The UPA’s great gamble

India’s United Progressive Alliance (UPA) government is launching a massive cash transfer project based on the Aadhaar unique identity (UID) number, in lieu of direct provision of public services.It’s rushing to introduce the project on January 1, 2013 in 51 districts across India for 34 schemes like old-age and widow pensions, maternity benefits and scholarships – as a step towards extending Aadhaar-enabled cash transfers (AECT) to the Public Distribution System (PDS) for food, healthcare provision, and fuel and fertiliser subsidies. The UPA believes AECT is a silver bullet that will not only reduce expenditure on pro-poor schemes, but also help it win elections. Rahul Gandhi told Congress office-bearers last week that the “revolutionary” project will ensure the party’s victory in the next two general elections.

To sweeten the controversial UID idea, the UPA is planning to gift Aadhaar-enabled smartphones to 400 million people, with 100 hours of free talk time and 500 free SMSs, besides free Internet access. This shows less a concern to provide basic necessities – which smartphones are not – than an obsession to promote Aadhaar with freebies, which will cost Rs7,000 crores.

The premise that AECT will instantly raise UPA’s popularity is fundamentally mistaken. Surveys show that more than 90 percent of the poor prefer PDS food to abuse-prone cash transfers.

The UID is fraught with grave technological, administrative and logistical problems. It uses unreliable markers such as fingerprints (which fail to identify people in 15 percent-plus of cases) and iris scans (which become dodgy with cataracts and other eye problems), and poses serious issues of data security and abuse of personal information by state agencies.

The UID’s costs are so high (probably Rs100,000 crores-plus) that even the United Kingdom abandoned it. It is as prone to errors like exclusion (of deserving beneficiaries) and wrongful inclusion (of undeserving ones) as below-poverty-line (BPL) lists, which notoriously leave out up to 40 percent of the poor. The same officials who compile the BPL lists will generate UIDs. Each excluded family means at least two lost votes.

The UID has no legal basis. Parliament’s Standing Committee on Finance rejected the National Identification Authority of India Bill 2010 (to give UID legal backing), and termed it “directionless” and lacking “clarity of purpose”. It also called the UID technology “untested, unproven, unreliable and unsafe”.

The AECT aims to couple UID with bank accounts and hand-held micro-ATMs through which banking correspondents (BCs) will dispense cash to people. This will enlarge its inherent risks. Micro-ATMs are dependent on centralised databases, Internet connectivity and reliable electricity supply. But rural areas often have no power for days and supply is erratic at the best of times. The scheme also assumes high integrity among BCs, who may be prejudiced towards the poor.

These problems were highlighted in two districts where AECT pilot projects were launched a year ago. In the Ramgarh district of Jharkhand, payment of wages under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) was made AECT-dependent.

The result was appalling. The administration simply couldn’t cope with the workload. The proportion of the population whose UID numbers are matched with their welfare details is less than two percent. Rural development minister Jairam Ramesh says coverage should be at least 80 percent for a viable scheme.

To receive cash instead of services, people must open bank accounts. But there aren’t enough bank branches. India’s 600,000-plus villages have only 32,000 branches. Ramgarh’s lead bank has expediently outsourced Aadhaar-related work to a telecom company, which has hired BCs. But the BCs are demotivated because they aren’t paid on time. So Ramgarh has fulfilled only three percent of the target for MGNREGA wage-payment.

In one block in Ramgarh, only 162 of the 8,231 ‘active’ job-card holders got paid through AECT. In another block, fingerprint verification recently worked in only nine of 45 cases of pension payment. According to the area’s BC, half the MGNREGA workers’ fingerprints don’t match. In one case, a poor worker tried fingerprint verification 13 times on the micro-ATM and failed. The BC told him to rub cream onto his fingers for three to four days, and then come back! Lest it be thought that the Jharkhand pilot project’s poor performance can be attributed to the state’s backwardness and inefficient bureaucracy, another pilot project at Kotkasim, a relatively prosperous village in Rajasthan – a relatively well-administered state which records India’s best MGNREGA performance – is an even more dismal failure.

A year ago, the government stopped selling kerosene to Kotkasim’s 25,843 ration card-holding households at the subsidised rate of Rs15.25 a litre and charged them the market price of Rs49.10. The difference was to be deposited in their bank accounts every three months. But the average distance to a bank branch in the area is three kilometres. For many people, it’s 10 km. Therefore, only 52 percent of the households could open bank accounts. The rest were left out altogether.

Some households got the first three-monthly instalment, but nothing thereafter. Most have received nothing at all for a year. Meanwhile, sales of kerosene have plummeted 94 percent. People have to make do with burning twigs, cotton stalks and other biomass in extremely inefficient and polluting chulhas.

The Kotkasim residents are so angry with the cash transfer for kerosene that they demand it be extended to all of Rajasthan so all its people suffer like they do!

Similar examples can be cited from other districts. So far, less than two-thirds of the AECT potential beneficiaries have received Aadhaar numbers. But most of them live in 20 districts with high coverage like 80 percent-plus. Among the worst performers, ironically, is Nandurbar in Maharashtra, where the very first UID was registered in September 2010. Aadhaar coverage there is still 28 percent. The government is using these low numbers to panic people into rushing to Aadhaar registration centres as it prepares to weaken and dismantle the PDS, substitute it with cash transfers, and open up the market to private capital. Linking cash transfers to Aadhaar is basically misconceived because it will cause enormous disruptions and dysfunctions.

A statement by a number of thoughtful social scientists urges us to “think of an old man who is currently getting his pension from the local post office, but will now have to run around getting his UID-enabled bank account activated and then may find his pension held up by fingerprints problems, connectivity issues, power failures, truant ‘business correspondents’”, and so on. This makes no sense.

It would be even more wrong to substitute cash transfers for food and other commodities supplied through the PDS. PDS-subsidised food is a source of economic security for millions of poor families, and has significantly reduced absolute deprivation. Recently, the PDS has improved in many states. It’s possible to further revamp and reform it. India urgently needs a National Food Security Act, with a universal, as opposed to a targeted, PDS.

In India’s typically under-developed rural markets, cash cannot get you healthcare or food, which are locally unavailable. Dismantling the PDS would put people at the mercy of predatory traders. Particularly hit will be vulnerable groups such as single women, the disabled and the elderly who cannot easily withdraw cash and buy food from distant markets. Cash transfers will put huge amounts of money into circulation, causing inflation and eroding purchasing power.

There is a case for cash transfer of old-age and widow pensions, maternity support and scholarships, but none at all for food, fuel and other necessities. Cash transfers can best supplement public service provision, not supplant it. The UPA is trying to supplant it while reneging on its responsibility to the poor.

The writer, a former newspaper editor, is a researcher and peace and human-rights activist based in Delhi. Email: prafulbidwai1@yahoo.co.in