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Is UID-linked cash transfer a good idea?

Business Standard  |  New Delhi 

Aadhaar-enabled transfer carries the risk of excluding current beneficiaries but it can address payment delays better

Reetika KheraReetika Khera
Professor, Indian Institute of Technology, Delhi*

is being made de facto compulsory for With two-thirds without Aadhaar, they are bound to be denied entitlements”

There are three components of the government’s direct benefit transfer scheme — computerisation, and linking the benefits with The real game-changers are the first two, whereas Aadhaar-enabled transfers carry the risk of excluding current beneficiaries.

The Central government has woken up somewhat belatedly to the transformational potential of in implementing welfare programmes. Many state governments have already developed some intelligent applications using this technology. has demonstrated that end-to-end of the public distribution system (PDS) combined with other reforms is a game-changer — leakages dropped from half to just 10 per cent between 2004-05 and 2009-10, the period during which was undertaken. Andhra Pradesh’s management information system for the National Rural Employment Guarantee Act (NREGA) allows real-time tracking of all payments — at each step. Similarly, payments through bank or post-office accounts provide protection against fraud and corruption. In 2007-08, leakages from in Andhra Pradesh were between one and three per cent.

Since 2008, payment of wages through bank and post-office accounts has been mandatory. The Reserve Bank of India allowed “zero balance” accounts for workers. This led to the largest financial inclusion drive — more than 80 per cent of job card holders have bank accounts. It is claimed that since is Know-Your-Customer compliant, it will lead to financial inclusion. This is true but with two caveats. One, just about a third of the population has Two, the requirements to open a bank account and to get an card are the same: identity and address proofs. Aadhaar’s value-added benefit is that it has an introducer system for those without these documents.

Portability (withdrawing cash anywhere in the country) and interoperability (withdrawing from any bank’s ATM) are supposedly Aadhaar’s contributions. But these are possible owing to the centralised online real-time environment banking. It has also been claimed that Aadhaar’s superior “plumbing” will fix delays in payments. However, the reason for delays is the lack of accountability. Engineers do not visit work sites for inspection without which payments cannot be sanctioned.

Ghost and duplicate beneficiaries exist in schemes such as and — benefits are either used by their families or by corrupt dealers. The Andhra Pradesh government’s social audit suggests that one per cent of beneficiaries were ghosts or duplicates across six schemes. Quite likely, the figure is higher for other schemes but we don’t know the size of this problem. Biometrics (of which unique identification is only one variety) can weed out such beneficiaries.

Banking correspondents have been used to remedy the poor reach of modern banking in rural areas. They take cash to the village, and authenticate payments using hand-held biometric machines. But first-generation banking correspondents, introduced with fanfare recently, are now described by the rural development minister as “discredited”. The technical hurdles aside, extortion and financial viability (because of poor commissions and low volumes) have been other issues. A new model is being launched with equal fanfare: a million-strong banking correspondents network, primarily frontline government workers (anganwadi and health workers, dealers, cooperative societies as well as kirana stores. Higher commissions (3.14 per cent) have been suggested, and to ensure volumes, all in-kind transfers may be “cashed out”.

is being made de facto compulsory for With two-thirds without Aadhaar, many are bound to be denied entitlements. Initial reports from the first 20 districts shows the same. Things may fall into place eventually but can you imagine being denied work or salary because you don’t have an card — even for a month? Linking benefits with carries the risk of disrupting schemes, even where they work well currently, leaving the poor with the bath water and the biometric industry running away with the baby.

*The writer is currently on a fellowship at the Institute of Economic Growth

Pronab SenPronab Sen
Country Head, International Growth Centre

has notified as adequate for opening bank accounts. Once UID covers everyone, it would also help migrants and others”

In its initial stage, the direct scheme, as it is being implemented now, is confined to a few chosen areas, mainly pension, scholarship and maternity benefits. In these three, cash transfers have been taking place in any case — a government functionary takes the money from the government and passes it on to the beneficiary of or

But most of the cash is not going directly to the beneficiaries’ post office or bank accounts. In fact, the single-largest source from whom the people collect their benefits like pensions or scholarships is a block development officer. The idea of direct cash transfers is to eliminate this intermediary who could hold beneficiaries to ransom. Next, the question that arises is of insufficient bank accounts. In the direct scheme, that can be done by phasing. That is, on the basis of or a unique identification (UID) number, beneficiaries can open bank accounts. Those who don’t have an UID number can remain in the old scheme, and collect their benefits from the block development officer. No one is thrown out of the programme, or existing benefits because he or she doesn’t have a bank account. This is a misconception about the scheme.

When you get to the second stage, you start transferring cash rather than subsidy. Today, ration shops give subsidised foodgrains and collect the subsidy themselves. Now, the subsidy is to be given to the beneficiary. It can become complicated if the implementation is done in a phased manner. That would give ration shops the discretion to give subsidised food grains to some, and collect full rates from others. So, everyone has to be covered when it is rolled out.

Everyone would need to have a bank account. And, for all to have accounts, they would first be required to have an number. That is the order in which it is done. Most people don’t have documents to fulfil identity requirements for opening bank accounts. The Reserve Bank of India has notified as adequate Know Your Customer for opening a bank account. Hence, once UID covers everyone, it would also help migrants and others, who are likely to be excluded. In fact, UID was conceived with the idea of covering even street-dwellers. But they have been left out, since there is no database on them generated by the recent census. Maybe a special drive to enrol them could be done to bring them under UID as well.

It is a fact that enrolment for has been an issue, since there are no permanent kiosks. Besides, there are issues between UID and the National Population Register. The other issue is of whether the scheme would lead to payment delays as witnessed in Kotkasim where a pilot project was done. We don’t know where the delay was occurring. The direct would address delays only at the local level. If there are delays at the Treasury level, nothing can be done and the scheme cannot be held responsible for it.

UID has been also facing problems like exclusion of those people whose biometrics or retina cannot be captured . For this, a correction has to be made. If I go to a UID centre and I cannot get my biometrics recorded, then the authorities should still issue a card that says the applicant’s biometric could not be recorded. Until the UID process can be completed, the old scheme would work for such people. The system won’t be shut down until everyone is included.

Another question raised against the UID-based scheme, especially in the case of food, is whether it would lead to food insecurity and whether people would spend money meant for food on other things. The whole on food is wrong. The should not be whether you should have public distribution system or cash. The real should focus on what should be the optimum that could be given as food and what could be given as cash. Pure cash transfers cannot secure food needs. We need to on what should be the new design that could provide the best combination of food and cash.

(As told to Sreelatha Menon)

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Is UID-linked cash transfer a good idea?

“Aadhaar is being made de facto compulsory for welfare schemes.

Aadhaar-enabled transfer carries the risk of excluding current beneficiaries but it can address payment delays better

Reetika KheraReetika Khera
Professor, Indian Institute of Technology, Delhi*

is being made de facto compulsory for With two-thirds without Aadhaar, they are bound to be denied entitlements”

There are three components of the government’s direct benefit transfer scheme — computerisation, and linking the benefits with The real game-changers are the first two, whereas Aadhaar-enabled transfers carry the risk of excluding current beneficiaries.

The Central government has woken up somewhat belatedly to the transformational potential of in implementing welfare programmes. Many state governments have already developed some intelligent applications using this technology. has demonstrated that end-to-end of the public distribution system (PDS) combined with other reforms is a game-changer — leakages dropped from half to just 10 per cent between 2004-05 and 2009-10, the period during which was undertaken. Andhra Pradesh’s management information system for the National Rural Employment Guarantee Act (NREGA) allows real-time tracking of all payments — at each step. Similarly, payments through bank or post-office accounts provide protection against fraud and corruption. In 2007-08, leakages from in Andhra Pradesh were between one and three per cent.

Since 2008, payment of wages through bank and post-office accounts has been mandatory. The Reserve Bank of India allowed “zero balance” accounts for workers. This led to the largest financial inclusion drive — more than 80 per cent of job card holders have bank accounts. It is claimed that since is Know-Your-Customer compliant, it will lead to financial inclusion. This is true but with two caveats. One, just about a third of the population has Two, the requirements to open a bank account and to get an card are the same: identity and address proofs. Aadhaar’s value-added benefit is that it has an introducer system for those without these documents.

Portability (withdrawing cash anywhere in the country) and interoperability (withdrawing from any bank’s ATM) are supposedly Aadhaar’s contributions. But these are possible owing to the centralised online real-time environment banking. It has also been claimed that Aadhaar’s superior “plumbing” will fix delays in payments. However, the reason for delays is the lack of accountability. Engineers do not visit work sites for inspection without which payments cannot be sanctioned.

Ghost and duplicate beneficiaries exist in schemes such as and — benefits are either used by their families or by corrupt dealers. The Andhra Pradesh government’s social audit suggests that one per cent of beneficiaries were ghosts or duplicates across six schemes. Quite likely, the figure is higher for other schemes but we don’t know the size of this problem. Biometrics (of which unique identification is only one variety) can weed out such beneficiaries.

Banking correspondents have been used to remedy the poor reach of modern banking in rural areas. They take cash to the village, and authenticate payments using hand-held biometric machines. But first-generation banking correspondents, introduced with fanfare recently, are now described by the rural development minister as “discredited”. The technical hurdles aside, extortion and financial viability (because of poor commissions and low volumes) have been other issues. A new model is being launched with equal fanfare: a million-strong banking correspondents network, primarily frontline government workers (anganwadi and health workers, dealers, cooperative societies as well as kirana stores. Higher commissions (3.14 per cent) have been suggested, and to ensure volumes, all in-kind transfers may be “cashed out”.

is being made de facto compulsory for With two-thirds without Aadhaar, many are bound to be denied entitlements. Initial reports from the first 20 districts shows the same. Things may fall into place eventually but can you imagine being denied work or salary because you don’t have an card — even for a month? Linking benefits with carries the risk of disrupting schemes, even where they work well currently, leaving the poor with the bath water and the biometric industry running away with the baby.

*The writer is currently on a fellowship at the Institute of Economic Growth

Pronab SenPronab Sen
Country Head, International Growth Centre

has notified as adequate for opening bank accounts. Once UID covers everyone, it would also help migrants and others”

In its initial stage, the direct scheme, as it is being implemented now, is confined to a few chosen areas, mainly pension, scholarship and maternity benefits. In these three, cash transfers have been taking place in any case — a government functionary takes the money from the government and passes it on to the beneficiary of or

But most of the cash is not going directly to the beneficiaries’ post office or bank accounts. In fact, the single-largest source from whom the people collect their benefits like pensions or scholarships is a block development officer. The idea of direct cash transfers is to eliminate this intermediary who could hold beneficiaries to ransom. Next, the question that arises is of insufficient bank accounts. In the direct scheme, that can be done by phasing. That is, on the basis of or a unique identification (UID) number, beneficiaries can open bank accounts. Those who don’t have an UID number can remain in the old scheme, and collect their benefits from the block development officer. No one is thrown out of the programme, or existing benefits because he or she doesn’t have a bank account. This is a misconception about the scheme.

When you get to the second stage, you start transferring cash rather than subsidy. Today, ration shops give subsidised foodgrains and collect the subsidy themselves. Now, the subsidy is to be given to the beneficiary. It can become complicated if the implementation is done in a phased manner. That would give ration shops the discretion to give subsidised food grains to some, and collect full rates from others. So, everyone has to be covered when it is rolled out.

Everyone would need to have a bank account. And, for all to have accounts, they would first be required to have an number. That is the order in which it is done. Most people don’t have documents to fulfil identity requirements for opening bank accounts. The Reserve Bank of India has notified as adequate Know Your Customer for opening a bank account. Hence, once UID covers everyone, it would also help migrants and others, who are likely to be excluded. In fact, UID was conceived with the idea of covering even street-dwellers. But they have been left out, since there is no database on them generated by the recent census. Maybe a special drive to enrol them could be done to bring them under UID as well.

It is a fact that enrolment for has been an issue, since there are no permanent kiosks. Besides, there are issues between UID and the National Population Register. The other issue is of whether the scheme would lead to payment delays as witnessed in Kotkasim where a pilot project was done. We don’t know where the delay was occurring. The direct would address delays only at the local level. If there are delays at the Treasury level, nothing can be done and the scheme cannot be held responsible for it.

UID has been also facing problems like exclusion of those people whose biometrics or retina cannot be captured . For this, a correction has to be made. If I go to a UID centre and I cannot get my biometrics recorded, then the authorities should still issue a card that says the applicant’s biometric could not be recorded. Until the UID process can be completed, the old scheme would work for such people. The system won’t be shut down until everyone is included.

Another question raised against the UID-based scheme, especially in the case of food, is whether it would lead to food insecurity and whether people would spend money meant for food on other things. The whole on food is wrong. The should not be whether you should have public distribution system or cash. The real should focus on what should be the optimum that could be given as food and what could be given as cash. Pure cash transfers cannot secure food needs. We need to on what should be the new design that could provide the best combination of food and cash.

(As told to Sreelatha Menon)

image
Business Standard
177 22

Is UID-linked cash transfer a good idea?

Aadhaar-enabled transfer carries the risk of excluding current beneficiaries but it can address payment delays better

Reetika KheraReetika Khera
Professor, Indian Institute of Technology, Delhi*

is being made de facto compulsory for With two-thirds without Aadhaar, they are bound to be denied entitlements”

There are three components of the government’s direct benefit transfer scheme — computerisation, and linking the benefits with The real game-changers are the first two, whereas Aadhaar-enabled transfers carry the risk of excluding current beneficiaries.

The Central government has woken up somewhat belatedly to the transformational potential of in implementing welfare programmes. Many state governments have already developed some intelligent applications using this technology. has demonstrated that end-to-end of the public distribution system (PDS) combined with other reforms is a game-changer — leakages dropped from half to just 10 per cent between 2004-05 and 2009-10, the period during which was undertaken. Andhra Pradesh’s management information system for the National Rural Employment Guarantee Act (NREGA) allows real-time tracking of all payments — at each step. Similarly, payments through bank or post-office accounts provide protection against fraud and corruption. In 2007-08, leakages from in Andhra Pradesh were between one and three per cent.

Since 2008, payment of wages through bank and post-office accounts has been mandatory. The Reserve Bank of India allowed “zero balance” accounts for workers. This led to the largest financial inclusion drive — more than 80 per cent of job card holders have bank accounts. It is claimed that since is Know-Your-Customer compliant, it will lead to financial inclusion. This is true but with two caveats. One, just about a third of the population has Two, the requirements to open a bank account and to get an card are the same: identity and address proofs. Aadhaar’s value-added benefit is that it has an introducer system for those without these documents.

Portability (withdrawing cash anywhere in the country) and interoperability (withdrawing from any bank’s ATM) are supposedly Aadhaar’s contributions. But these are possible owing to the centralised online real-time environment banking. It has also been claimed that Aadhaar’s superior “plumbing” will fix delays in payments. However, the reason for delays is the lack of accountability. Engineers do not visit work sites for inspection without which payments cannot be sanctioned.

Ghost and duplicate beneficiaries exist in schemes such as and — benefits are either used by their families or by corrupt dealers. The Andhra Pradesh government’s social audit suggests that one per cent of beneficiaries were ghosts or duplicates across six schemes. Quite likely, the figure is higher for other schemes but we don’t know the size of this problem. Biometrics (of which unique identification is only one variety) can weed out such beneficiaries.

Banking correspondents have been used to remedy the poor reach of modern banking in rural areas. They take cash to the village, and authenticate payments using hand-held biometric machines. But first-generation banking correspondents, introduced with fanfare recently, are now described by the rural development minister as “discredited”. The technical hurdles aside, extortion and financial viability (because of poor commissions and low volumes) have been other issues. A new model is being launched with equal fanfare: a million-strong banking correspondents network, primarily frontline government workers (anganwadi and health workers, dealers, cooperative societies as well as kirana stores. Higher commissions (3.14 per cent) have been suggested, and to ensure volumes, all in-kind transfers may be “cashed out”.

is being made de facto compulsory for With two-thirds without Aadhaar, many are bound to be denied entitlements. Initial reports from the first 20 districts shows the same. Things may fall into place eventually but can you imagine being denied work or salary because you don’t have an card — even for a month? Linking benefits with carries the risk of disrupting schemes, even where they work well currently, leaving the poor with the bath water and the biometric industry running away with the baby.

*The writer is currently on a fellowship at the Institute of Economic Growth

Pronab SenPronab Sen
Country Head, International Growth Centre

has notified as adequate for opening bank accounts. Once UID covers everyone, it would also help migrants and others”

In its initial stage, the direct scheme, as it is being implemented now, is confined to a few chosen areas, mainly pension, scholarship and maternity benefits. In these three, cash transfers have been taking place in any case — a government functionary takes the money from the government and passes it on to the beneficiary of or

But most of the cash is not going directly to the beneficiaries’ post office or bank accounts. In fact, the single-largest source from whom the people collect their benefits like pensions or scholarships is a block development officer. The idea of direct cash transfers is to eliminate this intermediary who could hold beneficiaries to ransom. Next, the question that arises is of insufficient bank accounts. In the direct scheme, that can be done by phasing. That is, on the basis of or a unique identification (UID) number, beneficiaries can open bank accounts. Those who don’t have an UID number can remain in the old scheme, and collect their benefits from the block development officer. No one is thrown out of the programme, or existing benefits because he or she doesn’t have a bank account. This is a misconception about the scheme.

When you get to the second stage, you start transferring cash rather than subsidy. Today, ration shops give subsidised foodgrains and collect the subsidy themselves. Now, the subsidy is to be given to the beneficiary. It can become complicated if the implementation is done in a phased manner. That would give ration shops the discretion to give subsidised food grains to some, and collect full rates from others. So, everyone has to be covered when it is rolled out.

Everyone would need to have a bank account. And, for all to have accounts, they would first be required to have an number. That is the order in which it is done. Most people don’t have documents to fulfil identity requirements for opening bank accounts. The Reserve Bank of India has notified as adequate Know Your Customer for opening a bank account. Hence, once UID covers everyone, it would also help migrants and others, who are likely to be excluded. In fact, UID was conceived with the idea of covering even street-dwellers. But they have been left out, since there is no database on them generated by the recent census. Maybe a special drive to enrol them could be done to bring them under UID as well.

It is a fact that enrolment for has been an issue, since there are no permanent kiosks. Besides, there are issues between UID and the National Population Register. The other issue is of whether the scheme would lead to payment delays as witnessed in Kotkasim where a pilot project was done. We don’t know where the delay was occurring. The direct would address delays only at the local level. If there are delays at the Treasury level, nothing can be done and the scheme cannot be held responsible for it.

UID has been also facing problems like exclusion of those people whose biometrics or retina cannot be captured . For this, a correction has to be made. If I go to a UID centre and I cannot get my biometrics recorded, then the authorities should still issue a card that says the applicant’s biometric could not be recorded. Until the UID process can be completed, the old scheme would work for such people. The system won’t be shut down until everyone is included.

Another question raised against the UID-based scheme, especially in the case of food, is whether it would lead to food insecurity and whether people would spend money meant for food on other things. The whole on food is wrong. The should not be whether you should have public distribution system or cash. The real should focus on what should be the optimum that could be given as food and what could be given as cash. Pure cash transfers cannot secure food needs. We need to on what should be the new design that could provide the best combination of food and cash.

(As told to Sreelatha Menon)

image
Business Standard
177 22