Cash transfers and other dreams

Cash transfers are the flavour of the month. Barely had the “scheme” been announced that liberal economists, fiscal conservatives and commentators alike shouted mazel tov. In reality, there are good reasons to doubt the potential efficacy and welfare effects of direct cash transfers. At the ground level, there is no sign of the preparations needed to make them work. Other than the fact that 29 government programmes will be linked to cash transfers and will kick off, initially, in 51 districts, little is known about the details of the roll-out plan. The break-up of these programmes by the ministries they are covered by reveals that they are largely scholarships and pensions. At the same time, the government has clarified that the issue of food and fertilizer subsidies is a complex task and will not be covered under this plan at the moment in the initial districts; the plan for issuing kerosene and cooking gas subsidy has also been postponed for the time being.

Most of these programmes are variants of cash transfers and most of them, in any case, are delivered through bank accounts either as direct transfer or in the form of cheques. That is, there is hardly any case of this being some kind of financial inclusion. Incidentally, there has not been any concrete evidence, so far, of ghost identities in any of these programmes nor has there been any evidence of leakages. Equally, there is no programme in the ministry of rural development—which administers most of the social pensions—that is leakage prone. Further, the total number of citizens who gain from these programmes is a small fraction of the population. That is not all; even the amount spent on all of them taken together is less than the annual food subsidy. Seen from this perspective, there is no scope of any reduction in the government’s financial commitment on these programmes. Plugging of leakages or elimination of ghost identities are mere ruses to distort delivery of these vital social programmes. If anything, there is every likelihood that expenditure on scholarships will increase as enrolment of students at the school level as well as higher education level continues to rise. If that is the case, then, at least, for the time being, there is very little to rejoice in terms of correction of fiscal pressures which were one of the driving forces behind this adventure.

The government, however, is optimistic that this will lead to reduction in expenditure on this count and there is some reason to believe that, albeit in a perverse fashion. The only new thing in the new announcement is the fact that the transfers will now be contingent upon citizens possessing Aadhaar numbers in case they are to avail these benefits. This will exclude many citizens who are eligible for these benefits and have access to these services currently through banks. But after the new plan kicks in, they will have to get an Aadhaar number before these benefits are restored to them. In fact, the real beneficiary of the new announcement is neither the finance ministry nor the nodal ministries or citizens but the Unique Identification Authority of India (UIDAI), which has struggled to meet its target of covering large sections of the population. Compared with the average monthly enrolment of 7.4 million people in the last seven months, it needs to add 25 million a month to meet its target of 600 million by 2014. In the absence of parliamentary approval, forcing eligible citizens to take Aadhaar cards to avail the existing benefits, will, perhaps, be the most pernicious legacy of this plan, which is nothing more than an effort to rescue UIDAI.

By making these transfers—which were in any case leakage free—contingent on the possession of Aadhaar numbers, the system will lead to exclusion as well as making these programmes “indirect” welfare schemes instead of the direct ones that they are today. The seriousness of the government to plug leakages is also evident from the fact that states with the highest levels of leakages—Uttar Pradesh, Bihar, West Bengal, Orissa and Chhatisgarh—are not even part of the experiment in the first phase. These are also the states with the highest concentration of poor and marginalized people for whom the benefits have been designed.

It is, then, obvious that these are neither reforms that will improve service delivery nor will they help the government bridge its fiscal deficit. But what is worrisome is the fact that the government has missed the opportunity of undertaking serious reforms in the area of service delivery. For example, the real issue of identification of beneficiaries has not received the same attention in any of these plans. Given that Aadhaar numbers serve only as proof of identity and not a proof of eligibility, the tying of Aadhaar to the already leaky and faulty Below Poverty Line 2002 census is reinforcing the layers of exclusion and targeting problems which have plagued the system.

On the other hand, a much more serious thought needs to be given on how the socio-economic caste census is going on. For the record, this crucial element of reform has already covered more than 85% of rural areas as against less than 20% coverage of Aadhaar. Even more worrying is the government’s reluctance to enact the National Food Security Act (NFSA) which was seen as the real game changer until now. In fact, the hype around the cash transfer seems to be a precursor to the government’s intention of shelving the NFSA altogether. One can only hope that this attempt to fool the public is not as bad as the ‘India Shining’ campaign of the National Democratic Alliance government.

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