Lots of glitches to iron out in India's cash transfer scheme

Goof ups and mindset changes need to be addressed in order for success in roll out of cash transfer schemes linked to Aadhaar, the government issued individual ID numbers.

Last week, the Indian government announced that from October, 2013, subsidies on liquefied petroleum gas (LPG) cylinders will be given to customers with Aadhaar numbers and only through their bank accounts. Aadhaar is a 12-digit individual identification number issued by the Unique Identification Authority of India (UIDAI) to all residents on a voluntary basis.

Aadhaar is a 12-digit individual identification number issued by the Indian government.

Once implemented, this will be the next big leap for the government under its direct cash transfer scheme --it will bring 140 million LPG consumers under its ambit. It is aimed at directly putting the subsidy component of the domestic cylinder into the bank account of the consumers to eliminate the leakages in the system and address the problem of diversion of domestic cylinders for commercial market.

But there have been many glitches so far--both on the Aadhaar side, as well as on the banking side.

Goof ups and hurdles

Let's look at the goof-ups of the UIDAI and the hurdles facing the Aadhaar scheme.

Last month, there was news that thousands of people across the country received Aadhaar letters with photographs of trees, animals or buildings in place of their own. In addition, 14,817 cases of Aadhaar letters bearing photos of wrong people had been detected. And then in Hyderabad, there was news that Aadhaar data prior to April 1, 2012 had been lost and those people must re-enroll.  The UIDAI has to resolve all such issues prior to October for smooth roll out of the LPG subsidy scheme.

There is also the issue of Aadhaar penetration, which is very patchy in different parts of the country. For instance, in Kolkata, only 55,000 people have received Aadhaar cards which amounts to less than 1 percent of the population.

Moreover, enrolments by the banking sector have to pick up fast. According to news reports, while about 320 million Aadhaar cards have been issued by the Unique Identification Authority of India (UIDAI), only 8 million bank accounts have been linked to the unique identity numbers so far.

There are hurdles even at the customer-end.

The oil marketing companies have started asking customers to register their Aadhaar card numbers with them. However, several consumers are refusing to share their data with the banks. While consumers are ready to give their Aadhaar numbers to the oil companies, they are not willing to share these with the banks.

Last week, the government convened a meeting of 121 district magistrates from various parts of the country to discuss the launch of the LPG subsidy scheme in phases from July 1. The plan is to extend it to majority of the LPG consumers on the rolls of the oil marketing companies (OMCs) by October 1, subject to their coverage under the Aadhaar scheme.

Under the scheme, a consumer has to seed his or her bank account with the Aadhaar number to get the LPG subsidy transferred directly into the account. The annual subsidy per consumer is around 4,000 rupees (US$74). The supply of subsidized LPG cylinder has been capped at nine cylinders a year per consumer.

While the LPG scheme, as well as several other cash transfer schemes, could help the ruling government in the general assembly elections next year, a lot depends on how the various sectors--such as banks, oil companies, the UIDAI--work over the next few months to implement these schemes across India.