For some pre-1991 generations, the memory will still be stark. Everyone – even Ratan Tata and Mukesh Ambani – needed a ration card. While for many middle class people and the poor, queuing up for rations at the fair price shop was par for the course, many well-off people did not (the ration cards were merely compulsory identity and address proofs).

They would let their servants/ drivers use their ration cards to buy their rations. Many did not even do that, so fair price shop owners would show these card holders as having lifted their monthly rations and divert the rice and wheat to the black market.

Then came the targeted public distribution system and the categorisation of above poverty line (APL) and below poverty line (BPL) and that saw many people giving up their ration cards. In the debate on food subsidy, this misuse of ration cards has often been cited to argue against the universal provision of subsidised food grains (which food activists press for) and for targeted subsidy.

The loophole in the earlier system was that it allowed anyone to use a person’s ration card. The Economic Survey 2015-16 has strongly pitched for a system being implemented in quite a few states (in some on an experimental basis) – making it mandatory for card holders to physically go to ration shops and authenticate their identity through biometrics-based point of sale (POS) machines. Andhra Pradesh has been very successful in this. Madhya Pradesh has been trying several pilots and the Rajasthan government has been pushing for this aggressively.

The Economic Survey calls this BAPU (biometrically authenticated physical uptake). If X is not interested in picking up subsidised food grains and is allowing his card to be used by someone else, he will hardly be willing to do so if it involves him making a trip to the ration shop, proving his identity, taking the supplies and then giving it to someone else. In the earlier system, there was no cost involved; BAPU will involve costs, making diversion less attractive. The Survey pitches for BAPU for delivering food and kerosene subsidy and partly for fertiliser subsidy.

Incidentally, the union food and public distribution ministry is already pushing POS in a big way, incentivising state governments to shift to this, given the many problems in rolling out direct benefit transfer (DBT). Figures put out by the ministry in January show that over 61,000 fair price shops have installed POS machines; it planned to increase this number to 2 lakh by March end.

Some of these problems have been frankly acknowledged in the Survey and, apart from economic growth, it also strikes a sober note on the JAM trilogy (an acronym coined in last year’s Economic Survey), which has been touted as the silver bullet for addressing the problem of subsidies and leakages.

This year’s Survey admits that JAM (Jan Dhan Yojana, Aadhar and mobile) may have made significant progress but still faces significant challenges. It elaborates on first-mile, middle-mile and last-mile issues that will need to be addressed if the successful DBT experiment in cooking gas is to be replicated in other areas.

In all the discourse about DBT and JAM until now, the focus was almost entirely on Aadhaar – the biometric identification of beneficiaries/ individuals. But Aadhaar is only an identity authenticating system; it is not an eligibility authenticating system. So, it will prove that a person availing of a subsidised good or service is that person; it cannot validate if that person is entitled to that subsidy. So it does not address the problem of, say, the well-off cornering Rs 5,500 crore worth of kerosene subsidies, as the Survey has pointed out.

Fortunately, the Survey acknowledges beneficiary eligibility and identification as a first mile challenge. It points to the need for beneficiary databases and the fact that the “accuracy and legitimacy of beneficiary databases have been hampered by the administrative and political discretion involved in grating identity proofs”. Indeed, the reason why the rollout of the National Food Security Act was extremely delayed was the fact that many state governments were reluctant to clean up and digitise their beneficiary databases.

The middle-mile challenge relates to coordination within the government – the lesser number of departments involved in administering a particular subsidy, the easier it is to roll out DBT. In the case of domestic fuel, for example, DBT was easier in the case of LPG because only the union petroleum ministry and the oil marketing companies (and their distributor networks) are involved. In the case of food and kerosene subsidy, the shift to DBT is complicated by the role of the central government, Food Corporation of India (in the case of food) and oil marketing companies (in the case of kerosene), state civil supplies departments (which administer the fair price shops/ kerosene depots).

The last-mile challenge is a significant one, which both supporters and critics of DBT have often flagged – the problem of banking infrastructure in rural areas and the failure of the banking correspondent model to take off. The Survey admits that “despite Jan Dhan Yojana’s record breaking feats, basic savings account penetration in most states is still relatively low” (46 per cent on average) and that mobile payments has not quite taken off in the rural areas.

In two graphs on JAM preparedness index, the Survey shows that only six states and an urban preparedness index of above 60 per cent (Andhra Pradesh, Telengana, Madhya Pradesh, Chhattisgarh, Rajasthan and Haryana). In the case of the rural preparedness index, the performance of all states was abysmal – only Andhra Pradesh and Haryana notched more than 4 percent followed by Karnataka with 3.5 percent. But the BAPU preparedness index shows an interesting picture. Even states which did not do well on the urban and rural JAM preparedness index performed better on this score.

Obviously, then, BAPU could be a better option. Even though the union food and public distribution ministry has notified the Cash Transfer of Food Subsidy Rules 2015 under the NFSA, enabling states to switch to cash transfers if they want, there is a provision for shifting to DBT. The food ministry has initiated pilot projects on this. However, realising the problems involved, it is not pushing states too aggressively on shifting to DBT. It has given them the choice of opting for DBT or reducing leakage and diversion through POS.

The shift to BAPU will not be easy. Fair price shop owners stand to lose out from the reduced avenues for diversion and strongly resist this system. Rajasthan had to face a strike in 2014. State governments have to provide adequate incentives which allow shop owners to make up for the loss in revenue from diversion. Rajasthan tried this by branding ration shops as Annapurna Bhandars, in collaboration with Future Retail, allowing them to sell identified non-PDS items.

Aadhaar will still be important – that will validate the beneficiary’s identity. Sadly, the Survey did not flag the issue of the lack of legal status for Aadhaar (a major concern with both supporters and detractors on grounds of privacy) and pitch for early passage of a law on this.

But if the government is serious about reforming the subsidy regime, it must read the relevant chapter in the Economic Survey closely and act on it.

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