The Election Commission, questioning the timing of the direct cash transfer scheme, has asked the government to defer its implementation in Gujarat and Himachal Pradesh till the end of the assembly elections. However, the scheme will be beneficial in both rural and urban areas if implemented with proper care, standing operating procedures are followed, and the public distribution system (PDS) is streamlined.
The government has described the direct cash transfer scheme as a game-changer. From January 1, the Centre will begin the implementation of cash transfers for its welfare programmes in 51 districts - in other words, transfer of the subsidy amount directly into the bank account of the beneficiaries. This will be extended to transfers for the liquid petroleum gas and fertiliser subsidies, the rural employment guarantee scheme and Indira Awaas Yojana, among others. In developed countries, heavy direct subsidies on agricultural goods — 40 to 52 per cent — are paid to the farmers in cash, and are very successful.
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 the use of Aadhaar or the Unique ID.
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.
Importantly, it might well help India's migrant population access 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 their final beneficiaries.
The benefits will be perceptible in areas where fake identities are the norm, such as in the rural employment guarantee scheme and for pension and scholarship payouts. In the case of the LPG subsidy, where the beneficiaries include taxpayers, correct identification could enhance tax compliance. The same model could be extended to the diesel subsidy, depriving private vehicles of the benefit. The diversion of fertiliser to other uses can be checked.
However, cash transfers in urban centres for foodgrain, LPG and so on might work out better immediately than by picking some remote rural district only to claim that the scheme has failed.
First, while cash transfers can be universal in coverage, the international experience shows that cash transfers are the first step in a 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 proportion of the total population. In 2009, the proportion of malnourished children, defined on the basis of weight for age, was less than 2 per cent in Mexico and 6 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, any closing down of the Public Distribution System, which is an integral part of the food production-procurement-storage-distribution system, would adversely affect production, procurement and 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 the direct cash transfer of government funds under various welfare schemes to the bank accounts of their intended beneficiaries does not meet this fate. 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. This in spite of the fact that the entire success of direct cash transfers 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.
Instead, to ensure transfers’ success on the ground, trying them out first in urban centres — where the possibility of even the poor having bank accounts is higher, and the availability of LPG, foodgrain, hospitals and other services sought to be subsidised is also better — would make more sense.
The writer is a Chandigarh-based economist vasu022@gmail.com
