Economic Highlights

New Delhi, 30 November 2012

Direct Cash Transfers

ADDITIONAL MISERY FOR POOR

By Shivaji Sarkar

The Government’s ‘Direct Cash Transfers’ of subsidy is possibly one of the most ill-thought of measures. While it may flaunt it as a “game-changer”, the Opposition feels it spells doom for subsidies. In fact, it may be the first step towards eliminating these, as has been apprehended by CPM leader Sitaram Yechuri. According to him, the subsidy amount would remain fixed but prices of commodities would be continuously increased. Thus, cash transfers would not keep pace with inflation.

Additionally, the scheme has hit its first hurdle. Though the Prime Minister has directed departments to implement the scheme from 1 January 2013 in 51 districts, there are indications that it may not be feasible. As it is the subsidies for 2011-12 were around Rs 216,297 crore or 2.41 per cent of the GDP and 58 per cent of this did not reach the target group.

Of particular concern is the petroleum ministry. It has to transfer Rs 73,637 crore a year on petroleum and fertilizer subsidies to the beneficiaries. However, for years together it has not received the subsidy. Though it is marked in the Budget it is not transferred. Some of it has been given to it in long-term bonds as the Government was devoid of that much of cash required. Indications are that the scheme here may be delayed by a year. That brings the earliest date of subsidy transfers, if at all, to October next year. Many other departments may have similar problems.

In the ultimate, though the scheme would be launched with much fanfare, the beneficiaries, whatever little they might be getting, would be the biggest losers. It must be kept in mind that transferring the money to bank accounts in remote villages is not easy. It has enormous cost on the banking sector. The banking correspondents who move with hand-held equipment in remote areas have faced problems of having cash of up to Rs 20,000 whereas the demands run into lakhs.

Worse, there are grave apprehensions that cash transfers would exclude more poor people. Nikhil Dey of Mazdoor Kisan Sangathan cites the case of NREGA: “It is a massive cash transfer programme and we have seen that leakages and corruption have not disappeared as a result of wages being credited into the workers’ bank accounts”.

The Government too has noted that the scheme has virtually failed in Tamil Nadu as rural banks don’t have enough deposits to make payments to labourers who turn up in large numbers. Besides, they lose their wages the day they visit the banks. One bank branch serves at least 15 habitations and one or two branches located there have to cater to about 15,000 NREGA workers.

Taking the lead in opposing the scheme is Chhattisgarh Chief Minister Raman Singh. He reasons that given the limitations of banking and IT infrastructure, the system of cash transfers will lead to increased inconvenience to beneficiaries.

Moreover, it needs to be understood that petroleum subsidies are not just marked for the poor. It has a bigger social purpose of keeping energy prices affordable, transport and cooking costs and inflation in check. Importantly, cash transfers will convolute the basic concept of subsidy. All subsidies are not just targeted merely at the below poverty level people.

For example, farm subsidies have that primary purpose. That is how the US has been able to offer affordable food prices and one of the highest nutrition levels for its citizens. Low food prices have been able to keep poverty and inflation at the lowest level in the US.

Sadly, the new scheme apparently has a design to ultimately do away with all subsidies. Cash transfers would thus become a one-time euphemism, may be more for political purposes to influence the voting pattern in the 2014 elections. It is doubtful that the Government would be able to transfer Rs 3.2 lakh crore cash, as announced.

Additionally, linking it to Aadhaar card, UID, is yet another folly. The UID has not received parliamentary approval because of apprehension of invasion of privacy of a citizen. This apart it creates a biometrical data base that can be misused. It is no secret that Adolf Hitler had used such data to eliminate millions of people.

The Government is laying too much trust on the UIDAI Chairman Nandan Nilekani’s 70-page “Interim Report” presented to the then Finance Minister Pranab Mukherjee in July 2011.

There has been no debate or discussion either in Parliament, with State Governments or outside on the merits of the report. The UK, the US, Australia and the Philippines rejected such schemes as it impinges on the freedom and privacy of citizens.

A citizen is not just a number and the Constitution guarantees him freedom of movement and basic privacy. Can any Government ever ensure that biometrical data like fingerprints would not be misused either by successive governments or by others, including anti-social elements, khap panchayats and terrorists? The apprehension itself calls for an immediate delinking of subsidies from the UID. In fact, the UID should be immediately given up as it will save lakhs of crores that the nation is supposed to invest in a scheme which not only has the least usage but can open up a Pandora’s Box if misused. In any case, the UID’s own documents admit flaws in its system.

It is also important to keep in mind the experience of Kotkasim in Alwar district of Rajasthan. Following introduction of cash transfers there the intake of kerosene came down by 80 per cent. An IIT, Delhi study found that it was not because of corruption but that legitimate beneficiaries were no longer able to access their entitlement. Many did not have bank accounts and for those who did the subsidy either came late or never, thus forcing them to give up on kerosene. Regrettably, the Government seems to be in a great hurry and has ignored available data on pilot districts where similar schemes were introduced.

Often, examples of 17 Latin American countries, including Brazil, are cited to sell the idea of cash transfers. But what is not mentioned is that these countries have far less population, far less poor and much smaller geographical area. There can be no comparison with India, which had its own share of social and political problems.

It goes without saying that the Government of the day burdened with high fiscal deficit, current account deficit and low value of the rupee has every reason to cut expenses. But subsidies are definitely not an answer and cash transfers have their costs too. For the moment let’s put a halt so that deeper thought could go into how to benefit the poor. The scheme ironically may ultimately sideline the poor and burden them with more miseries. --- INFA

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