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.

This is Part 2 of an earlier report, which showed that LPG subsidy savings because of Aadhaar is only Rs 107–203 crores before costs compared to the claim of Rs 29,769 crore by the Government Of India.

In this article, we calculate various costs that were incurred by the Government of India in rolling out the scheme and also discuss the impact of these costs on the Ujjwala scheme.

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).

The quantum of the advance was fixed at Rs. 568 initially and was given to all subscribers who were either Aadhaar compliant (Seeded Aadhaar and Bank account details in their accounts) or Cash Transfer compliant (Seeded only Bank account details in their accounts).

The permanent advance, which was provided as an incentive, was stopped on 1st April, 2016 (CAG Report, Page 10) and the total amount sanctioned was Rs. 6702.96 crores. This figure is further re-iterated by the Petroleum Planning and Analysis Cell (PPAC), in it’s November 2016 report (Page 80), which shows a total of Rs. 6608 crores (5755 + 853).

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)

Additionally, OMCs are also entitled to claim Project Management Expenditure on quarterly basis, restricted to `50 lakh per district.

The expenditure incurred has the following items (as per CAG Report, Page 9, Foot note #2)

Project Management Expenses includes Seeding expenditure, Software charges/upgrade, Expenditure on forms/ SMS/seeding, Aadhaar generation camps, etc.

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:

  • Aadhaar seeding into the LPG database.
  • Bank account seeding into the LPG database.

The UIDAI has estimated (Page 25, Line 1) that Aadhaar seeding will cost Rs. 5 per record and this was borne fully by the Oil Marketing Companies.

UIDAI has estimated up to Rs 5/- per Aadhaar seeding, where the cost includes logistics, overheads,etc. Additionally, UIDAI under the Information, Communication and Technology (ICT) scheme is in a position to provide funds for Aadhaar Seeding in MGNREGS, NSAP and Scholarship schemes.

Since there are two different types of seeding costs and there are 15.31 Crore seeded connections as on March 2017, this expenditure is Rs. 153.1 Crore.

This might or might not have been covered in the Project Management expenditure as it was capped. So, we can say that this cost could have been as low as Rs 0 and as high as Rs 153.1 Crores.

Direct Payment Architecture

The Direct Benefit Transfer scheme has the following architecture:

  • Sponsor department — This is the department that provides the Direct Benefit Transfer. In the LPG case, it is the Ministry of Petroleum and Natural Gas (MoPNG).
  • 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.

The fund flow from the Sponsor department to the LPG subsidy beneficiary is described below:

  1. The Ministry sends the payment to the beneficiary identified by his/her Aadhaar number to the sponsor bank (SBI).
  2. SBI, the sponsor bank, checks with the NPCI Router, to get the destination bank name of the Aadhaar holder.
  3. The NPCI Router, redirects the payment to the destination bank.
  4. The destination bank credits the amount to the account of the beneficiary.

There are two different scenarios that are handled by the NPCI Router.

ON US — This is the case where the Sponsor bank and the Destination Bank are one and the same.

OFF US — This is the case where the Sponsor bank and the destination bank are different.

There are different types of costs associated with the above design, which are raised by the various entities and are paid by the Sponsor department.

  • NPCI charges a per transaction fee for every routing and the charges are different for ON-US and OFF-US cases.
  • 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 #79 fully waived off the ON-US charges and specified that OFF-US charges are 20 Paise per transaction, for the period 1st January, 2015 to 31st December, 2015.
  • 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.

With this data, we can use the following table to calculate the running costs incurred from NPCI (Air Table link).

Running Costs for LPG DBTL

Since there is no data available on the distribution of beneficiary accounts between State Bank of India (Sponsor Bank) and the others, we can say that the running cost for DBTL is within the range of Rs 0-Rs 136.31 Crores, and most likely at Rs 68 Crores (assuming SBI has 50% share).

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

Why are those schemes irrelevant to Aadhaar savings or even Direct Benefit Transfer scheme? Simply because they are two “different methods” to reduce subsidies and neither of them required Aadhaar at all!

Further the benefit of these initiatives on the exchequer was far less because of the one time Permanent Advance (PA) of Rs. 6702.96 crores, which was never recovered from the (ineligible) tax payers earning more than 10 Lakh an year.

The upfront payment of Permanent Advance to the ineligible is the primary reason why the Ujjwala scheme has not delivered it’s promise, as the government could not provide the subsidy for the needy, who cannot pay the full cost, but are forced to.

To reduce the burden, the scheme allows beneficiaries to pay for the stove and the first refill in monthly installments. However, the cost of all subsequent refills has to be borne by the beneficiary household.

In other words, 2 Crore ineligible households (GiveItUp or Targeted Removal) were given a Permanent Advance they really did not need. And this was doled out in order to roll out Aadhaar based Direct Benefit Transfer. But Ujjwala beneficiaries were denied such a benefit, and this negatively impacted the success of the Ujjwala program

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).

From the Cabinet secretary note on November 2015 (Page 3), at the most Aadhaar has contributed to only 8,35,000 of the connections and other means such as NIC deduplication, door to door checks were responsible for 4.39 Crore blocks and hence are 52X (8.35 Lakhs: 4.39 Crores) more efficient without the associated costs.

Similarly the Cabinet secretary note indicates that 47 Lakh beneficiaries gave up their LPG subsidy and this could be as high as 1 Crore as on April 2016. Cost performance wise, even the GiveitUp campaign was several times more efficient than Aadhaar in saving subsidy.

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.

The bare minimum operational cost borne by the exchequer during this period is between Rs 0–Rs 136.31 crores, and most likely at Rs 68 Crores.

Thus the net savings for the exchequer during this period because of Aadhaar is around Rs. 74 Crores.

The total setup cost incurred by the project so far is between Rs 6935–Rs 6994 Crores and at the current rate of payback, it will take at least 93 years for break-even without factoring in inflation.

It is now possible to conclude the following:

  1. For the period 1st Jan, 2015 to 31st March, 2017, the net savings because of Aadhaar is only Rs 68 crores.
  2. 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!
  3. 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.