What the UID will not do

I have blogged earlier about the numerous exciting possibilities offered by the UID project in radically enhancing the ability of governments to effectively deliver the myriad government welfare programs and subsidies.

The importance/uniqueness of the UID is in vastly expanding the ability of governments to more accurately target and deliver a much wider range of subsidies. More specifically, UID-linked bank accounts create the channel to deliver subsidies as a cash transfer directly to the individual. However, it needs to be clearly borne in mind that the UID is not a panacea for every welfare benefit delivery problem. It is only an improvement, albeit a major one, on the existing welfare delivery channels.

This message assumes importance in view of the increasing number of articles that have been appearing expressing apprehension at the persistence of delivery channel failures even after the UID is implemented. It needs clarification that these peristent failures are less an indictment of any inadequacy of the UID number and more a testament to the complexity of delivering welfare assistance in such massive scale and under complex socio-economic environments as we have in India.

In any case, here are a few major generic problems that will persist even after the implementation of the UID project.

1. It will not, atleast in the initial stages, contribute much to the accurate identification of beneficiaries (or means-testing). The list of beneficiaries eligible to receive the benefits will have to be determined following a purely administrative process. So, even after implementation of the UID project, the problem of ineligible beneficiaries availaing of welfare benefits will remain.

However, as the database grows and becomes more universal, it becomes possible to leverage the network effect (arising from membership of larger numbers of specific categories of programs) and screen out atleast the ineligible applicants.

2. As a corollary, the UID can be of only limited use in covering all the excluded eligible beneficiaries, which is a major problem with programs like the PDS.

3. UID will not address the last-mile leakages. Thus the leakages by way of under-weighment at the fair price shop of the distributed rations or reductions in the amounts paid out as welfare pensions or NREGS wages (at the cash disbursal point by the Business/Banking Correspondent, BC) cannot be avoided.

4. It cannot certify the quality of works carried out under wage-employment programs like the NREGS. Further, it cannot also address leakages by way of, say, man over-reporting (extra man-days claimed), unless the attendance at the work site is taken by UID authentication.

5. Even if the dual-price mechanism is dismantled for foodgrains, petrol, diesel, and fertilizers, and an arrangement to transfer the subsidy to the UID-linked bank account of the individual is introduced, the possibility of market manipulation by wholesalers and retailers to restrict supplies and/or increase the prices for fertilizers and food grains will remain.