ended with the Planning Commission accepting the idea of an Aadhaar-based rechargeable smart card. Ideas like direct cash transfers and food stamps have been rejected in favour of the Aadhaar smart card. The new proposal can help target the food subsidy with the tamper-proof biometric cards – Aadhaar unique identity cards – being issued by the Unique Identification Authority of India (UIDAI). What sets it apart from most of the other Aadhaar-based methods mooted earlier is the inscription of households’ entitlement on the cards and, more significantly, the choice it offers to the intended beneficiary who can use it for buying any food item, be it cereal, milk, eggs, or fish, from either ration shops or other designated stores. This ends the monopoly of the ration shops as the final delivery point and allows the smart card to be used only by the owner against purchase of food items. It, therefore, minimises the scope for leakages and diversion of grains in the distribution process and even its misuse for buying non-food items by individual beneficiaries.

There would surely be some implementation issues, but these can be handled in due course. However, there is one downside to the new plan that even the Planning Commission has acknowledged. The smart card system will need further fine-tuning before it can be used to deliver fertiliser and fuel (kerosene and cooking gas) subsidies. There is a need to accurately identify intended beneficiaries and work out their entitlements. Unlike food, which is consumed by all, subsidised fertilisers and fuels are not accessed by everyone. At the same time, non-users today cannot be denied the benefit of a subsidy if they become users tomorrow. The quantities consumed also vary among various types of users, especially in the case of fertilisers, where the amounts applied vary from crop to crop and season to season. Moreover, tricky issues concerning land records, ownership pattern, benami land holdings, absentee landlordism and share-cropping need to be addressed while handing out such cards to consumers of fertilisers. Therefore, it seems difficult, if not impossible, to meet the March 2012 deadline for starting the phased switch to the cash subsidy regime in fertilisers and fuels as announced by Finance Minister Pranab Mukherjee in his Budget speech. Though a task force headed by the UIDAI chief, Nandan Nilekani, is studying the details of direct transfer of these subsidies and is expected to submit its report next month, it is unlikely that it will come out with a foolproof system that can be implemented straightaway, without any field trials and administrative preparation. Therefore, it is better to miss the deadline than adopt a half-backed subsidy delivery model that may prove worse than the existing system it seeks to replace.