Why Did Jaitley Cite Debunked Claim of Aadhaar Saving $11 Billion?

That Aadhaar can save $11 billion a year has been long debunked by economists.

On 6 January, Finance Minister Arun Jaitley published a blog outlining Aadhaar’s journey and the savings it has purportedly boosted.

The blog, titled ‘Benefits of the Aadhaar – where it stands today’, among a host of claims it makes, also cites a World Bank report from 2016 which had estimated that Aadhaar can potentially save $11 billion a year in government expenditure.

The almost magical figure of $11 billion in potential savings annually has been quoted at various places in the last three years to justify the Aadhaar program. The Centre had cited in its affidavit before the Supreme Court, in Parliament and various other forums.

The question is, where does this number originate from and what is the basis for arriving at this figure?

Since the publication of the figure in a World Bank report in January 2016, it has been strongly contested by economists and enough evidence has emerged to suggest that the $11 billion annual savings claim does not hold up to scrutiny. 

What Jaitley Blogged on Sunday

In hailing the Unique Identity Authority of India’s Aadhaar program as “a game changer” Jaitley wrote:

“The Digital Dividend Report prepared by the World Bank estimates that India can save Rs 77,000 crore every year by the use of Aadhaar.  The savings through Aadhaar can fund three schemes of the size of Ayushman Bharat.”

Arun Jaitley, ‘Benefits of the Aadhaar – where it stands today’ 

The sum of Rs 77,000 is a conversion of $11 billion into Rupees.

How Did $11 Billion Expenditure Turn Into ‘Savings’?

A World Bank report, titled ‘World Development Report 2016 - Digital Dividends’ was published in January 2016.

In chapter 3, titled ‘Delivering Services’, on page 195, the report says:

“This is just one of many subsidy programs in India that are being converted to direct transfers using digital ID, potentially saving over US$11 billion per year in government expenditures through reduced leakage and efficiency gains.”

‘World Development Report 2016 - Digital Dividends’; p195

By way of source, the initial footnote had cited a brief authored by Shweta Banerjee for CGAP (Consultative Group to Assist the Poor), titled, ‘From Cash to Digital Transfers in India: The Story So Far’.

So, where does this brief get its number from and how did it arrive at $11 billion ?

This is where things get interesting.

The brief had mentioned Rs 70,000 crores or $11.2 billion as the government’s expenditure by way of cash transfers to the poor and NOT as potential savings at all !

As evident from the box, the $11.3 billion is the total value of the five major cash transfers by the centre to the poor. At no point in the brief is this value demonstrated with evidence to be the government’s savings.

A Cover-Up to Cover a Cover-Up

While it is possible that the World Bank report erroneously mentioned expenditure as potential savings, it is surprising that the Bank continues to stand by the claim of figure.

After several researchers and academics, including economists Reetika Khera and Jean Dreze, called out the ‘potential savings’ claim , the soft copies of the report carried a correction – not in the figure but in the footnote to the figure.

Instead of the Shweta Banerjee’s brief in the footnote, the revised report now contained a lengthier footnote which cited two studies. These studies looked at reduction of leakages in funds transfer and LPG subsidies. This is what the footnote had to say about the findings of the studies:

“Extrapolating these leakage reduction rates to all government of India welfare programs – amounting to roughly $70 billion to $100 billion in government expenditures – yields savings in the range of $8 billion to $14 billion, or an average of $11 billion potential less spending.”

‘World Development Report 2016 - Digital Dividends’; p197

Did the New Studies Explain the $11 Billion Figure?

Matters would have been put to rest had the change in the studies cited in the footnote accounted for how the $11 billion potential savings was arrived at. A perusal of the two studies reveal that the ‘extrapolation’ may have been stretched to fit the claim of $11 billion on potential savings.

One of the two studies conducted by Muralidharan in 2015 looks at the improvement in efficiency by plugging leakages in the NREGS (National Rural Employment Guarantee Scheme).

The most important aspect of this study in the context of our investigation is that Muralidharan’s 2014 paper studies not Aadhaar but how Andhra Pradesh’s biometric smart cards were used in the NREG scheme. Secondly, the study says nothing about fiscal savings but rather looks at improvements in efficiency in transferring benefits. 

While Aadhaar is also a biometric authentication program, it is not the same as the smart cards that were studied in Muralidharan’s paper.  “What must be understood is that improving efficiency in delivery by changing the mechanism to bank accounts, is not the same as fiscal savings. Muralidharan’s paper explicitly states that biometric smart card does not have any impact on fiscal savings,” said security researcher Anand Venkatanarayanan, who was among the people who called out the World Bank’s figure.

“How can this paper, which does not study Aadhaar and explicitly says there are no fiscal savings, be used as a justification for Aadhaar’s savings?” asked Anand.

Jaitley, in his blog, while hailing the Supreme Court judgment on Aadhaar, makes no acknowledgment of the various concerns that the apex court had raised in September. It had struck down the private use of Aadhaar citing privacy and surveillance concerns.