The Unique Identification Authority of India (UIDAI) has suggested direct cash transfer through banks and ATMs to the targeted groups to ‘plug leakages’ in the implementation of direct cash subsidy — a move that is expected to revolutionize the subsidy payment mechanism for LPG cylinder and kerosene oil to the beneficiaries, especially poor sections, and change the fertilizer subsidy payment mechanism to the farmers,.

The move is also likely to completely revamp the working of the public distribution system (PDS), which is considered inefficient and ineffective.

The government is of the view that implementation of direct cash transfers would also bring down the subsidy burden as the money would directly go to the “genuine” beneficiaries including those who are Below Poverty Line (BPL). It would also lead to drastic fall in adulteration and diversion of diesel and kerosene to the black market.

The UIDAI chairman, Nandan Nilekani, presented a 70-page “Interim Report” on the issue, to the Finance Minister, Pranab Mukherjee on Tuesday. The Deputy Chairman, Planning Commission, Montek Singh Ahluwalia was also present on the occasion.

If all goes according to the plan, the government proposes to launch pilot projects for transfer of direct cash subsidy to the targeted groups in seven states – Tamil Nadu, Assam, Maharashtra, Delhi, Rajasthan and Orissa within the next six months. The beneficiaries would be able to get direct cash transfers through banks, ATMs and even mobile banking when the pilot projects take off.

“The pilot project will take approximately six months time to take off and taking into account the experiences which they will have, they will submit the final report by the end of this year,’’ Mr. Mukherjee said after the submission of the report.

The report has suggested creation of an IT-drive ‘Core Subsidy Management System (CSMS)’, which will be able to detect fraud and diversions. “Beneficiaries can report malpractices to the government directly, making it possible for the government to react in a timely manner,’’ the it said. The government, will transfer through the CSMS, the cash component of the subsidy directly and in real-time into the bank account of the beneficiaries.

According to present estimates, the government’s spend on fuel and fertilizer subsidies stands at around Rs. 73,637 crore a year. Interestingly, major portion of it unfortunately does not reach the beneficiaries.

Mr. Mukherjee said it is hoped that the direct transfer of subsidies on LPG, fertilizer and kerosene would help in curbing pilferage and leakages.

Stating that subsidy on kerosene should be linked to reforms in Public Distribution System (PDS), he said the success of direct transfer of subsidy on the fuel would depend on State Governments, as it is distributed by them. “We have also asked the UIDAI to look into the possibility of distribution of solar lanterns and cookers through the kerosene and LPG outlets,’’ Mr. Mukherjee remarked.

“The roll-out of Aadhaar (unique identity card), will provide a foundation for the implementation of direct transfer of subsidies,’’ Finance Ministry hoped.

Mr. Nilekani said that UIDAI has provided an implementation roadmap to be operationalised by the respective Ministries.

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