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Recently, the government announced that it plans to transfer benefits under various schemes directly into the bank accounts of individual beneficiaries. Benefits can be the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS) wages, scholarships, pensions and health benefits. Beneficiaries shall be identified through the Aadhaar number (Aadhaar is an individual identification number linked to a person’s demographic and biometric information). The direct cash transfer (DCT) system is going to be rolled out in 51 districts, starting January 1, 2013. It will later be extended to 18 states by April 1, 2013 and the rest by April 1, 2014 (or earlier). Presently, 34 schemes have been identified in 43 districts to implement the DCT programme. Currently, the government subsidises certain products (food grains, fertilizers, water, electricity) and services (education, healthcare) by providing them at a lower than market price to the beneficiaries. This has led to problems such as high fiscal deficit, waste of scarce resources and operational inefficiencies. The government is considering replacing this with an Aadhaar enabled DCT system. It has claimed that the new system would ensure timely payment directly to intended beneficiaries, reduce transaction costs and leakages. However, many experts have criticised both the concept of cash transfer as well as Aadhaar (see here, here, here and here). In this blog, we provide some background information about cash transfer, explain the concept of Aadhaar and examine the pros and cons of an Aadhaar enabled direct cash transfer system. Background on cash transfer Under the direct cash transfer (DCT) scheme, government subsidies will be given directly to the beneficiaries in the form of cash rather than goods. DCTs can either be unconditional or conditional. Under unconditional schemes, cash is directly transferred to eligible households with no conditions. For example, pension schemes. Conditional cash transfers provide cash directly to poor households in response to the fulfillment of certain conditions such as minimum attendance of children in schools. DCTs provide poor families the choice of using the cash as they wish. Having access to cash also relieves some of their financial constraints. Also, DCTs are simpler in design than other subsidy schemes. Even though cash transfer schemes have a high fixed cost of administration when the programme is set up, running costs are far lower (see here, here and here). Presently, the government operates a number of DCT schemes. For example, Janani Suraksha Yojana, Indira Awas Yojana and Dhanalaksmi scheme. In his 2011-12 Budget speech, the then Finance Minister, Pranab Mukherjee, had stated that the government plans to move towards direct transfer of cash subsidy for kerosene, Liquified Petroleum Gas (LPG), and fertilizers. A task force headed by Nandan Nilekani was set up to work out the modalities of operationalising DCT for these items. This task force submitted its report in February 2012. The National Food Security Bill, 2011, pending in Parliament, includes cash transfer and food coupons as possible alternative mechanisms to the Public Distribution System. Key features of Aadhaar The office of Unique Identification Authority of India (UIDAI) was set up in 2009 within the Planning Commission. In 2010, the government later introduced the National Identification Authority of India Bill in Parliament to give statutory status to this office.
For a PRS analysis of the Bill, see here. Aadhaar enabled direct cash transfers Advantages Identification through Aadhaar number: Currently, the recipient has to establish his identity and eligibility many times by producing multiple documents for verification. The verification of such documents is done by multiple authorities. An Aadhaar enabled bank account can be used by the beneficiary to receive multiple welfare payments as opposed to the one scheme, one bank approach, followed by a number of state governments. Elimination of middlemen: The scheme reduces chances of rent-seeking by middlemen who siphon off part of the subsidy. In the new system, the cash shall be transferred directly to individual bank accounts and the beneficiaries shall be identified through Aadhaar. Reduction in duplicate and ghost beneficiaries: The Aadhaar number is likely to help eliminate duplicate cards and cards for non-existent persons or ghost beneficiaries in schemes such as the PDS and MNREGS. Disadvantages Lack of clarity on whether Aadhaar is mandatory: According to UIDAI, it is not mandatory for individuals to get an Aadhaar number. However, it does not prevent any service provider from prescribing Aadhaar as a mandatory requirement for availing services. Therefore, beneficiaries may be denied a service if he does not have the Aadhaar number. It is noteworthy that the new direct cash transfer policy requires beneficiaries to have an Aadhaar number and a bank account. However, many beneficiaries do not yet have either. (Presently, there are 229 million Aadhaar number holders and 147 million bank accounts). Targeting and identification of beneficiaries: According to the government, one of the key reasons for changing to DCT system is to ensure better targeting of subsidies. However, the success of Aadhaar in weeding out ‘ghost’ beneficiaries depends on mandatory enrollment. If enrollment is not mandatory, both authentication systems (identity card based and Aadhaar based) must coexist. In such a scenario, ‘ghost’ beneficiaries and people with multiple cards will choose to opt out of the Aadhaar system. Furthermore, key schemes such as PDS suffer from large inclusion and exclusion errors. However, Aadhaar cannot address errors in targeting of BPL families. Also, it cannot address problems of MNREGS such as incorrect measurement of work and payment delays. Safeguard for maintaining privacy: Information collected when issuing Aadhaar may be misused if safeguards to maintain privacy are inadequate. Though the Supreme Court has included privacy as part of the Right to Life, India does not have a specific law governing issues related to privacy. Also, the authority is required to maintain details of every request for authentication and the response provided. However, maximum duration for which such data has to be stored is not specified. Authentication data provides insights into usage patterns of an Aadhaar number holder. Data that has been recorded over a long duration of time may be misused for activities such as profiling an individual’s behaviour.
Earlier this week, Rajya Sabha passed the Airports Economic Regulatory Authority of India (Amendment) Bill, 2019, and the Bill is now pending in Lok Sabha. The Bill amends the Airports Economic Regulatory Authority of India Act, 2008. The Act established the Airports Economic Regulatory Authority of India (AERA). AERA regulates tariffs and other charges for aeronautical services provided at civilian airports with annual traffic above 15 lakh passengers. It also monitors the performance standard of services across these airports. In this post, we explain the amendments that the Bill seeks to bring in and some of the issues around the functioning of the regulator.
Why was AERA created, and what is its role?
Few years back, private players started operating civilian airports. Typically, airports run the risk of becoming a monopoly because cities usually have one civilian airport which controls all aeronautical services in that area. To ensure that private airport operators do not misuse their monopoly, the need for an independent tariff regulator in the airport sector was felt. Consequently, the Airports Economic Regulatory Authority of India Act, 2008 (AERA Act) was passed which set up AERA.
AERA regulates tariffs and other charges (development fee and passenger service fee) for aeronautical services (air traffic management, landing and parking of aircraft, ground handling services) at major airports. Major airports include civilian airports with annual traffic above 15 lakh passengers. In 2018-19, there were 32 such airports (see Table 1). As of June 2019, 27 of these are being regulated by AERA (AERA also regulates tariffs at the Kannur airport which was used by 89,127 passengers in 2018-19). For the remaining airports, tariffs are determined by the Airports Authority of India (AAI), which is a body under the Ministry of Civil Aviation that also operates airports.
What changes are being proposed in the Bill?
The Bill seeks to do two things:
Definition of major airports: Currently, the AERA Act defines a major airport as one with annual passenger traffic over 15 lakh, or any other airports as notified by the central government. The Bill increases the threshold of annual passenger traffic for major airports to over 35 lakh.
Tariff determination by AERA: Under the Act, AERA is responsible for determining the: (i) tariff for aeronautical services every five years, (ii) development fees, and (iii) passengers service fee. It can also amend the tariffs in the interim period. The Bill adds that AERA will not determine: (i) tariff, (ii) tariff structures, or (iii) development fees, in certain cases. These cases include those where such tariff amounts were a part of the bid document on the basis of which the airport operations were awarded. AERA will be consulted (by the concessioning authority, the Ministry of Civil Aviation) before incorporating such tariffs in the bid document, and such tariffs must be notified.
Why is the Act getting amended?
The Statement of Objects and Reasons of the Bill states that the exponential growth of the sector has put tremendous pressure on AERA, while its resources are limited. Therefore, if too many airports come under the purview of AERA, it will not be able to perform its functions efficiently. If the challenge for AERA is availability of limited resources, the question is whether this problem may be resolved by reducing its jurisdiction (as the Bill is doing), or by improving its capacity.
Will the proposed amendments strengthen the role of the regulator?
When AERA was created in 2008, there were 11 airports with annual passenger traffic over 15 lakh. With increase in passenger traffic across airports, currently 32 airports are above this threshold. The Bill increases the threshold of annual passenger traffic for major airports to over 35 lakh. With this increase in threshold, 16 airports will be regulated by AERA. It may be argued that instead of strengthening the role of the regulator, its purview is being reduced.
Before AERA was set up, the Airports Authority of India (AAI) fixed the aeronautical charges for the airports under its control and prescribed performance standards for all airports and monitored them. Various committees had noted that AAI performed the role of airport operator as well as the regulator, which resulted in conflict of interest. Further, there was a natural monopoly in airports and air traffic control. In order to regulate the growing competition in the airline industry, and to provide a level playing field among different categories of airports, AERA was set up. During the deliberations of the Standing Committee examining the AERA Bill, 2007, the Ministry of Civil Aviation had noted that AERA should regulate tariff and monitor performance standards only at major airports. Depending upon future developments in the sector, other functions could be subsequently assigned to the regulator.
How would the Bill affect the regulatory regime?
Currently, there are 32 major airports (annual traffic above 15 lakh), and AERA regulates tariffs at 27 of these. As per the Bill, AERA will regulate 16 major airports (annual traffic above 35 lakh). The remaining 16 airports will be regulated by AAI. Till 2030-31, air traffic in the country is expected to grow at an average annual rate of 10-11%. This implies that in a few years, the traffic at the other 16 airports will increase to over 35 lakh and they will again fall under the purview of AERA. This may lead to constant changes in the regulatory regime at these airports. The table below provides the current list of major airports:
Table 1: List of major airports in India (as on March 2019)
Airports with annual traffic above 35 lakh | Airports with annual traffic between 15 and 35 lakh | ||||
Ahmedabad |
Goa |
Mumbai |
Amritsar |
Madurai* |
Srinagar |
Bengaluru |
Guwahati |
Patna |
Bagdogra |
Mangalore |
Trichy* |
Bhubaneswar |
Hyderabad |
Pune |
Calicut |
Nagpur |
Varanasi |
Chennai |
Jaipur |
Thiruvananthapuram |
Chandigarh |
Port Blair* |
Vishakhapatnam |
Cochin |
Kolkata |
Coimbatore |
Raipur* |
||
Delhi |
Lucknow |
Indore |
Ranchi* |
* - AERA does not regulate tariffs at these airports currently.
Sources: AAI Traffic News; AERA website; PRS.