Subsidies: Aadhaar to get legal tag for larger role

The most significant element of the subsidy package in Budget 2016-17 is the linkage sought to be established between delivery of subsidies and the roll out of Aadhaar.

For years, field-level studies have used Aadhaar-based identification of subsidy recipients to show how use of the identification system makes targeting of the benefits better. But, both the United Progressive Alliance and the National Democratic Alliance governments were hamstrung, as the Supreme Court had held that lack of Aadhaar could not be used as a reason to deny government support to anyone and instead had to be voluntary. The court's concern was based on the plea that the nationwide identity platform violated citizens' right to privacy.
Read our full coverage on Union Budget 2016

On Monday, Finance Minister Arun Jaitley sought to break that equation. In his Budget speech, he said: "We'll introduce a Bill for targeted delivery of financial and other subsidies, benefits and services by using the Aadhaar framework. The Bill will be introduced in the current Budget session of Parliament." (BENEVOLENT  STATE)

According to Jaitley, the Bill will be a transformative piece of legislation, since it will benefit the poor and the vulnerable.

Aadhaar's role looms large in the other subsidy-linked announcement Jaitley made. He said riding on the successful experience with Direct Benefits Transfer (DBT) for liquefied petroleum gas or cooking gas, the government "proposes to introduce DBT on a pilot basis for fertiliser in a few districts across the country." The minister's intention is clear. If Aadhaar proves useful to identify the farmers who should get subsidised fertiliser, the current regime of fertiliser subsidy will be dismantled by 2018.

Pending those reforms, the government's Bill on subsidies, though declining, is unlikely to shrink. Consequently, the tab for all the major ones - food, fertiliser and petroleum - shows a decline in Budget estimates by 4.17 per cent in 2016-17, year-on-year but beyond that, there is little more to get excited about them. Fertiliser subsidy for the next financial year is, for instance, only Rs 2,437 crore less than the revised estimate for the current year. The action now is in the petroleum sector. The government will offer cooking gas subsidy for all below-poverty-line families and expects to cover over 10 million families in 2016-17. This is a significant initiative but was already launched by petroleum minister Dharmendra Pradhan this year in January.

Cess pool to finance Centre

More than tax, cess occupied centrestage in the Budget.

The finance minister has introduced two cesses, doubled the rate on a third, cut the rate on a fourth and eliminated 13 others - the largest ever work on this levy in any Budget. "There is an advantage in levying cess for central finances, as these do not form part of the divisible pool with states," said D K Srivastava, member of the 12th Finance Commission and a consultant with E&Y.

The Krishi Kalyan Cess, at 0.5 per cent on all taxable services, will finance the agriculture sector. The Centre expects to earn Rs 5,000 crore from this, while the Clean Environment Cess, the renamed clean energy cess, will fetch Rs 26,148 crore. Arun Jaitley also introduced an infrastructure cess of one per cent on small cars which run on petrol, LPG and CNG; 2.5 per cent on diesel cars of a certain capacity and four per cent on vehicles with higher engine capacity and SUVs. These would garner Rs 3,000 crore. The minister expected the cess to help inhibit people from investing in personal transport.

Together, these would provide a Rs 34,148-crore cushion to the minister. But, in a salutary measure, the minister also wanted to abolish 13 cesses, levied by various ministries but none of which give the government even Rs 50 crore a year.

His final cess action has been to reduce the rate of Oil Industries Development Cess on domestically produced crude oil to 20 per cent ad valorem, from Rs 4,000 now.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel