Events & Issues

New Delhi, 10 December 2012

Direct Cash Transfer

HONEST EXECUTION CRUCIAL

By Col (Dr) PK Vasudeva (Retd)

The Election Commission has done well in questioning the timing of the Government’s grand announcement of direct cash transfer and asking it to defer its implementation in four districts of Gujarat and two in Himachal Pradesh till the end of the Assembly elections. Though it could not technically haul the Government for trying to influence the voters, the Commission has by its observation unwittingly confirmed many a doubt that the Government has the 2014 voter in mind and is in a tearing hurry.     

While the Government has touted the direct cash transfer scheme as a game-changer, it would only turn out to be so, if it is implemented with necessary system and support. It has its pros and cons. It may be beneficial in rural and urban areas if it is followed by standing procedures and the public distribution system (PDS) getting streamlined. This in turn would be extended to LPG, fertiliser, MGNREGA and the Indira Awas Yojana, among others.

While the Government proposes to make it operational from January 1 next year, as part of its welfare programmes in 51 districts – in other words, transfer of the subsidy amount directly into the bank account of the beneficiaries, doubts are being raised whether it could kick off soon as planned.

This scheme is based on the success story of the developed countries where subsidies on agricultural goods are very heavy 40 to 52 per cent and paid to the farmers as cash compensation through cash transfers. A study by the National Institute of Public Finance and Policy on the benefits of direct cash transfers concedes that while all forms of leakages cannot be plugged, those pertaining to non-existent or duplicate beneficiaries can be weeded out through Aadhaar.

Even if these leakages are conservatively estimated at less than 10 per cent of the total subsidy bill, as the study has done, it amounts to a substantial annual sum, given the subsidy bill of about Rs 300,000 crore. Therefore, there is no need to be dismissive of the potential gains arising out of the Aadhaar technology.

It will help the migrant population avail of State services. The Rs 30,000 crore or so saved can, in fact, be used to raise other welfare schemes, as it would rob fiscal diehards of the argument that such expenditure is wasteful because it does not reach the final beneficiary.

The benefits will be perceptible in areas where fake identities are the norm, such as in MGNREGA, pension and scholarship payouts. In the case of LPG subsidy, where the beneficiaries include taxpayers, correct identification could enhance tax compliance. The same model could be extended to diesel subsidy, depriving private vehicles of the benefit and bringing their owners under tax scrutiny. The diversion of fertiliser to other uses can be checked.

According to noted banker and Chairman Infosys K V Kamath the programme would help reduce budgetary deficit. Further, the seepage in subsidy distribution, which is as high as 40 per cent, will potentially get eliminated through the implementation of the scheme. Leakages will occur, no matter how competent the delivery system, if short supply of services is not tackled, is his opinion. 

In any case, cash transfers are not an unmitigated evil. ‘Cash transfer’ in urban centres for food grains, LPG, etc., is better than picking some remote rural district only to claim that the scheme has failed for various reasons as given below.

Firstly, while cash transfers can be universal in coverage, international experience shows that cash transfers are the first step in narrow targeting of transfers and a move away from universal access to basic goods. Cash transfers succeeded in Mexico and Brazil because the excluded population was a tiny one of the total population, unlike in India where malnutrition persists on a mass scale. To illustrate, in 2009, the proportion of malnourished children, defined on the basis of weight for age, was less than two per cent in Mexico and six per cent in Brazil as compared to 46 per cent in India.

Secondly, cash transfers are associated with immediate and steep reductions in the real value of the subsidy. Assume the Government transfers Rs 500 per family per month from January 1 in lieu of 25 kg of rice, based on a market price of Rs 20 per kg of rice. Within a few months or even few weeks, with inflation and manipulation by local shops, the real value of the Rs 500 may fall to 10 kg of rice per month.

Thirdly, the closing down of the Public Distribution System, which is an integral part of the food production-procurement-storage-distribution system, will adversely affect production and procurement and destroy India’s self-reliance in respect of food grain. 

The best way to kill a good idea is to implement it badly. One hopes that direct cash transfer of Government funds under various welfare schemes to the bank accounts of their intended beneficiaries does not meet this fate. For, it is too good an idea to be discarded, notwithstanding all the vested interests that stand to lose from its success. All the more reason, then, for the Government to take extra care in demonstrating its feasibility on the ground, thereby silencing the prophets of doom – including those for whom welfare programmes are a means for lining their own pockets.

It is in this context that reports of beneficiaries not receiving any money in their bank accounts, even in select blocks where direct payment of subsidy against kerosene purchases at market rates is being tried out on a pilot scale, make for disturbing reading. It is almost as though there is organised sabotage at work.

The blame for this lies with the Government. To start with, there was this unseemly spat between the Home Ministry and the Unique Identification Authority of India (UIDAI), with the former even questioning the latter’s authority to issue ‘Aadhaar’ numbers to every Indian resident linked to the biometric fingerprints-cum-iris profile specific to that individual. To add to this was the confusion over the validity of Aadhaar as an official identity document, with banks not accepting it for opening of accounts. Given that the entire success of direct cash transfer rests on the twin pillars of the Aadhaar platform and financial inclusion.

Instead of tying up these loose ends, the Government – clearly in response to the current electorally surcharged environment – has suddenly announced that payments under 29 welfare schemes will be made directly to beneficiaries’ bank accounts, which are Aadhaar-enabled to guard against impersonation. 

While not disputing the advantages of direct transfer, more so from the standpoint of curbing ‘leakage’ of public funds to undeserving beneficiaries, there is equal need to ensure its success on the ground. To that extent, trying it out first in urban centres – where the possibility of even the poor having bank accounts is higher and the availability of LPG, food grains, hospitals and other services sought to be subsidised is also better – would make more sense. A bird in hand is better than two in a bush. ---INFA

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