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India's cash dole a 'game changer'

Publication Date : 31-10-2012


India's Congress-led government is trying to resurrect its reputation by cutting down corruption and wastage in its welfare schemes, important in a country where 410 million people live on less than US$1.25 a day.

But the launch of a new policy to transfer cash to the bank accounts of millions of poor Indians instead of giving them subsidised cooking fuel, fertiliser and food has received mixed reactions, with critics saying cash dole is not the way to go in India, while supporters call it a "game changer".

The policy also covers direct cash transfers of pensions, health insurance and student scholarships, and is meant to reduce corruption.

"It is wrong to see it as some sort of solution that will fit all or will rid the system of corruption and lead to smooth flow of funds...It is simplistic," said social activist Nikhil Dey, expressing doubts about cash transfers of subsidies.

Prime Minister Manmohan Singh is powering ahead with the new policy, setting up a national committee of 13 ministers last Thursday, which he will head, to implement it. This includes putting in place the IT infrastructure and setting up banking facilities, such as ultra-small bank branches, in remote areas.

Though the government does not have a timeline yet on when it will begin direct cash transfers, it has started pilot projects making electronic transfers of money in eight states.

India has a web of welfare and subsidy programmes where cheaper food grains, fuel and fertilisers are distributed through a vast network known as the Public Distribution System (PDS), a US$15 billion food subsidy programme.

Under the current system, poor beneficiaries have to visit government offices to obtain many benefits, such as health subsidies and scholarships, and are often deprived of their quota of subsidised grain, sugar and kerosene sold in government-approved shops known as ration shops.

The PDS is seen to have many loopholes, with government reports revealing that corrupt shopkeepers and officials divert almost half of the grains, such as rice, and cooking fuel.

The late prime minister Rajiv Gandhi had famously said it was lucky if even 15 per cent of every rupee in social schemes reached the poor.

Now the government hopes direct cash transfers will make its clutch of welfare schemes worth billions of dollars work much better as money is sent directly to those who need it and fake beneficiaries are weeded out.

But some say it may not be as simple as it seems, particularly where cash transfers replace the provision of cheaper goods as a form of subsidy.

"The point is that money in Indian households is controlled by men... they will definitely use it for more personal enjoyment like buying alcohol, and the money won't really go into the family kitty," said Dr Ranjana Kumari, director of Delhi-based Centre for Social Research, a women's rights non-profit organisation.

Others feel that direct cash transfers would further weaken the PDS, which is at the heart of India's food security programmes.

"The bigger worry is that when you start providing cash... you are eventually aiming at dismantling the public distribution system," said author and journalist Devender Sharma.

Some see a challenge in setting up banking facilities and technological infrastructure in rural areas that do not have electricity or other infrastructure.

But cash transfers do work well in urban areas, said Renana Jhabvala of the Self-Employed Women's Association, adding, however, that families should be given a choice.

"Why not allow the beneficiary a choice between cash and food? A policy of choice allows a family to choose what it deems best for its circumstances and needs," she wrote in an Indian newspaper.

At the heart of the move towards cash transfers is Aadhaar, the biometric card system started two years ago.

The card, which has a person's iris and fingerprint details, is aimed at giving identity to millions of poor Indians who do not have birth or school certificates essential to accessing the country's many poverty schemes and opening bank accounts.

Some 240 million cards have been given out, with half of India's 1.2 billion population expected to be covered by next year.

The government is convinced that direct cash transfers, with the biometric card used for verification, will cut down corruption.

"If the subsidy is given as a cash transfer to the eligible beneficiary, then there is no incentive to divert the products," said Nandan Nilekani, chairman of the new Unique Identification Authority of India, on the reason behind rolling out the cash transfer scheme.

Direct cash transfers are also seen as a project that, if successful, could be the calling card for the Congress party in the 2014 general elections. But with implementation expected to be a long-term initiative, many believe it may not be able to cash in on it.

"2014 is not far away... by the time actual implementation of Aadhaar and proof of the pudding are realised, it might be too late for the government," said Dr N. Bhaskara Rao, chairman of the Centre for Media Studies.


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