Direct cash through Aadhaar to save 0.5pc of GDP for India:IMF

Integration of direct cash transfer with Aadhaar will take time but the scheme will help Indian government save 0.5 per cent of the GDP, International Monetary Fund (IMF) said today.
"... The total savings could be substantial: if the combination of direct cash transfer and Aadhaar eliminates the estimated 15 per cent leakage cited above for the programmes being integrated, savings could total 0.5 per cent of GDP in addition to the gains from the better targeting of spending on the poor," the IMF said in a report.
Direct cash transfers, which entail direct payments from the government to recipients, can bring down costs and diversion by phasing out middlemen and complex bureaucracies, it added.

The 'Regional Economic Outlook: Asia and Pacific' report further said the integration of these two programmes -- Aadhaar and direct cash transfers -- promises further savings.
"...But will involve many challenges: the timeframe for bringing India's population of 1.2 billion into the Aadhaar programme could extend beyond 2014, and integrating this database with information on individuals eligible for subsidised fuel will take time," it added.
As per the Unique Identification Authority of India, (UIDAI) which issues the Aadhaar numbers, about 320 million such cards have been issued so far. UIDAI has plans to issue 600 million Aadhaar cards by 2014.

India has initiated a wide-ranging project to shift many subsidy programmes toward direct cash transfers.

The Indian government has started transfering cash directly into the bank accounts of beneficiaries of selected schemes using the Aadhaar payment gateway in a phased manner. The first phase started in January covering 43 districts and 78 more would be brought covered from July 1.
Currently, India maintains large subsidy programmes for food, fertiliser and fuels. Subsidised food and kerosene are available from government-owned stores at below-market prices for eligible residents.
While all fertiliser sales are at subsidised prices, LPG cylinders are distributed directly, with a limit on each household's subsidised purchase.

Referring to kerosene, IMF said given that the fuel is consumed by the poorest in the Indian population, "replacing the current system on a broad basis will have to be done with care".
Pilot programmes delivering subsidised kerosene using Aadhaar-based identification have been set up in Rajasthan.
A pilot scheme replacing subsidised LPG with direct cash transfers was also launched in Mysore, Karnataka.