Laying a new aadhaar

The paradigm shift in welfare needs as much public debate as corruption

India is at two critical inflection points. Its administrative practice was corrupt, secretive, hierarchical, arbitrary and overtly centralised. The welfare architecture that went with this state leaked like a sieve, produced all kinds of price and productivity distortions, was captured by the powerful and caught in a rigid bureaucratic logic. The revolt against old administrative practice is now being played out in the open. It has not followed a neat institutional logic, but it has brought us to the point where it is clear that business as usual cannot continue. But we are potentially in game-changing territory on the welfare architecture as well. With the launch of Aadhaar-linked cash transfer schemes, we are putting together the building blocks of another possible but exciting paradigm shift. The paradigm change in welfare needs as much public debate and attention as corruption.

In some ways, the political economy effects of the potential paradigm shift in our welfare architecture could be momentous. We are in a moment of great possibility, but we need to think through exactly what we are doing to build this new architecture very carefully. The design of large-scale welfare systems, once institutionalised, is very difficult to change. It took half a century to get modest healthcare reform in the US. Under the 12th plan, there is going to be unprecedented spending on a healthcare system. But there is no evidence yet that we have the foggiest idea of how to design an incentive-compatible system that will actually yield results. Most institutional debates in healthcare, for example, seem blissfully unaware of complex ground conditions and behavioural issues that need to be taken into account while designing the grand new architecture we are proposing.

The potential of Aadhaar has been discussed more. There are legitimate concerns over privacy that still need to be addressed. But the case for moving towards cash transfers is quite compelling. In moral terms, it gives citizens the autonomy to exercise the kind of subtle choice they need to cope with varying and difficult circumstances. There is an obtuse paternalism in claims that the poor cannot make relatively rational choices. The idea of millions of women directly receiving cash in their bank accounts is an enticing and empowering one. The practical case is also quite compelling. It would be a little Panglossian to argue that Aadhaar will eliminate all corruption. But there is no doubt that it has the potential to remove a lot of intermediaries as far as citizens are concerned. In the case of fertiliser and fuel subsidies, it could liberate us from the worst distortions in pricing and the sheer criminality the current system produces.

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