RBI chief Rajan for direct subsidy transfer; but skirts ‘Aadhar’

Indian central bank Governor Raghuram Rajan on Monday urged the government to directly transfer cash to the poor instead of relying on public delivery systems like the leaky Public Distribution System (PDS), saying this would liberate millions from corrupt middlemen and politicians.

Cash would empower the poor to choose where to buy goods, providing an alternative to government-run monopolies and creating competition in the private sector, Rajan said in a speech in Mumbai.

The Narendra Modi-led NDA government's plans to expand banking facilities to rural areas, set to be unveiled this week, would facilitate cash transfers, Rajan said.

Notably, Rajan did not at all mention the previous UPA government's efforts to give every citizen a unique 'Aadhar' number, which was aimed at the same purpose but now seems virtually abandoned mid-way through its implementation.

Rajan, who was appointed under the previous UPA government of Manmohan Singh, also came out strongly against "crony capitalism". The UPA government has frequently been accused of this.

"By killing transparency and competition, crony capitalism is harmful to free enterprise, opportunity, and economic growth," Rajan said, delivering a public lecture instituted in the memory of noted bureaucrat Lalit Doshi in Mumbai.

The chief of India's central bank noted that "crony capitalism, where the rich and the influential are alleged to have received land, natural resources and spectrum in return for payoffs to venal politicians," was a major issue in the recent elections.

''One of the greatest dangers to the growth of developing countries is the middle-income trap, where crony capitalism creates oligarchies that slow down growth,'' Rajan said.

''To avoid this trap, and to strengthen the independent democracy our leaders won for us 67 years ago, we have to improve public services, especially those targeted at the poor.''

Overhauling India's multiple subsidies that have risen five-fold over the past decade is a major challenge for the Modi government, even as retail inflation continues to soar, led by food prices.