It has been hailed as a card to end corruption, prevent illegal immigration and stop terrorism, but analysts claim it is a logistical nightmare.
Backlash in India over hurried reform of welfare
BEELAHERI // India is shaking up the way it gets billions of welfare rupees to the poor with a plan that could one day reshape the economy and tackle the corruption keeping millions in poverty.
But in one small town, a pilot of the new system is proving to be unpopular.
Putting India's technological prowess to work to bring the entire 1.2 billion population within the reach of government, the widely feted unique identity (UID) project was set up by Infosys co-founder Nan dan Nilekani two years ago. It has so far scanned the irises of 210 million people into a biometric database.
Now, in a more ambitious version of programmes that have slashed poverty in Brazil and Mexico, the government has begun to use the UID database, known as Aadhaar, to make direct cash transfers to the poor, in an attempt to cut out frauds that siphon billions of dollars from welfare programmes. "We can ensure that the money goes to the correct person and the role of the middleman is ended with direct transfer of benefits to the needy," the prime minister, Manmohan Singh, told a crowd of thousands in the Rajasthani town of Dudu last week, as he launched the programme.
Following a slew of reforms aimed at jolting Asia's third-largest economy from a slump, the plan could bring some order to India's fiscal deficit by plugging leakages, or scams, that result in the government losing huge amounts of its subsidised grain, fuel and fertiliser.
Two years ago, a McKinsey report estimated that such an electronic platform for government payments to households would save up to US$18 billion (Dh66.2bn) annually - enough to wipe out one-sixth of a fiscal deficit that could hit 6 per cent of GDP this fiscal year.
In the next year alone, the government plans to transfer the wages of more than 50 million workers in a rural job scheme, along with pensions for 20 million senior citizens and about 5 million education scholarships, and some fuel subsidies directly to bank accounts linked with the Aadhaar identity number.
But in Beelaheri, a small village in Rajasthan, the teething problems are visible. Hundreds of new Aadhaar ID cards are strewn in messy piles on the counter of a small tea-shop on the edge of the village. Locals drift in and rifle through the cards, looking for their own.
The government has begun the cash transfers even to people who have not received their cards, said Pushkar Raj Sharma, a local government official overseeing the scheme in the Kotkasim area.
The government is set to spend more than $55bn this fiscal year ending in March on fuel, fertiliser and food subsidies, as well as a flagship scheme guaranteeing 100 days of work a year to rural labourers, and other welfare programmes.
Launched by Mr Singh in 51 districts, the government has said the direct cash transfer plan will eliminate millions of fraudulent benefit claimants over the next four to five years. It says Aadhaar could reduce subsidies by about one percentage point of GDP.
The Kotkasim plan, one of five small pilot projects across India, offers an insight into issues the wider Aadhaar-direct transfer project may face when it is rolled out nationally.
Mr Sharma said the project had cut the amount of kerosene being sold to one-eighth of earlier levels, partially due to elimination of "ghost beneficiaries", or duplicate identities used to claim benefits.
But he also admitted the pilot had been rolled out with little coordination with the UID database and that funds being transferred arrived only sporadically in bank accounts.
"Funds are not coming in time. Otherwise the scheme is very useful to check leakages," said Mr Sharma.
Many villagers were frustrated at the new system, which makes them pay market rates up to three times the subsidised cost of kerosene, and then makes it difficult to recover the money.
A tailor, Dharam Pal, said he had simply stopped buying kerosene he was entitled to because he faced a long visit to the bank to withdraw the rebate, often to find it had not been deposited.
"I have no idea when the money will come and I have to spend half of my working day every time to visit the bank," said Mr Pal.
Instead, many villagers are buying more easily available cooking gas, suggesting lower kerosene sales in part represent a drop in legitimate use.
Lower sales are good for government finances whatever the reason but obstacles to cheap fuel do not play well with voters. "The government will have to pay a price in elections. Not even half of the people in village are buying kerosene," said villager Tulsi Ram, 45.
Critics warn that the goal of registering the biometric data of 1.2 billion people - currently being carried out by two different enrolment programmes - and bringing the masses of rural India into the banking system could face big problems if the wrinkles are not quickly ironed out.
"I would call it a logistical nightmare," said Jyotinder Kaur, an economist at HDFC Bank.
Projected annual savings
How many citizens have had their irises scanned into the system
Rural job scheme workers who will be paid through Aadhaar next year
Senior citizens will receive their pensions through the new initiative
Scholarships to be paid using the system