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Leaks & delays: Making sense of the cash transfer system

Monday, 3 December 2012 - 9:00am IST | Agency: dna

Anecdotes abound of tardiness, no-shows, or BCs who have taken off with the money. An official at Aadhar estimates they will need 10 lakh BCs across India to make cash transfers work. Where will they find recruits to make up this army of para-bankers?

Disclaimer: Unlike previous columns, this is less a definitive ‘take’, more a rough and ready exploration of the pros and cons of cash transfers based on some armchair study and some conversations with those inside and outside the government.

The government says they plan to use the new Aadhar-linked platform to remit about Rs 150,000 crore of existing cash payments: Wages for schemes like the NREGA, and payouts like scholarships and pensions for weaker sections. Major subsidies in ‘kind’ like food and fertiliser will come later. NREGA is the single largest component of the first phase, roughly Rs 40,000 crore. So let’s take an imaginary case study of an NREGA worker, Ashok, to whom the government needs to remit Rs 400. Right now, the money has to go through two stages. Stage 1: Leaks and delays as it moves from the Centre to the state to the district to the block to Ashok’s account. Stage 2: More leaks and delays as it moves from the bank into Ashok’s hands. Why? Since banking cover is abysmal in India, Ashok will either lose a day in going to a branch, or have to risk giving his passbook to a middleman who will charge a commission, or may not pay him for weeks.

The government claims the Aadhar-based platform will solve Stage 1 and 2. How ?

As per one of Aadhar’s wonks, each ministry (in the case of NREGA, the rural development ministry) will have an electronics payments file which identifies all beneficiaries by their Aadhar number and bank account. Using a high-tech back-end involving the National Payment Corporation of India, the money can be remitted directly into Ashok’s bank account (I am vastly simplifying here). For solving stage 2, a business correspondent (a sort of outsourced agent of the bank) will travel to Ashok’s village every month with cash and a cellphone-linked biometrics (thumb print/iris) reader. The latter will be used to validate if Ashok is indeed, Ashok, and that the Rs 400 has been credited to his account. Once verifications come through SMS, the BC pays Ashok Rs 400 in cash. Simultaneously, the back-end will debit Ashok’s account by Rs 400 and credit the BC’s account by the same amount.

Voila, says the government!  

Hold on, say activists. For starters, they point out that the delays in NREGA payments begin even before stage 1. In the case of NREGA, for the cash to be sanctioned, the work is measured by the contractor, then validated by a junior engineer. The data from muster rolls is entered into a computer, sanctioned by the Block Development Officer (BDO) and cleared by the accountant, only after which it is remitted into Ashok’s account. A shortage of staff means sanctioning payments takes forever, which is why NREGA workers wait for months to get their wages. (Reports from Kotkasim, Rajasthan, suggest that a pilot scheme to replace kerosene subsidies with cash has run into trouble due to delayed payments). Activists also are skeptical about the efficacy of the BC, the most vital link in the system.

Anecdotes abound of tardiness, no-shows, or BCs who have taken off with the money. An official at Aadhar estimates they will need 10 lakh BCs across India to make cash transfers work. Where will they find recruits to make up this army of para-bankers?

And this is not even factoring in our poor track record of identifying beneficiaries, and new challenges of ensuring they are covered by the Aadhar and banking footprint.

The only point of agreement between the government and activists is that the current system is broken. So what works? Success stories from the states suggest a fascinating – and often controversial — mosaic of strategies. Tamil Nadu, for instance, gets around delays by paying cash directly at the NREGA work site on the 7th day of work. This is a violation of the NREGA, which mandates all wages to be paid into bank accounts. But because it is largely working, complaints fizzle out. Chhattisgarh has drawn acclaim for running a successful PDS using a mix of methods (weekly melas to distribute subsidised rice, vigilant policing of fair-price shops, tracking devices in trucks) that have no need for mega technology platforms.

The government accepts these individual successes, but says that they can’t be replicated everywhere, and that mega-schemes (like NREGA and PDS) need mega-solutions that can be scaled up. There might be some merit in this argument, but equally, as individual states demonstrate, a combination of political will and localised innovative methods can mend holes in the leaking bucket of government benefits.

Send your thoughts. And watch this space for more.

Sreenivasan Jain is Managing Editor, NDTV. He anchors the ground reportage show, Truth vs Hype, on NDTV 24x7

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