Even as the United Progressive Alliance (UPA) government has put on hold its ambitious unique identification (UID) code-linked cash transfer programme, a study by noted economists Karthik Muralidharan, Paul Niehaus and Sandip Sukhtankar shows that leakage of funds allocated for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) dropped by as much as 12.2 percentage points when it was distributed to beneficiaries through smart cards. The study, conducted on a smart card programme in Andhra Pradesh, also found that MGNREGA workers spent almost 21 minute less in collecting each payment made electronically compared with manual transfer. About 84 per cent of the MGNREGA job card holders and 91 per cent of the beneficiaries of Social Security Pension preferred payments through smart cards to the existing mode. The study showed that the smart card system not only brought down the leakages, but was also significantly cost-effective.
It showed that when smart cards were used to deliver cash benefits in like in MGNREGA, the government saved about $4.44 million when time saved is converted into money and $4.25 million in cost of implementation. “The reduction in leakage is also much larger than the cost of implementation. For example, in MGNREGA, leakage reduction of $38.7 million per year is nine times the total cost of implementing the programme,” said Muralidharan, who is an assistant professor in the University of California, while presenting his study during a lecture on ‘Building State Capacity For Programme Implementation: Evidence From Biometric Smartcards in India’ by National Council of Applied Economic Research here on Wednesday. He said several impacts of using smart cards for delivering cash to beneficiaries are purely efficiency gains and the value of these alone appears to exceed the government’s cost of programme implementation and operation. “The example shows that if you have the political will then such type of path-breaking initiatives can be implemented,” said Muralidharan. He also said that for UID-based cash transfers to succeed in India, proper regulatory and Parliamentary approvals were absolutely necessary. “Also, I feel that cash transfers through Aadhaar should have been first tested fully in 10-15 districts before going for a nationwide roll out,” Muralidharan noted. Nachiket Mor, who headed the Reserve Bank of India’s (RBI) committee on financial inclusion, said that even if the next government decides to junk Aadhaar, the available database will provide immense opportunity for financial inclusion. Following strong opposition from some ministers, the Union Cabinet had in February put on hold Aadhaar-based transfer of subsidy for gas cylinders, thereby effectively killing the electronic transfer system started with much fanfare as LPG was one of the showcase initiatives. Thereafter, the Supreme Court, too, ruled that government benefits cannot be denied to any beneficiary for want of Aadhaar, further dealing a body blow to the ambitious programme.