Pilot proves Aadhaar can end misuse of subsidy (The Hindu)
Under the project, subsidy on kerosene, supplied under the public distribution system, is transferred to the bank accounts of the beneficiaries. The pilot, launched in December last year, in Kotkasim tehsil, Alwar district, has shown a significant change in the consumption pattern, says the district administration website.System One assumes that since people need kerosene, it would be nice if poor people paid less for the fuel. So, special stores are set up where poor people can pay (let's say) half the market price for kerosene.
System Two assumes that since people need kerosene, it would be nice if poor people could afford fuel so a direct subsidy is calculated such that a poor person could, if they devoted their subsidy to the purchase of kerosene, effectively pay half price for a certain quantity of the fuel.
These two systems sound so similar yet have produced radically different results.
A poor person under system one, would be smart to purchase as much kerosene as possible at half price, and sell whatever they could do without on the open market. A person who manages the half-price distribution point might find it possible to sell the entire stock into the open market and tell the poor to go pound.
In system two. The person only buys the fuel they will actually consume, has an incentive to conserve, and can shift consumption to other things they value more highly — food or a mobile phone perhaps.
That's fine in theory, right? How about practice?
The numbers in the article are staggering.
If they're meant to show month-over-month consumption decreases of 79%, 73% & 82% (i.e. compounding), it means a total reduction of kerosene consumption to 1% of earlier levels. Even if the decreases aren't supposed to be compounded it seems to indicate that only a fraction of the fuel that was put into the system was actually used by poor people.
The use of biometrics made this possible. Without a dependable, legally-enforceable ID, many of the recipients could not have obtained the bank accounts that receive the direct-subsidy deposits. The ROI on UID is going to be amazing and it's no wonder some people are against it. The guy who used to run the discount kerosene store can't be very happy.