Aadhaar Card – Detailed Analysis with Cost, Benefit review


MONEY BILL: The main AADHAAR to JAM Trinity

During the start of the month, NDA introduced the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Bill, 2016; which acts as the last puzzle in solving NDA’s JAM Trinity comprising of a) Jan Dhan, b) Aadhaar and c) Mobile (connectivity). We intend to put out a pragmatic and rational analysis of each JAM pillar superimposing it against the degree of losses suffered by the nation i.e. us taxpayers; coupled with an understanding of the intent and implied costs & benefits.

Lets discuss this each pillar and then aggregate them with their pertaining cost & benefits.


Here, this is a rather straight forward program envisaged by our Hon., PM and it has yielded tremendous results with banking the unbanked. In fact, the PMJDY is one of the most power programs till date.

The following two table show status of accounts under PMJDY on 31 Jan 2015 and Mar 2016.

No. of accounts opened under PMJDY – 31 Jan 2015

Category of banks Rural Urban No of accounts Balance

in Rs. Cr

No. of zero accounts
Public Sector Bank 5.33 4.51 9.84 8,174.63 6.55
Rural regional banks 1.84 0.33 2.18 1,599.48 1.59
Private banks 0.32 0.20 0.52 725.52 0.30
Total 7.50 5.05 12.55 10,499.63 8.45

Source: http://www.pmjdy.gov.in/files/progress/phase1.pdf

No. of accounts opened under PMJDY – Mar 2016

Category of banks Rural Urban No of accounts Balance

in Rs. Cr

No. of zero accounts
Public Sector Bank 9.37 7.40 16.77 27,521.53 4.73
Rural regional banks 3.24 0.53 3.77 6,036.83 0.89
Private banks 0.47 0.30 0.77 1,283.29 0.30
Total 13.08 8.24 21.31 34,841.65 5.92



Category of banks Rural Urban No of accounts Balance

in Rs. Cr

No. of zero accounts
Public Sector Bank 75.8% 64.1% 70.4% 236.7% -27.8%
Rural regional banks 76.1% 60.6% 72.9% 277.4% -44.0%
Private banks 46.9% 50.0% 48.1% 76.9% 0.0%
Total 74.4% 63.2% 69.8% 231.8% -29.9%

Key points:

  1. A total 69% increase in number of accounts under PMJDY with 74% increase in rural accounts and 63.2% increase in urban
  2. The balance in the PMJDY accounts has increased from Rs. 10,500 cr., to Rs. 34,841 cr., a whopping 231% increase; this coupled with a 30% fall in zero balance accounts.

This is structurally extremely positive as we have brought in ~21.31 cr., account holders in system who were earlier dependent on a parallel cash economy. Further, with reduction in zero balance shows that these account holders are putting some money in the bank. In fact the average balance per account has gone up from Rs. 836.6 in Jan 2015 to Rs. 1635 in Mar 2016.


The following table gives an overview of Aadhaar Card penetration in the country.

Period Population projection (2015) Aadhaar Assigned Growth Saturation
31 Aug 2015 128,00,00,000 90,53,30,682   71.0%
30 Sep 2015 128,00,00,000 92,01,79,142 1.6% 71.9%
31 Dec 2015 128,00,00,000 95,23,55,079 3.5% 74.4%
31 Jan 2016 128,00,00,000 97,03,27,158 1.9% 75.8%
29 Feb 2016 128,00,00,000 98,51,62,631 1.5% 77.0%


In fact, we have a 77% coverage Aadhaar coverage with 98.51 cr., cards issued. Further, of the 21.31 cr PMJDY accounts, 9.39 accounts are Aadhaar Seeded, taking Aadhaar seeding to ~44.1%.

The overall Aadhaar Seeding accounts vs. total Aadhaar Cards is about 8.0%; showing a rather uphill task for the government to achieve.

The above statistics are aimed to give a brief idea of about necessity of Aadhaar Bill.


During the course of study for the article, I found some pretty interesting facts. The seeds of Aadhaar card were sown by UPA in 2012. OK lets not get carried away with, OH LOOK, AADHAAR IS UPA’s and NDA IS HIJACKING IT.

Lets firstly not deny that the initial documents of Direct Benefit Transfer were placed in the UPA 2 regime and is attested by the Planning Commission Report. However, all it was back then was REPORT. The first activity that was majorly picked up by Hon. Prime Minister, Shri Narendra Modi was the Pradhan Mantri Jan Dhan Yogjana. Many of senior Congress Leader and stupid journos who did not grasp the value of the project. In fact, I will also admit that I was critical about the whole exercise. I am more of an Infrastructure spending person and IRR friendly guy. However, as we delve deep into understanding what shall be the checks, balances in the overall process; this Direct Benefit Transfer with Aadhaar Linking; will be a long term Game Changer for India. In fact, I will admit that I have not taken an Aadhaar Card till now, but given the research that has been put in the article, I will be registering for Aadhaar Card.

Further, I believe that we need to AWARE CITIZENS having fact based knowledge and not what everyone else is reporting. Hence, knowledge about the above statistics is extremely crucial. In fact, all related information for any of the government project is always available in public domain; so it is our moral right and duty to have knowledge about things and then question / cross-question.

Lets first understand what is the Aadhaar & JDY going to do.

Aadhaar and JDY is aimed to integrate the Government’s subsidy / citizen benefit programs under control. The project is aimed at integrating Direct Benefit Transfer in the following projects:

  1. Public Distribution System (PDS)
  2. Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS)
  3. Fertilizer and LPG subsidies
  4. Education (Sarva Shikshan Abhiyan)
  5. Mid-day Meal (MDM)
  6. Indira Awaas Yojana
  7. Janani Suraksha Yojana
  8. Accredited Social Health Activist (ASHA)
  9. Integrated Child Development Scheme (ICDS)

Based on the 2012 report, the value of these benefits worked out to Rs. 37,186 cr. However, the Economic Survey of 2016 points a rather grim picture of Subsidies not adequately reaching the end users. One important point is driven in the report is “Price subsidies have formed an important part of the anti-poverty discourse in India and the government’s own policy toolkit”. However, an effective anti-poverty program needs to:

  1. Based on data rather than popular perception
  2. Mindful of how policies shape – indeed frequently distort – the incentives that individuals and firms face; and
  3. Acutely conscious of the state’s own limited implementation capacity to target and deliver services to the poor.

In fact, the estimated direct fiscal cost of this illustrative subset of subsidies is about Rs. 378,000 crore or about 4.24% of GDP.

Many articles many have quoted and on off number, however the following table summarizes the volume of subsidy offered by the government.

Product Producer subsidy Consumer Subsidy Fiscal Expenditure (Rs. Cr.) % of GDP Share of benefit to poor
Railway N/A Subsidized passenger fare Rs. 51,000 0.57% The bottom 80% of household contribute only 28.1% of total passenger through fare of railway
LPG N/A Subsidy (now via DBT) Rs. 23,746 0.26% Bottom 50% of household consumes only 25% of LPG
Kerosene N/A Subsidy via PDS Rs. 20,415 0.23% 41% of PDS kerosene allocation are lost as leakage, and only 46% of the remainder is consumed by poor households.
Fertilizer Firm & nutrient specific subsidies to manufacturer Maximum retail price for urea is determined by the Govt. Rs. 73,790 0.82% Urea and P&K manufacturers derive most economic benefit from the subsidy, since farmers, especially poor farmers, have elastic demand for fertilizer.
Rice (Paddy) and Wheat Price floor (MSP) Subsidy via PDS Rs. 129,000 1.14% 15% of PDS rice is lost as leakage. Households in the bottom 3 deciles consume 53% of the remaining 85% that reaches households


54% of PDS wheat is lost as leakage. Households in the bottom 3 deciles consume 56% of the remaining 46% that reaches households

Pulses Price floor (MSP) Subsidy via PDS Rs. 158 0.002% The bottom 3 deciles consume 36%of subsidized pulses
Electricity Subsidy Capped below market price Rs. 32,300 0.36% Average monthly consumption of bottom quintile = 45 kWh vs top quintile = 121 kWh.

Bottom quintile captures only 10% of the total electricity subsidies, top quintile captures 37% of subsidy

Water N.A. Subsidy Rs. 14,208 0.50% Most water subsidies are allocated to private taps, whereas 60% of poor households get their water from public taps
Sugar MSP for sugar cane farmer Subsidy via PDS Rs. 33,000 0.37% 48 percent of PDS sugar is lost as leakage. Households in the bottom 3 deciles consume 44 percent of the remaining 52 percent that reaches households
TOTAL     Rs. 377,616 4.24%  

Source: Economic Survey 2016

If you are done looking at the above table, what comes out most glaringly is the huge weakness in the Public Distribution System. The total loss in the PDS aggregates to Rs. 182,415 cr. or about 50% of total fiscal burden of subsidies. The following point show major gaps in how the PDS system is perceived:

  Quantum of Leakage Actual consumption by Poverty Stricken
LPG   Bottom 50% of household consumes only 25% of LPG
Kerosene 41% of PDS kerosene allocation are lost as leakage 46% of the remainder is consumed by poor households
Rice 15% of PDS rice is lost as leakage Households in the bottom 3 deciles consume 53% of the remaining 85% that reaches households
Wheat 54% of PDS wheat is lost as leakage Households in the bottom 3 deciles consume 56% of the remaining 46% that reaches households
Pulses   The bottom 3 deciles consume 36%of subsidized pulses
Sugar 48% of PDS sugar is lost as leakage Households in the bottom 3 deciles consume 44 percent of the remaining 52 percent that reaches households



One important fact that came from research is that since 1999-2000 there has been major work done to arrest leakage in food related items in the PDS scheme. The following table shows no major improvement in the overall PDS leakages:

Government Year Rice Wheat Food Grains Total
NDA 1999-2000 9.9% 48.6% 23.9% N.A.
NDA 2001-2002 18.2% 66.8% 39.0% N.A.
UPA 2004-2005 41.3% 70.3% 54.0% N.A.
UPA 2006-2007 39.6% 61.9% 46.7% N.A.
UPA 2007-2008 37.2% 57.7% 43.9% N.A.
UPA 2009-2010 45.9% 59.7% N.A. 41.2%
UPA 2011-2012 36.15% 62.8% N.A. 46.7%

Source: http://icrier.org/pdf/Working_Paper_294.pdf

The above table is not meant to show anyones performance, but the above table clearly illustrates that there has being no major improvement in the PDS delivery system; which would primarily be account of inadequate mechanism to curb the losses. This is where JAM comes into play.

Key lines in Economic Survey Report

One of the most important lines in the report is “Eliminating or phasing down subsidies is neither feasible nor  desirable unless accompanied by other forms of support to cushion the poor and vulnerable and enable them to achieve their economic aspirations”. The above line is important, as lets be honest till date people (UPA & Congress) have ensured poverty remains at elevated levels and given the degree of leakage in the PDS there seems to be no mechanism brought in place to reduce this. Hence, our Hon., Prime Minister Shri Narendra Modi has come up a JAM Number Trinity covering Jan Dhan Yojana, Aadhaar and Mobile Numbers.

The most important thing in ensuring the above leakages are creating a framework for ensuring better delivery of Government’s benefits to the poor. With Aadhaar getting a statutory backing, this structure shall be completed with the passing of the Aadhaar Bill (2016).

The JAM Trinity envisaged by the government sees a rationalization in the PDS system to the tune of:

Sector Amount (Rs. Crore)
Kerosene 10,044
Rice 6,210
Wheat 12,598
TOTAL 28,852

The above table points to immediate rationalization. However, the ensuing section shows an 11 year Aadhaar Cost Benefit analysis along with implied IRR on savings.

Understand the cost-benefit analysis of the Aadhaar / JAM Program:

Based on estimates by the National Institute of Public Finance and Policy, the Aadhaar Program (including the Jan Dhan) will yield an national benefit at 58% IRR (Internal Rate of Return). Now, for non-finance people in simple language IRR shall be like compounded interest. So, 58% IRR shall mean like at the end of period you are making 58% compounded interest on the project.


There are two cost heads the project viz:

  • Capital and operations expenditure for establishing and maintaining Aadhaar
  • Cost of integrating Aadhaar with various government schemes are factored into the estimation.



 Amount in Rs. Crores


Aadhaar is potentially useful for reducing leakages in a large number of government programs. Without making the write up more verbose, the benefits are estimated individually for key government programs with individual set of assumptions which are reasonable and adequate.


Note: Amount in Rs. Crore

Superimposing the cost and benefit:


Note: Amount in Rs. Crores


Understanding Aadhaar’s IRR

The following table gives a detailed idea of Aadhaar costs and intended benefits over an 11 year period along with a schedule Aadhaar roll out. The Aadhaar rollout speed will be critical in ensuring the faster or delayed benefits being accrued to the Government or in essence us given the degree of loss or black-hole to be plugged.


Over a period of 11 years with Aadhaar Rollout reaching 100% it was expected back about 5 years back that the benefits would be Rs. 109,806 cr. As of today based on the latest Economic Survey and as pointed out above the overall loss which has potential to be curbed with JAM is pegged at Rs. 377616 cr.

We believe that Aadhaar is structurally is a move in the right direction. It was conceived in UPA 2, but real wings to the project came with the Pradhan Mantri Jan Dhan Yojana and passing of the Aadhaar Bill. The ages of bottleneck and neck deep corruption, leakage in the overall systems as enumerated above could be curbed to a substantial extent with the support of Aadhaar. In this article, we are not going by the lame excuses and article posted about security and privacy loss by Aadhaar. In fact, with smartphones, Google, Apple their apps, already we are giving out more information to them then we could in Aadhaar. Yes, Aadhaar is linked to our bank, income tax, etc., and assuming that this Government or for that matter any government in power is more concerned with screwing us on privacy is rather foolhardy. Don’t mean to sound naïve, but still, the intent of the move coupled with fiscal benefits from the same will take care of any operational issues arising out the same.

All we can say is that our Hon. Prime Minister Shri Narendra Modi has taken a step in the right direction and perfected a broken Aadhaar envisaged by his predecessors.


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