UID's not quite the panacea you think : 2nd April 2011 Financial Express

We may end up creating another white elephant while destroying a system that's working in parts of India

The UID scheme, given our disdain for the current system of providing support to the poor, has spoken of an alternative to the existing structure of publicdistribution,whichisinefficientand needs to be replaced. The Union Budget has spoken of the same and spoken of the ubiquitous committees that will be looking at this issue. Does this really makesenseorarewecreatinganewsystem that may only be a marginally better solution, if at all?
The problem with the PDS is not that itisintrinsicallyabadscheme.Infact,it is a fairly smart scheme if implemented well. There are 4.99 lakh fair price shops catering to 330 million people, according to the ministry of consumer affairs.
The problem is with the implementation: the first is the identification issue where the system of selecting the people is warped. The poor could get left out while the not-so-poor come in, which has only partly been addressed with the coloured cards concept. The more serious issue is the leakages in the form of grain being diverted. The question to be asked is, if corruption is in our blood, then can a new system actually overcome this shortcoming?
Let us look at the UID scheme, where each and every individual will have a unique identification number. This will be a laborious process and will be sub ject to administrative issues just as we have in the case of population census. Assuming that this is taken care of by superior systems by mapping all ration card holders to begin with so that no one is left out, then there is a case of opening a bank account for individuals.
We do not have banks everywhere, which have created issues with microfinance institutions. This being the case, where will the money be transferred?
Suppose this is also taken care of through, say , post offices or retailers. Is there any guarantee that there will not be fraud committed by the person responsible for it just as it happens for the PDS where the ration shopkeeper says that the stocks have not come in? We will be back to hoping that the system is honest enough to address this issue. Next, once the money comes in, can we be sure that the person does not spend it on, say , liquor or gambling, which is a problem endemic to rural India. In this case, the money will not really go into buying food and the poor will continue to go hungry .Theexistingsystemisbetterbe cause given the quality of grain distribe uted; there is no secondary market for . the same! Food coupons are what the y new pundits talk of. But this would be analogous to the PDS cards where there is fraud being committed and may not work smoothly as a grey market can develop or the same.
Now, to be charitable to his new design of UID, le us assume that these do each the targeted people How do we fix the amoun of money that has to be ransferred? Just remem ber that prices of food widely across the country grains vary widely across the country .
Consideringthatthepeoplewhoreceive the money have to buy at the market prices,theywouldhavetoreceivedifferential amounts to buy their foodgrains.
On January 31, for instance the retail price of rice varied between R14 in Agra to R27.5 in Ernakulam. Wheat varied between R12 in Agra to R25 in Hyderabad.
How do we arrive at the right price to arriveattheamounttogivetoafamily?Local politicians will try and lobby for higher prices for their constituencies and hence higher allocation.

Further, today we have, on paper, a good system that provides standard products at fixed prices to all the people.
We will just not be able to crack this problem as once there is greater demand for foodgrains, automatically the market price will start increasing. We willthenhavetouseanothersetof price indices to adjust these cash transfers to just as we have for Dearness Allowance for salaried workers. We do not have suchindicesacrossthecountry ,andwill end up creating a more distorted structure. Further, what happens to these structures of fair price shops that we have created?
This entire concept of UID is technologically speaking very eloquent and needed for the purpose of identification and goes steps ahead of the PAN card provided. But to expect it to change the structure of our distribution system is stretching our luck too far and we may just end up in a bigger mess. We may hence just be creating another white elephant and in the process destroy a system which is still working well in some of the southern states. Besides, when our intrinsic nature is profitseeking from any good enterprise, structures may not really matter.