X NOTES: Economic Survey 2015 - "Wiping every tear from every eye": the JAM Number Trinity Solution

Introduction

Sixty-eight years after Independence, poverty remains a pressing problem.
The recent Annual Survey of Education Report, which documents that only a quarter of standard III students could do a two-digit subtraction and read a standard II text, makes for particularly sobering reading.
Economic growth has historically been good for the poor, both directly because it raises incomes, and indirectly, because it gives the state resources to provide public services and social safety nets that the poor need (more than anyone else).
The opportunities that growth creates also encourage individuals to invest in their own human capital.
Effective antipoverty programs ought to be:

based on data rather than popular perception,
mindful of how policies shape – indeed frequently distort – the incentives that individuals and firms face, and
acutely conscious of the state's own limited implementation capacity to target and deliver services to the poor.

Price subsidies have formed an important part of the anti-poverty discourse in India and the government’s own policy toolkit.
Prima facie, price subsidies do not appear to have had a transformative effect on the living standards of the poor, though they have helped poor households weather inflation and price volatility.

Price subsidies are regressive. It benefits rich household more than the poor household.
Price subsidies can distort markets in ways that ultimately hurt the poor.

Subsidies can distort the incentives of consumers and producers, and result in misallocation of resources across sectors and firms, which lowers aggregate productivity and often disproportionately hurts the poor and vulnerable.
High MSP for wheat and rice has led to neglect of non MSP crops. Leading to demand-supply mismatch. Resulting in food inflation, which hurts the poor most.
High MSP and water subsidies has promoted water intensive cultivation leading to dropping in water table. This ultimately hurts the farmer especially those without irrigation.

leakages not only have the direct costs of wastage, but also the opportunity cost of how the government could otherwise have deployed those fiscal resources.
benefits of rationalizing subsidies.

regressive nature of many price subsidies reduce their effectiveness as antipoverty strategies.
reducing subsidy leakages gives the government the fiscal space required for higher-return social transfer programs without causing welfare losses
the same amount of benefit that households gain through subsidies can be directly transferred to the poor through lump-sum income transfers, avoiding the distortions that subsidies induce.

Technology exists to allow government to improve economic lives of the poor at a much faster rate.
unconditional cash transfers – if targeted well – can boost household consumption and asset ownership and reduce food security problems for the ultrapoor.
augment the effectiveness of existing anti-poverty programs.
income transfers can compensate consumers and producers for exactly the welfare benefits they derive from price subsidies without distorting the market.

The JAM Number Trinity – Jan Dhan Yojana, Aadhaar and Mobile numbers – allows the state to offer this support to poor households in a targeted and less distortive way.
Mobile money offers a complementary mechanism of delivering direct benefits to a large proportion of the population.
Mobile money offers a very viable alternative to meet the challenge of last mile connectivity.
With several cell phone operators reportedly applying for a payment bank license in February 2015, mobile money platforms offer tremendous opportunities to direct Aadhaar based transfers.
Similar to the mobile money framework, the Post Office (either as payment transmitter or a regular Bank) can seamlessly fit into the Aadhaar linked benefits-transfer architecture.