Modi’s Challenge: He Has To Begin Selling JAM As Bread Plus Freedom

The Modi government’s inexplicable delay in extending the ambit of subsidy delivery reforms after the early success of the LPG direct benefits transfer (DBT) scheme and the “Give it up” campaigns raises questions about how serious it is about using the JAM trinity (Jan Dhan-Aadhaar-mobile), its towering achievement in its five-year term.

DBT for cooking gas became the universal norm on 1 April – and there are few murmurs against it – but as of mid-December we don’t hear too much about extending the DBT to more areas. There is, off course, talk of extending the DBT to kerosene and food, but caution is the watchword.

Of course, we need not assume the government has already got cold feet, but in February this year the government said it was planning to extend the scheme to fertiliser subsidies, and we haven’t seen much progress since then; and in July it said it was rolling out pilots for food subsidy in three Union territories – Puducherry, Chandigarh and Dadra & Nagar Haveli. The pilot projects are too small and the opposition is building up (mainly from ration shops). If DBT is not quickly scaled up before the opposition to it gathers more steam, it will be a much-watered down achievement for Modi.

The need for speed is obvious. One-and-a-half years of the NDA government are over, and it effectively has two-and-a-half more years to deliver results on the ground, assuming, safely, that no government will launch any politically difficult ideas in the last year of its tenure. And subsidy reform in the vital areas of food, fuel and fertiliser will probably take all of two years to roll out fully, given the need to improve financial literacy, fight the legal hurdles to the spread of Aadhaar, and iron out the kinks in mobile banking using payment banks.

It is worth recalling here the JAM is hardly an NDA invention. The UPA government was the original author of the idea of financial inclusion, the rapid expansion of mobile ownership (ironically enabled by A Raja’s corruption, which kept mobile costs ultra-low) and the Aadhaar unique ID (still barely legal, given the lack of a law to give it teeth). In fact, the Congress had even coined a slogan – Aapka paisa, aapke haath – to sell the idea of DBT two years before the 2014 elections. But it chickened out despite the obvious attractiveness of the scheme.

We can only speculate on why the Congress dumped its own schemes when Narendra Modi has been able to build on them successfully.

First, the DBT scheme hits directly at corruption by eliminating middlemen and fixers from the delivery of subsidies. The Congress, which clearly has had a record of long-term corruption, must have balked at the possibility that its power base was about to be up-ended.

Second, the early success of the kerosene DBT scheme in Rajasthan – where kerosene demand fell dramatically during the pilot project – may have scared the daylights out of vested interests, and this fact would have got the politicians worried. According to this Hindu Business Line report, in one Alwar block, kerosene demand dropped by nearly 70-80 percent when the DBT was introduced, indicating the level of possible misallocation that may have been happening when kerosene was sold through fair-price shops at a subsidised price.

Third, despite tall talk about financially empowering the poor, a vital component in a scheme where the subsidy is to be directly credited to a beneficiary’s account, the fact is the Congress was unimaginative in its efforts to ensure financial inclusion. In contrast, consider how fast the Modi government made the Jan Dhan scheme universal – at last count, there were nearly 20 crore Jan Dhan accounts, enough to cover all households barring those living in the remotest parts of the country, and possibly in areas with poor law and order conditions (like Naxal-infested areas).

Fourth, Aadhaar was also facing a legal challenge around 2013, but that should have been a reason to speed it up and make it stick while moving the court for concessions on its rollout – as the Modi government has done. It is difficult to see how the courts could have annulled a scheme meant to help the poor, but the UPA was particularly careless about passing a law to make Aadhaar legally sound.

Taken together, one would think that subsidy reform was slowed down purely for political reasons. The Congress-led UPA simply did not have the stomach for it.

The big question is: will Modi show the gumption that Sonia Gandhi lacked?

Governments tend to lose their nerve when they are politically diffident, and the stunning defeat of the BJP in Delhi and Bihar could not have done anything to restore the Modi government’s confidence.

However, if we accept the reality that fortune favours the brave, this is no time for the Modi government to become politically risk-averse. On the contrary, it should see that there is nothing more to be lost after the Bihar and Delhi debacles. Its best bet is to focus on delivering subsidy reforms quickly in the hope that, at some point before 2019, its benefits will be obvious to the poor.

Time is running out for one simple reason: given the belligerence of the Congress and its ability to block reforms legislation endlessly in the Rajya Sabha, and given the reality that many state elections are due in 2016 and 2017 (UP is the big one), delivery on “achche din” has to come in areas where the opposition cannot block. This means using the Union budget creatively (money bills cannot be blocked by the upper house), and focusing on areas directly controlled by the centre – the financial system (Jan Dhan), mobile networks and Aadhaar (through a babu-driven process, and assuming the Supreme Court does not finally stymie it).

The problem with Indian politicians is that they think “free” is the only saleable proposition when it comes to wooing voters. “Freedom” is not something they think about.

However, it is time for Modi to explain a new equation that the poor are not beggars, and that “free” comes with a price, and that price is freedom and dignity – and access to subsidies. This, after all, was the logic of the “aapka paisa, aapke haath’ slogan. People know that subsidies intended for them don’t reach them – at least in full.

Modi should personally campaign for JAM and subsidy reform by explaining why it helps the poor more than cheap grain inefficiently supplied through ration shops.

#1: No standing in queues. The poor save time and hence money – as they can use the time to earn more from available work.

#2: The beneficiary of subsidy is converted to a consumer with buying power – the key to social respect. If earlier the poor had to kowtow to the whims of ration shopkeepers and put up with poor quality grain and adulterated kerosene, now they can buy whatever they want from whom they want. They can boycott the crooks. They are “free to choose.” This is empowering, not something politicians want. Once people are free to choose, they may well think politicians are not that vital for their well-being.

#3: Money in the bank can be used for anything. The poor can buy less kerosene and pay school fees for their kids; they do not have to buy something merely because it is cheap and subsidised.

The economic efficiency benefits are obviously enormous, but that is not what needs marketing. In an electoral democracy, what needs explaining is how the last man benefits from reforms.

Since the intention is not actually to cut subsidies but merely to avoid leakages, Modi should take courage in his hands and explain that the poor will not lose their subsidies, but will get choice on how to use them.

In other words, he can truthfully tell them that what is he offering them is not bread or freedom, but bread plus freedom. JAM equals bread plus freedom.

If Modi only spends his remaining tenure making JAM work, he would be seen as a truly reformist prime minister. And reforms will not anymore be seen as pro-rich. What Manmohan Singh failed to do in 1991-96 and 2004-14, Modi should do in 2014-19. He can be the man of destiny for pro-poor reforms.