The expectation is that Aadhaar-linked bank accounts will address problems like delays by enabling instantaneous transfers directly to beneficiaries. But delays are often due to weak administration—bank account details not having been recorded correctly or financial documents such as utilization certificates not collated on time. Photo: Hemant Mishra/Mint (Hemant Mishra/Mint)
The expectation is that Aadhaar-linked bank accounts will address problems like delays by enabling instantaneous transfers directly to beneficiaries. But delays are often due to weak administration—bank account details not having been recorded correctly or financial documents such as utilization certificates not collated on time. Photo: Hemant Mishra/Mint
(Hemant Mishra/Mint)

Lessons on cash transfers

For cash transfers to be successful, they must be supported by a sophisticated and capable state machinery

Missing from the din surrounding the government of India’s recent move to implement direct benefit transfers (DBT) from January 2013 is a systematic review of India’s experience with implementing large-scale cash transfer schemes. This may come as a surprise to many readers, but much before the January 2013 roll-out, the government had been implementing two large cash transfer schemes—social pensions: a targeted unconditional cash transfer to the elderly, widows and disabled; and the Janani Suraksha Yojana (JSY), a conditional cash transfer to incentivize pregnant women to deliver in medical facilities. How effectively have these programmes been implemented and what lessons do they hold for using cash transfers as an instrument to deliver public goods?

Overall, these schemes work reasonably well. Based on survey data collected in 2005-06 in Karnataka and Rajasthan, a World Bank study finds that once pensioners are enrolled, they tend to receive their payments—96% enrolled pensioners got their pensions in Karnataka and 93% in Rajasthan. Moreover, the

However, these schemes have two key problems. First, delays are rampant. A recent study by the Supreme Court commissioner’s office on the Right to Food reports a lag of up to three months in the receipt of old-age pensions, while the guidelines mandate monthly payments of pensions. In JSY, the expectation is that payments should be made ideally on the day of admission and definitely on the day of discharge. According to the NHSRC study, only 5.5% women received their payment on the same day and only 68% beneficiaries received it before they were discharged.

But the real challenge, and this brings us to the second problem, is not about getting money to beneficiaries. It is about getting eligible citizens to access the system and become beneficiaries in the first place. Part of the problem is that of targeting. Most pension schemes are restricted to below poverty line (BPL) populations. But, and this is an argument that has been made repeatedly in debates on the current DBT, methods of identifying BPL populations are riddled with inclusion and exclusion errors. Evidence from JSY suggests that universalization can lead to efficiency gains. In 2006, poorer states in India moved away from a targeted approach that only allowed women from BPL households to access JSY benefits, to a universal approach where all women, irrespective of income and age, were entitled to JSY benefits provided they deliver in government facilities. A recent evaluation of JSY by economist Ambrish Dongre found that universalization led to a massive increase in the number of institutional deliveries. Of course, universalization may not always be the appropriate policy choice given fiscal considerations. But what the JSY experience highlights is that resolving the identification criteria problem is an essential pre-requisite to effective implementation.

But even if the identification criteria issue was resolved, low implementation capability, bureaucratic incentive systems and the ways in which citizens access the state can make it nearly impossible for the poorest to access benefits. Researcher Shrayana Bhattacharya’s recent work on mechanisms of access to old-age pensions in slums in Delhi highlights this problem. Applicants for pensions in Delhi are required to prove their eligibility by submitting documents verified by a local MLA or a gazetted officer, thus making it difficult for those without political access to enrol in the programme. According to Bhattacharya, the role of the MLA evolved out of an informal rationing strategy developed by citizens and the bureaucracy alike. As is well known, the poor in India often don’t have access to paperwork needed to prove eligibility. They thus tend to find alternative means to verify their claims like, in the case of Delhi, getting MLAs to forward their applications. The lower bureaucracy charged with processing these applications simply lacks the staff and infrastructure to deal with the mass of applications received. Consequently, officials developed strategies for rationing and, not surprisingly, given the incentive structure, applications recommended by local MLAs were prioritized. As a result, only those applicants with political access gain entry into the system and, unsurprisingly, the poorest and most vulnerable lose out.

Barriers to access and delays in payments are not unique to the pensions programme. They are part of the average citizens’ daily encounters with the state. Whether it is getting ration cards, MGNREGA job cards or even for the middle classes trying to get passports and driving licences. Breaking these barriers require, at minimum, investments in financial and human resources, improved record management systems and training for frontline staff. In the current design for DBTs, the expectation is that Aadhaar-linked bank accounts will address problems like delays by enabling instantaneous transfers directly to beneficiaries. But delays are often due to weak administration—bank account details not having been recorded correctly or financial documents such as utilization certificates not collated on time. These will need to be resolved for the instantaneous transfer system to work seamlessly.

For cash transfers to be successful, they must be supported by a sophisticated and capable state machinery. The main lesson to be learnt from current experience is that contrary to popular perception, cash transfers don’t solve poor implementation capability, they only amplify the need to build this capability.

Yamini Aiyar is director, Accountability Initiative, Centre for Policy Research (CPR). Avani Kapur is senior research and programme analyst, Accountability Initiative, CPR.

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