direct cash transfer
An article in newspaper:
QUOTE:
The direct cash transfers scheme (DCTS), the one truly revolutionary subsidies reform scheme in UPA-2, is heading for the reefs even before it has been rolled out. It looks likely to be sacrificed on
the altar of electoral greed.
The scheme, which will use the Aadhaar Unique ID card to hand over cash to beneficiaries, is being rushed through by the Prime Minister when the implementation machinery for handling millions of
subsidy transfers every month is rudimentary and untested at best.
This is happening because of a unique confluence of reformist hopes and aam aadmi political calculations, with Manmohan Singh and Sonia Gandhi symbolising the two ends of the spectrum. Cheered on
by right-wing economists, who see the scheme as a way to reduce leakages in subsidies, leading to their ultimate reduction, and Congress party opportunists, who see electoral gains by putting money
directly in the hands of the electorate, the cash transfer scheme is in danger of being hijacked for short-term ends. It could even end up damaging the long-term goals of this reform measure.
In the process, the economy may end up being horribly damaged as cash transfers accelerate the shift of resources from exchequer to voter at a time when growth is slowing down and the government
is cutting more productive investment expenditure to make ends meet. The premature launch of cash transfers may even mark the end of all other reforms that were supposedly in the pipeline.
The PM backs the scheme because it is supposed to cut down on subsidies by eliminating those not entitled to them, using the Aadhaar identification process. Sonia Gandhi has no such intention – at
least before 2014. Her political objective is not to eliminate any constituency by identifying leakages. She has bought into the PM’s dream only to the extent that existing subsidies can be paid out like
legal bribes to the voter. As Firstpost noted some time ago, “in all areas where the UID is almost done, cash transfers will mean every family will get money in the range of Rs 3,000-14,000 per annum,
depending on whether they are identified as below-poverty-line (BPL) cases or people who are better off.”
This is why the scheme is being rushed through with a dangerously inappropriate deadline of 1 January for 51 districts. It will be cascaded to 18 states by 1 April 2013, and the whole country by the end
of 2013 or early 2014.
This is an impossible deadline. Even though the PM has announced that direct cash transfers will happen in 51 districts from 1 January – which is less than 35 days away – The Times of India reports
that only 20 of these 51 districts are Aadhaar-compliant. The Unique ID Authority of India (UIDAI) has promised to finish all 51 districts by 1 January, but holding an Aadhaar card is not the same as
making the scheme successful.
Here’s why.
One, the card merely identifies the recipient as the right beneficiary. Making payments based on direct cash transfers means having banking infrastructure in almost every village in every district.
Every beneficiary has to have a bank account. Bankers are not saying they are ready as yet.
Two, it’s not just about sending the cash to the right account. In a social system where might is right, handing over so much cash to the poor runs its own risks. While the idea is to credit the accounts of
the women in households, this assumes that the menfolk have no say over how the money is spent. If people have to trundle several miles to a bank/ATM branch to collect their cash, the possibility of
their being mugged on the way has to be seen as a possibility. More so in rural areas where caste thugs abound, and the law and order machinery is weak.
Three, it is also naïve to believe that crooks will not figure out how to make money from cash- based transfers. In the NREGA make-work scheme, a large chunk of the beneficiaries have figured out a
way to collect wages without work, so the assumption that cash transfers will reach the right people has to be tested against ground realities during actual implementation. The UPA rush will ensure that
this does not happen.
Four, the new cash-in-your-account plan will partially supplant the current system of food procurement and distribution through ration shops. If all food subsidies are shifted to cash, what will happen to
the elaborate system of giving farmers minimum support prices, procuring grain from them through the Food Corporation, and supplying fair-price shops? Will it just be dismantled?
Five, a shift to cash could mean major shifts in consumption patterns even for the poor. When I get wheat in physical form, I use it to cook my meals or sell it in the open market to buy what I want. But
when I get cash instead of wheat, my family might suddenly switch to more tastier, protein-rich foods like milk, eggs, or even meat. Not to speak of vegetables, fruits and processed foods. These were
the major causes of high food inflation in the last few years, but is the government prepared for this shift?
Six, cash makes sense if the only idea is to efficiently transfer purchasing power from government coffers to intended beneficiaries, as Shrayana Bhhattacharya and Lant Pritchett write in The Indian
Express. But what if your idea is to provide adequate nutrition to pregnant women, and give them money instead? Will mothers buy the right foods to ensure they receive the right nutrition or will they
just spend it on food that is cheaper? Would nutritional supplements work better here, or a mix of food and cash?
Seven, unlike in the past, when Sonia Gandhi‘s National Advisory Council (NAC) was rooting for all kinds of voter giveaways, this time around people like Jean Dreze and Harsh Mander are not
rooting for cash transfers. They seem to have figured out that Sonia is not thinking as much about the poor as about their votes.
Eight, cash is good, for it makes customers out of poor supplicants, but the fact remains that in a diverse country like India, one size may not fit all. Some states have fairly efficient public distribution
systems while others may be handicapped. Should the UPA be asking all states to opt for cash transfers when some states may be more comfortable with the existing system?
Forget all states, one size may not fit even fit all districts within the same state. When one end of Uttar Pradesh – the western end – is richer than the other end – the eastern one – the two may need
different treatment. One state may have a large tribal population, while another may be fully urbanised. Cash may work better with the latter.
The PM knows the problems, but has decided to make a dash for cash because he knows that Sonia Gandhi’s political support will come only during election time.
This is not to say that cash transfers are a bad idea. This writer certainly is all for cash transfers provided it is done carefully, researched, and redesigned before a broader rollout. Also, the effort must
be to specifically eliminate the rich and the middle classes substantially right in the beginning.
The mistake is in trying to rush with a scheme that has been inadequately tested before such a huge rollout.
As we noted, Manmohan Singh knows the pitfalls. This is why he spelt out the challenges ahead. “The twin pillars for the success of the system of DCTs (direct cash transfers) that we have envisioned
are the Aadhaar platform and financial inclusion. If either of these pillars is weak, it would endanger the success of the initiative. I would expect the finance ministry and the Unique Identification
Authority to work in close coordination to achieve a collective goal,” the PM said while clearing the new rollout plan.
But this is only about implementing it to get the money to the voter. The principal flaw in his view is that he does not emphasise ‘exclusion’ of the undeserving as much as ‘inclusion’. If the scheme fails
to eliminate non-merit beneficiaries, the government could end up giving a lot more subsidies to the undeserving.
The problem is simple: the system of subsidies has been tough to eliminate even when half the money does not reach the beneficiaries. How is it supposed to cut expenditures if the money reaches all
the intended beneficiaries, and without eliminating those who can afford to pay full prices? Which government has the political strength necessary to stand up to potential voters and tell them they are
not entitled to subsidies?
As an editorial in Business Standard points out, “if it is politically problematic to control subsidies today, it may become even harder when cash transfers become a reality.” It adds: “The question that
must be asked is: when transfers become easier for governments to pull off, through Aadhaar-linked bank accounts, what will happen to India’s public finances?”
It is worth recalling that the UPA has not been able to reform spending in more than eight-and-a-half years at the helm. It is stupid to expect that it will correct the system when elections are just a
hop-skip-and-jump away.
The reforms are over. Efforts to fix the fiscal deficit are coming to an end. The cash transfer scheme, given the proposed speed of the rollout, will end up becoming a political vote-buying exercise
rather than a real attempt at reform. DCTS is essentially being used as a Rahul Gandhi election funds.
Mahatma Gandhi said that the end cannot justify the means. Cash transfer is a good means that could end up being used for corrupt electoral ends. It may well worsen the problem of subsidies and set
the Indian economy back by another five years.
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