In my previous post, I had drawn attention to the debate about whether the Aadhaar identity would help more effective targeting of welfare beneficiaries. I had argued that Aadhar-based identification would not help screen out those beneficiaries who do not meet the eligibility requirements.
In this context, one of the comments pointed to the psychological deterrent effect of any Aadhaar-based identity in screening out the ineligible. This works on the presumption that since Aadhaar localizes the identity and makes it easy to trace individuals, the possibility of being noticed when drawing benefits would deter the ineligible from accessing those benefits.
I am not sure about the effectiveness of such deterrent for two reasons. First, the margins between the eligible and ineligible are never cut-and-dry. For example, it is impossible to accurately avoid inclusion errors (ineligible getting included) when identifying people below or above the poverty line based on the standard income parameter. What should be the cut-off income? How do we quantify that income? Second, given the widespread poverty in the country, the numbers of people who straddle the blurred boundaries of eligibility are considerable.
In other words, a large number of people face the ambiguity about whether they are eligible or not to receive certain welfare benefits. In the circumstances, the deterrent effect gets considerably diluted. Where is the need to fear when many of your neighbours belong to the same category? In any case, given the difficulty with income quantification, how can anybody establish that you are not income poor (especially when the major share of incomes of those under scrutiny generally comes from the informal sector)?
This challenge will remain with or without Aadhaar and raises the question of what is the most appropriate method to identify welfare beneficiaries. In this context, I am reminded of George Akerlof's famous paper that advocates the use of "tagging" - which tags (identifies) people and then makes specific transfers (or concessions) to them - in taxation. Tagging eliminates the ambiguity arising from eligibility parameters (like income) and enables easier differentiation of the eligible from the ineligible.
What are the most effective tags to identify poor people eligible to receive welfare benefits? The commonest tags are height, weight, looks, gender, age, educational qualifications etc. These are all, for obvious reasons, unsuited for identification of the income poor.
Among the more effective likely tags could be the nature and/or size of ones house. For example, a person living in a temporary or semi-permamnent house could be treated as income poor. Alternatively, the carpet area of the house, discounting for locations, could be used as tags for income levels. Either way, it becomes possible to verify and mark out a person who claims benefits despite failing the eligibility norm. Though administration of house-type based tags too raises concerns, it does look a more promising approach to screen beneficiaries than the current practice of identification based on incomes.
It is possible there are more effective tags, especially for certain subsidized products. In any case, irrespective of whether Aadhaar is used or not, the problem of beneficiary identification, with a reasonable degree of accuracy, has to be satisfactorily resolved.