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PressInformationBureau
GovernmentofIndia
MinistryofFinance
27February201512:13IST

WipingEveryTearfromEveryEye:TheJanDhanYojana,AadhaarandMobileNumbers
ProvidetheSolution
Both the Central and State Government subsidize the price of wide range of
productswiththeexpressedintentionofmakingthemaffordableforthepoor.Rice,wheat,
pulses,sugarkerosene,LPG,naptha,water,electricity,diesel,fertilizer,ironore,railways
thesearejustafewofthecommoditiesandservicesthattheGovernmentsubsidises.

Thereisalwaysaquestionoverhowmuchofthesebenefitsactuallyreachthepoor.

Pricesubsidiesareoftenregressive:Itmeansthatarichhouseholdbenefitsmorefromthe
subsidythanapoorhousehold.

Pricesubsidiesinelectricitycanonlybenefitthe(relativelywealthy)67.2
percentofhouseholdthatareelectrified.
Thepoorest50percentofhouseholdconsumeonly25percentofLPG.
Majority(51percent)ofsubsidizedkeroseneisconsumedbythenonpoor
and almost 15 percent of subsidized kerosene is actually consumed by
relativelywelloff(therichest40percent).
A large fraction of price subsidies allocated to water utilities upto 85
percent are spent on subsidizing private taps when 60 percent of poor
householdgettheirwaterfrompublictaps.
Controlledrailpricesactuallyprovidemorebenefitsforwealthyhousehold
thanpoorhouseholds.

Pricesubsidiescandistortmarketsinwaysthatultimatelyhurtthepoor.

Thiscontributestofoodpriceinflationthatdisproportionatelyhurtspoor
householdwhotendtohaveuncertainincomestreamsandlacktheassetsto
weathereconomicshocks.
HighMSPsandpricesubsidiesforwatertogetherleadtowaterintensive
cultivationthatcauseswatertablestodrop,whichhurtsfarmers,especially
thosewithoutirrigation.
Inordertocrosssubsidiselowpassengerfares,frighttariffsinrailwaysare
amongthehighestintheworld.ThisreducesthecompetitivenessofIndian
manufacturingandraisesthecostofmanufacturedgoodsthatallhouseholds,
includingthepoor,consume.
Benefits from fertilizer price subsidies probably accrue to the fertilizer
manufacturerandricherfarmer,nottheintendedbeneficiary,thefarmer.

Leakagesseriouslyunderminetheeffectivenessofproductsubsidies.
RecentacademicresearchonthesubjectofPDSleakages(kerosene,rice,
wheat etc.) has found that leakages are falling through still unacceptably
high.
Items

PDSLEAKAGES
Rs.(Incrores)

Kerosene
Rice
Wheat

10000
5800
12600

THEPOSSIBILITIESOFFEREDBYCASHTRANSFERS
Recent experimental evidence documents that unconditional cash transfers if targeted well can
boost household consumption and asset ownership, reduce food security problems for the ultra
poorandopportunitiesforleakage.
THEJAMNUMBERTRINITYSOLUTION
The JAM Number Trinity Jan Dhan Yojana, AadhaarandMobilenumbers allows the state to
offerthissupporttopoorhouseholdsinatargetedandlessdistortiveway.
As of December 2013 over 720 million citizens had been allocated an
Aadhaarcard.ByDecember2015thetotalnumberofAadhaarenrolmentsin
thecountryisexpectedtoexceed1billion.LinkingtheAadhaarNumberto
anactivebankaccountiskeytoimplementingincometransfers.
WiththeintroductionofJanDhanYojana,thenumberofbankaccountsis
expectedtoincreasefurtherandofferinggreateropportunitiestotargetand
transferfinancialresourcestothepoor.
Twoalternativefinancialdeliverymechanismsbelow:
MobileMoney

With over 900 million cell phone users and close to 600 million unique
users,mobilemoneyoffersacomplementarymechanismofdeliveringdirect
benefits to a large proportion of the population. And this number is
increasingatarateof2.82millionpermonth.
Aadhaar registrations include the mobile numbers of a customer, the
operational bottlenecks required to connect mobile numbers with unique
identificationcodesisalsosmall.

PostOffices

IndiahasthelargestPostalNetworkintheworldwithover1,55,015Post
Officesofwhich(89.76percent)areintheruralareas.
Similartothemobilemoneyframework,thePostOfficecanseamlesslyfit
into the Aadhaar linked benefitstransfer architecture by applying for an
IFSC code which will allow post offices to start seeding Aadhaar linked
accounts.
Converting all subsidies into direct benefit transfers is therefore a laudable goal of
governmentpolicy.Evenasitfocusesonsecondgenerationandthirdgenerationreformsinfactor
markets,Indiawillthenbeabletocompletethebasicfirstgenerationofeconomicreforms.
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DSM/AM/AKA