Government has announced free distribution of Smartphones to around 400 million Indians through the recently announced Aadhar based direct cash transfer scheme.
The path breaking direct cash transfer scheme will facilitate direct cash payout of subsidies to beneficiaries starting next year. The scheme which is expected to bring down corruption will now come with an additional incentive to poor Indians in form of a smartphone that will have mobile banking facilities enabled on the smartphone itself.
Aadhar platform will be the backbone to identify and transfer cash directly to beneficiaries Aadhar linked bank accounts.
According to HT article, this free smartphone scheme will cost Rs. 7000 crore. The phone will also have 100 hours of free talktime, 500 free SMSes and free internet which will allow users to use mobile banking services based on Aadhar numbers.
The free smartphone scheme will be launched in conjunction with direct cash transfer scheme on January 1st 2013. HT article also mentioned that half of funding for this scheme will come from telecom department’s Universal Service Obligation funds and half of it will be bourne by service provider who wins the bid.
Why the Free Smartphone scheme?
Although, specific reason has not been given except “empowerment of poor” and “direct interface with beneficiaries”, it is clear that direct cash transfers would not work on its own without the beneficiary having proper banking facility. With millions of rural Indians still not having a Bank account, they would still rely on third party to acquire subsidy funds for them.
With announcement of free smartphones along with direct cash transfer scheme, government has ensured that beneficiary will now have a device where he/she can carry out basic banking services.
Another benefit is that lure of free smartphones will ensure that every individual takes steps to procure Aadhar card and a linked bank or post office account, which is a precondition in obtaining the incentive.
Who funds it?
As previously mentioned, half of the funding for this scheme will come from Telecom Department’s Universal Service Obligation funds, but I am really not sure why will the service provider, who wins the bid, will do it. What will the service provider obtain out of it?
Yes, the telecom provider may gain millions of new customers and will also make money on the service he will offer to these smartphones, but, I doubt if that would cover the cost of giving off a free handset.
Aadhar gaining importance
With schemes like Direct cash transfer and free smartphones being announced, I am sure we will now see a mad scramble for procurement of new Aadhar cards. Infact, even for not-so-poor people, getting an Aadhar card is getting very beneficial. Hopefully, there will be lot more schemes launched like these, which should make sure that ordinary Indian cannot do without a Aadhar card.
Would love to hear your comments on this!
The question you raised about why would telecoms want to sponsor such scheme with huge cost revenue mismatch; I would opine that with subscriber rates dropping MoM telecoms realize that urban India market is saturated and the only way to sustain in green is to tap the rural market. Agreed cost is high but its a one-off investment they are willing to make and hopefully convert it into a continuos revenue stream. If it works, Kudos!
Dear Gaurav jhamb – While what you say is absolutely right, "cost of acquiring customers" is going to be huge. In addition to the freebies like 100 hrs of free calls, free SMS they will also have offer very low call rates, which will bring down ARPUs even further. And with those wafer thin ARPUs, it may be atleast 4-5 years before they can start making any money on them… At an average, a telecom operator does not earn more than Rs. 200-300 net profit per user per year..and again that is higher side..
Sure the ARPUs are low but here's the catch…sure they are targetting 400 mn which is huge but the total mkt size untapped or slightly tapped in india is 70% of 1.2 bn people and when 400 mn have what the rest dont…bulls eye…and more importantly the revenue stream becomes continuous…so the bet is BIG but i feel worth it!
How is the eligibility factor going to be determined? Any word on that?
All those people who the government thinks are a part of their vote bank. I think that these are just plans for the next elections
Nikh LaVida This scheme is applicable only to people who are eligible for direct cash transfers from the Government…who get subsidies, farmers and other below-poverty-line citizens. Though, right now there is no clear cut criteria that have been laid down.
Rahul Jadhav I tend to agree to you. Infact, UPA understands that it needs to have some really break-through initiatives for it to stay in power and this initiative might be part of it. But whatever said and done, Aadhar is the key and if they are able to proliferate Aadhar cards to masses, that would be single biggest achievement for UPA. Even if it is for the re-election bid, it still is great thing…and should be pushed..