Try out cash scheme in urban areas

The government described direct cash transfer scheme as a game-changer if implemented with necessary system and support to make it a success. From January 1, the Centre will begin the implementation of cash transfers for its welfare programmes in 51 districts. This would be extended to other schemes. This scheme is based on 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 be used to raise other welfare schemes.

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 also be checked.

Describing the direct cash transfer scheme as a game changer, noted banker and Chairman Infosys said the programme would help reduce budgetary deficit. He said the seepage in the subsidy distribution is as high as 40 per cent, which will potentially get eliminated through the scheme. Leakages will occur, no matter how competent the delivery system, if short supply of services is not tackled.  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.

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.

It is in this context that reports of beneficiaries not receiving money in their 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.

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, 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. Given that the 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 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, 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.

The writer is a defence analyst and commentator. He can be reached at vasu022@gmail.com