India can save 0.5% of GDP via direct cash transfer and Aadhaar: IMF

Infotech Lead Asia: International Monetary Fund (IMF) on Monday said the Integration of direct cash transfer with Aadhaar will assist the Indian government to save 0.5 percent of the GDP.

IMF said that the total savings could be substantial. If the combination of direct cash transfer and Aadhaar eliminates the estimated 15 percent leakage, savings could total 0.5 percent of GDP in addition to the gains from the better targeting of spending on the poor.

Direct cash transfers, which entail direct payments from the government to recipients, can bring down costs and diversion by phasing out middlemen and complex bureaucracies.

The ‘Regional Economic Outlook: Asia and Pacific’ report further said the integration of these two programs — Aadhaar and direct cash transfers — promises further savings.

IMF says the integration will involve many challenges: the timeframe for bringing India’s population of 1.2 billion into the Aadhaar program could extend beyond 2014, and integrating this database with information on individuals eligible for subsidized fuel will take time.

As per the Unique Identification Authority of India, (UIDAI) which issues the Aadhaar numbers, about 320 million such cards have been issued so far. UIDAI has plans to issue 600 million Aadhaar cards by 2014.

India has initiated a wide-ranging project to shift many subsidy programs toward direct cash transfers, PTI reported.

The Indian government has started transferring cash directly into the bank accounts of beneficiaries of selected schemes using the Aadhaar payment gateway in a phased manner. The first phase started in January covering 43 districts and 78 more would be brought covered from July 1.

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