Aadhaar’s fiscal impact on PAHAL is -6900 crores (loss) so far

The move to make everyone Cash Transfer compliant also hurt the Ujjwala scheme’s chance of success.

Project setup costs

Permanent Advance

The first project setup cost was titled “Permanent Advance”. It was offered to everyone who either seeded their Aadhaar number or their bank account details in their LPG account (Ministry of Petroleum and Natural Gas notification dated 15.11.2014).

Project Management Expenditure

The additional expenditure to run the program apart from the Permanent Advance is reported as Project Managment expenditure (PME) and was capped at Rs 233 crore. This cap meant that additional expenditure incurred by the Oil Marketing Companies (OMCs) was not compensated by the Government of India (CAG Report, Page 9, Section 2.6, Paragrah 1)

Seeding Expenditure

LPG was the first scheme that was rolled out nationwide which mandated Aadhaar seeding and direct payment of the subsidy to bank accounts. Hence there are two different types of seeding costs:

  • Bank account seeding into the LPG database.

Direct Payment Architecture

The Direct Benefit Transfer scheme has the following architecture:

  • Sponsor Bank — This is the bank that the sponsor department deals with and is responsible for handling the payments. In the LPG case, this is State Bank of India.
  • Destination Bank — This is the bank in which the beneficiary holds the account that is linked with Aadhaar. The only requirement is that the account should be managed by the Core Banking system (CBS).
  • NPCI Router — The National Payment Corporations of India (NPCI) maintains the router that holds the mapping between an Aadhaar number and the destination bank.
  1. SBI, the sponsor bank, checks with the NPCI Router, to get the destination bank name of the Aadhaar holder.
  2. The NPCI Router, redirects the payment to the destination bank.
  3. The destination bank credits the amount to the account of the beneficiary.
  • The destination bank may further request a percentage commission on the amount transacted to cover it’s costs. This is especially true for programs such as NREGA where the destination bank does not have branches and needs to rely on Banking Correspondents and Micro ATMs to disburse payments.

Direct Benefit Transfer Costs in LPG

LPG being the first nation-wide scheme, banks let go of the percentage commission and even NPCI provided waivers on the per transaction costs for certain periods. These are described below.

  • NPCI Circular #129 increased the OFF-US charges to 45 paise per transaction, from 1st, September 2015, superseding the previous circular.
  • NPCI Circular #136 increased the OFF -US charges to 50 paise per transaction from 1st August 2015, superseding the previous circulars.
Running Costs for LPG DBTL

Other Initiatives and Targeting

There are two other initiatives that are often mixed up with Direct Benefit Transfer, but which have no relevance with Aadhaar savings. These are

Comparison with Alternatives

The total number of potential connections blocked from June 2012 to October 2015, including Aadhaar linking was 4.47 crores (CAG Report, Table 8, Page 26).

Conclusion

Savings in LPG subsidy due to Aadhaar seeding during the period of 1st Jan, 2015 to 31st March, 2017 is between Rs 107– Rs 203 Crores, with a midpoint of Rs 142 Crores.

  1. This is but a fraction of the Rs 6935 crores that was spent to set up the scheme and, at this rate, it will take decades to just recover the costs even without factoring in inflation!
  2. All other methods to reduce subsidy such as phonetic deduplication and GiveItUp campaign were far more efficient from cost and performance perspectives than Aadhaar in saving subsidy.

Kaarana

Kaarana (ಕಾರಣ; कारण; reason) is a collection of independent critiques of Aadhaar and digital India

Thanks to Srikanth @logic and rajeshmehar.

Anand Venkatanarayanan

Written by

Kaarana

Kaarana

Kaarana (ಕಾರಣ; कारण; reason) is a collection of independent critiques of Aadhaar and digital India