Thursday, July 19, 2012

An Opportunity Lost


India has been pretty gung ho about the Unique IDentification (UID) project. While the machinery has been churning out UID cards in thousands, there has been a whole series of debate on the use of UID numbers. One of the usage has been in the subsidy management process by the Government. See the article in Mint on the Finance Minister launching pilot of this scheme.

As per this scheme, a consumer of a government subsidised item such as cooking gas cylinder will have to pay the full market rate for the cylinder. The purchase activity will be passed on to the government agency who will then credit the subsidy amount to the bank account of the consumer. This bank account will be picked up from the bank account linked to the UID number.

India has a large number of items subsidised by the Government for its retail citizens. The public distribution system covers grocery items. Fertilizers are subsidised for farmers. Cooking gas cylinders are subsidised for retail/home consumption. When all consumers of these subsidised items are counted, the numbers will run into maybe 70% or more of the Indian population. The government is expected to pay the subsidy amount to the bank account of these consumers.

Each of these consumers will need to have a bank account declared attached to the UID number. Knowing how critical this bank account will eventually become, the chances of consumers changing the bank account will be minimal. Also, considering the cumbersome process of government agencies, consumers will be deterred form changing this account.

So now we are seeing a potential of a consumer sticking with a bank account for longer time since his subsidy amount is being credited to it. A excellent case in increasing the stickiness of the consumer.

Unfortunately, I dont see any bank realizing the potential of this. Banks cannot play a role in the UID registration process since the agencies are already appointed. But Banks can definitely facilitate the UID registration process. They could source the forms, provide address proofs (attested bank statements) and also get appointment tokens for the individuals. The catch --- the bank account registered on the UID number will be one that is opened in the same bank. For every customer who takes up this offer, the bank wins a highly persistent customer with a high life time with the bank.

Lets see which of the banks latch on to this idea. Till then, I wait for my appointment date for UID registration.

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