Wiping Every Tear from Every Eye: The Jan Dhan Yojana, Aadhaar and Mobile Numbers Provide the Solution

Both the Central and State Government subsidize the price of wide range of products with the expressed intention of making them affordable for the poor. Rice, wheat, pulses, sugar kerosene, LPG, naptha, water, electricity, diesel, fertilizer, iron ore, railways- these are just a few of the commodities and services that the Government subsidises.

There is always a question over how much of these benefits actually reach the poor.

  • Price subsidies  are often regressive: It means that a rich household benefits more from the subsidy than a poor household.
  • Price subsidies in electricity can only benefit the (relatively wealthy) 67.2 percent of household that are electrified.
  • The poorest 50 percent of household consume only 25 percent of LPG.
  • Majority (51 percent) of subsidized kerosene is consumed by the non-poor and almost 15 percent of subsidized kerosene is actually consumed by relatively well-off (the richest 40 percent).
  • A large fraction of price subsidies allocated to water utilities- upto 85 percent- are spent on subsidizing private taps when 60 percent of poor household get their water from public taps.
  • Controlled rail prices actually provide more benefits for wealthy household than poor households.
  • Price subsidies can distort markets in ways that ultimately hurt the poor.
  • This contributes to food price inflation that disproportionately hurts poor household who tend to have uncertain income streams and lack the assets to weather economic shocks.
  • High MSPs and price subsidies for water together lead to water-intensive cultivation that causes water tables to drop, which hurts farmers, especially those without irrigation.
  • In order to cross subsidise low passenger fares, fright tariffs in railways are among the highest in the world. This reduces the competitiveness of Indian manufacturing and raises the cost of manufactured goods that all households, including the poor, consume.
  • Benefits from fertilizer price subsidies probably accrue to the fertilizer manufacturer and richer farmer, not the intended beneficiary, the farmer.
  • Leakages seriously undermine the effectiveness of product subsidies.
  • Recent academic research on the subject of PDS leakages (kerosene, rice, wheat etc.) has found that leakages are falling through still unacceptably high.

PDS LEAKAGES

Items Rs. (In crores)
Kerosene 10000
Rice 5800
Wheat 12600

THE POSSIBILITIES OFFERED BY CASH TRANSFERS

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-poor and opportunities for leakage.

THE JAM NUMBER TRINITY SOLUTION

The JAM Number Trinity- Jan Dhan Yojana, Aadhaar and Mobile numbers– allows the state to offer this support to poor households in a targeted and less distortive way.

  • As of December 2013 over 720 million citizens had been allocated an Aadhaar card. By December 2015 the total number of Aadhaar enrolments in the country is expected to exceed 1 billion. Linking the Aadhaar Number to an active bank account is key to implementing income transfers.
  • With the introduction of Jan Dhan Yojana, the number of bank accounts is expected to increase further and offering greater opportunities to target and transfer financial resources to the poor.

Two alternative financial delivery mechanisms below:

  • Mobile Money
  • With over 900 million cell phone users and close to 600 million unique users, mobile money offers a complementary mechanism of delivering direct benefits to a large proportion of the population. And this number is increasing at a rate of 2.82 million per month.
  • Aadhaar registrations include the mobile numbers of a customer, the operational bottlenecks required to connect mobile numbers with unique identification codes is also small.
  • Post Offices
  • India has the largest Postal Network in the world with over 1,55,015 Post Offices of which (89.76 percent) are in the rural areas.
  • Similar to the mobile money framework, the Post Office can seamlessly fit into the Aadhaar linked benefits-transfer 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 government policy. Even as it focuses on second generation and third generation reforms in factor markets, India will then be able to complete the basic first generation of economic reforms.

A Growth Rate of over 8 Per Cent Expected for the Coming Year

A Double-Digit Economic Growth Trajectory is now a Possibility

Such a Growth Could Help in ‘Wiping Every Tear From Every Eye’ and Realizing Aspiration of India’s Youth

There is Political Mandate for Reform and Benign External Environment now, says the Economic Survey

There is Scope for Big Bang Reforms now

Indian Economy is looking-up with brighter prospects amongst the world’s major economies today.  The Economic Survey 2014-15 presented by the Finance Minister Shri Arun Jaitley to the Parliament today indicates that a clear political mandate for reform and a benign external environment now is expected to propel India on to a double digit trajectory.  It states that Indian economy appears to have now gone past the economic slowdown, persistent inflation, elevated fiscal deficit, slackening domestic demand, external account imbalances and oscillating value of the rupee.

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The Economic Survey taking into consideration the change of base year by the Central Statistics Office of the National Accounts series from 2004-05 to 2011-12, states that growth at market prices for 2015-16 is expected to be 8.1-to 8.5 per cent.

The growth rate in GDP at constant (2011-12) market prices in 2012-13 was 5.1 per cent, which increased to 6.9 percent in 2013-14 and it is expected to further increase to 7.4 per cent in 2014-15 (According to advanced estimates). The change in methodology by the Central Statistics Office has also introduced the concept of Gross Value Added (GVA) at the aggregate and various sectoral levels.

The Economic Survey says that expectation for such a growth rate is also due to a number of reforms that have already been undertaken and more that are being planned for.  The Survey enlist various reform measures like de-regulation of diesel price, taxing energy products, replacing cooking gas subsidy by direct transfer on national scale, passing an Ordinance to reform the coal sector via auctions, increasing the FDI caps in defence, etc.

The Survey report also commended the far reaching changes brought about on the issue of sharing of revenues between the Centre and States as recommended by the 14th Finance Commission.

The Survey says that decline in inflation by over 6 percentage points since late 2013 and also reduction of current account deficit from a peak of 6.7 per cent of GDP in the third quarter of 2012-13 to about one (1) per cent in the coming fiscal year has made India an attractive investment destination well above most other countries.

The expected high growth rate in the coming year in the favourable economic environment has created a historic movement of opportunity to propel India into a double-digit growth trajectory to attain the fundamental objective of  “wiping every tear from every eye” of the vulnerable and  poor people of the country, the survey says.  It also gives an opportunity to the increasingly young, middle-class and aspirational India to realize its full potential. As the new Government is to present its first full year budget, the Economic Survey states that  it appears that India has reached a sweet spot and that there is a scope for Big Bang reforms now.

The growth estimates of over 8 per cent for the current year is on expectations that the monsoon will be favourable,  as it was forecast to be normal, compared to last year. However the growth rate in Gross Value Added (GVA) at basic prices in agriculture is projected to decline from 3.7 per cent in 2013-14, an exceptionally good previous year from the point of view of rainfall, to 1.1 per cent in 2014-15, the current year with not-so-favourable monsoon.

The Economic Survey has also drawn our attention to certain other stagnating or declining elements of the economy in the recent past.

It says that the growth in 2014-15 is largely driven by domestic demand. There is hardly any external support to growth in 2014-15, as the growth in exports is projected to be only 0.9 per cent and the growth rate of imports, around (-) 0.5 per cent. The deceleration in imports owe substantially to the sharp decline in international oil prices in the current year that compressed the oil import bill.

It also says that there has been a decline in the rate of gross domestic saving, from 33.9 per cent of the GDP in 2011-12 to 31.8 per cent in 2012-13 and further to 30.6 per cent in 2013-14, caused majorly by the sharp decline in the rate of household physical savings.

Further it states that investment rate over the past years, as measured by Gross capital formation (GCF) as a percentage of GDP declined from 38.2 per cent in 2011-12 to 36.6 per cent in 2012-13 and further to 32.3 per cent in 2013-14.

On investments the Survey had significantly commented that while private investment must remain the primary engine of long-run growth, the public investment, especially in the railways, will have to play an important role at least in the interim, to revive growth and to deepen physical connectivity.

This Economic Survey prescribes, what its calls, a golden rule of fiscal policy saying that governments are expected to borrow over the cycle only to finance investment and not to fund current expenditures. It urged the government to aim at bringing down the centre’s fiscal deficit down to 3 per cent of GDP.

The Economic Survey made some interesting comments saying that price subsidies do not appear to have had a transformative effect on the living standards of the poor, though they have helped poor households to weather inflation and price volatility.   It says that a close look at price subsidies, which are estimated to be about 3,78,000 crore rupees, about 4.24 per cent of GDP, reveal that they may not be the government’s best weapon for fighting poverty.  Dwelling upon various subsidies to the poor, the Survey even stated that price subsidies are often regressive. It said, an analysis of current subsidy scheme indicates that rich households benefit more from the subsidy than a poor household. Among various examples that it had dwelt upon the Survey said that subsidy on electricity can only benefit the relatively rich. The Survey, however, concluded that eliminating or phasing down subsidies is neither feasible nor desirable.     It said that by adopting what it called the JAM Number Trinity-Jan Dhan Yojana, Aadhaar and Mobile numbers would allow the State to deliver the subsidies to poor in a targeted and less distorted manner.

The Economic Survey had expressed a serious concern that several projects have been stalled and such a tendency is increased over the past years.  In the same breath the Survey report expressed happiness that such stalling of projects seems to have plateaued.  It suggested revitalizing public private partnership model of investment.

Dwelling upon the issue of manufacturing versus services for the growth of the economy the Survey says, both are equally important in the Indian context.  Similarly, “Skilling India” is no less important and deserves an equal attention as the other important goal of “Make in India “.

In a Chapter on a Common National Market for Agricultural Commodities the Survey without making any conclusions suggested that there may be a Constitutional provision used to regulate trading in specified agricultural commodities to create a National Common Market.

In an exclusive Chapter relating to the Fourteenth Finance Commission(FFC) the Economic Survey quoted both Pt. Jawahar Lal Nehru, the first Prime Minister of the country and the current Prime Minister Shri Narendra Modi and said that adoption of the recommendations of the FFC and the creation of Niti Ayog earlier would further take forward the Government’s vision of cooperative and competitive federalism.

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0 responses to “Wiping Every Tear from Every Eye : Double-Digit Growth is Possible”

  1. Ram says:

    All is good. But first – the definition of Poor needs to be made realistic. A person who earns more than 35Rs-40Rs cannot be termed as non-Poor. This kind of disparities needs to be addressed first.

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