Jam Trinity: Fertiliser subsidies, within-government transfers fit for DBT

Jan Dhan-Aadhaar-Mobile (JAM) trinity should be expanded

The Economic Survey 2015-16 has made a case for the government to further expand the use of direct transfer of benefits through Jan Dhan-Aadhaar-Mobile (JAM), with fertiliser subsidies and within-government transfers as two most promising areas.

The survey was prepared by Chief Economic Advisor Arvind Subramanian and his team of economists in the Finance Ministry. The last Survey had laid down the genesis of the JAM trinity to better-target subsidies and the latest survey has given pointers on how to expand its scope further. The concept was widely used in reducing subsidy leakages in LPG and foodgrain.


"While deciding where next to spread JAM, policymakers should consider the challenges of beneficiary identification, distributor opposition and beneficiary financial inclusion. Spreading JAM to other areas will reduce leakages and provide more fiscal space to the government," notes the Survey.

It says all sections of the administrated economy, from poor households to state and local governments and their employees receive funds from the same government financial pipe that delivers subsidies - and which JAM can improve by reducing delays, leakages, and administrative burden.

"The policy areas that appear most conducive to JAM are those where the central government has significant control and where leakages - and hence fiscal savings due to JAM - are high. This combination is met for fertiliser and within-government fund transfers," says the Survey.

It suggests that the Centre should prioritise areas where it has the highest control and leakages are high. "At present, the most promising targets for JAM are fertiliser subsidies and within-government fund transfers - areas under significant central government control and with substantial potential for fiscal savings," the survey says.

The Survey gives an example of the government's flagship rural jobs scheme - Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). It says MGNREGS highlights that delivering within-government transfers via JAM can help other centrally-sponsored schemes reduce idle funds, lower corruption and improve the ease of doing business with government.

The Survey says that the main constraint for JAM's spread is the last-mile challenge of getting money from banks into people's hands. Direct benefit transfer (DBT) in LPG has generally been a big success, and policymakers in other areas are understandably keen to emulate its success. However, when designing DBT schemes in other areas, caution should be exercised in drawing lessons from the LPG case, the Survey recommends.

Despite huge improvements in financial inclusion because of Jan Dhan Yojana, the Survey says the JAM-preparedness indicators suggest that "there is still some way to go" before bank-beneficiary linkages are strong enough to pursue DBT without committing exclusion errors. "In that sense, the JAM agenda is currently jammed by the last-mile challenge of getting money from banks into beneficiaries' hands, especially in rural India," the Survey notes.