Dec 03, 2012 08:33 AM IST | Source: CNBC-TV18

Can cash transfer boost already existing govt schemes?

Indianomics, CNBC-TV18‘s special show highlights the pros and cons of the direct cash transfer scheme with Pratap Keshari Deo, Food and Civil Supplies Minister in Odisha government, Kirit Parikh, economist and former Planning Commission member and Prof. Himanshu, economist from JNU.

The Prime Minister and trusted aids on November 26, announced the launch of Direct Cash Transfer Scheme, which proposes to transfer subsidy amount given away by various departments of the government for the poor and the deserving, directly to the bank accounts of beneficiaries.


Indianomics, CNBC-TV18's special show highlights the pros and cons of the scheme with Pratap Keshari Deo, Food and Civil Supplies Minister in Odisha government, Kirit Parikh, economist and former Planning Commission member and Prof. Himanshu, economist from JNU.


The scheme will be implemented from January 1, 2013 covering 51 districts across 16 states. The Congress termed the scheme as revolutionary and game-changer, while opposition and the Left have their own share of criticism.


Below is an edited transcript of the discussion on CNBC-TV18.


 Q: None of the important subsidies are getting transferred as cash immediately as is being wrongly understood by media and others. Only 29 schemes are being transferred via cash from January 1 such as scholarships, pensions, funds for children, pregnant mothers. Do you think Odisha is ready for these transfers through bank accounts, smoothly?

Deo: Yes, we have a successful experience of money coming to the account in school and mass education department, women and child welfare department and health department. In case of food and fertilizer it would be difficult.


In 2009, Congress promised the food security bill, rice at Rs 3, wheat at Rs 2,  that is no where to be seen today and we are on the threshold of the next general election. They are mixing the things at the center and are confusing the entire lot in the country.


Q: Are there any glitches in the 14 schemes where money is currently being transferred through the Aadhar scheme?

Deo: No, at present the current scheme which is being transferred from the government corpus to direct beneficiary is through the institutions. Like ‘Janani Suraksha’ in the health department. When a lady comes to the hospital and gets checked, she is issued a card. The name is immediately registered and the money is transferred from the hospital to the bank account there and then. So, there is absolute transparency in that case.


In case of school, girl child in class 9th and 10th is given a scholarship it is done through the school headmaster, DI and CI of the school or of the district. So, there is transparency there as it is being done through institutions. If you take them individually, malpractices come in.

Q: Are you confident that there is no seepage or leakage of funds in these schemes?

Deo: As far as I know, there have been no complaints so far.

Q: Prof Himanshu, you’ve closely studied about a lot of social welfare schemes. Are you satisfied that the cash transfers through Aadhaar account is enough to believe that the process can be scaled up?

Himanshu: I don’t think the scheme is new. There is no introduction of direct cash transfer, it already exists. The programmes for which the cash transfers have been announced are already in the form of cash. So, even your analogy in terms of the stock market where there were physical papers converted into electronic transfers doesn’t hold, because they are getting cashed, anyway.


In most of the state governments even in the poorest, for example in Bihar some of the pensions and scholarships are already going through the bank accounts of the beneficiaries. So, I don’t know what is new in these reforms.


The problem with the public service delivery system that lead to the identification issue is, eligibility, nobody is discussing that issue. This is because wrong beneficiaries have been given the eligibility cards and those who require these benefits are not eligible to get it simply because they don’t have the card. This issue is far more crucial, but the second issue, which is a particular programme for the introduction of Aadhaar, will damage the benefits of the poor if they don’t have the Aadhaar cards.

One more layer of identification proof will make it more indirect rather than a direct cash transfers. So, people who do not have the Aadhaar card will have to go one. Until then they will not get the benefits as is the case of 51 districts.


Even in the 51 districts, Unique Identification Authority of India (UIDAI) could not claim a 100 percent enrolment for Unique Identification (UID). It is less than 80 percent and the remaining 20 percent are likely to be the people from the vulnerable groups, who are suppose to be the beneficiaries.

Q: Dr. Parikh, as Prof. Himanshu and Mr. Deo have pointed that the cash transfers are already happening, there could be problems for people who don’t yet have an Aadhaar card or a bank account. How much time will it take to transfer the non-food and fertiliser programmes through the cash or the bank account system?

Parikh: Currently, the government is planning to transfer scholarships, pensions. This is likely to help people who are more educated and are likely to have an Aadhaar card. Direct cash transfer is not much different than what is currently happening. It is now being done through Aadhaar card. It is a pilot test for the eventual goal of delivering fertiliser and food subsidies or even fuel subsidies through Aadhaar card.


I have been a supporter of distributing these subsidies through a smart card system long ago. As far as a question of not everybody having an Aadhaar card comes, we should think whether this new system is perfect or not. Dr. Himanshu’s study shows that 50 percent of the people below poverty line do not have the targeted Pubic Distribution System (PDS) cards.


If we have 80 percent with Aadhaar card, we have made an improvement over the previous schemes. So, any new system should not be considered super, excellent without any flaw whatsoever.


We should see how better it is than the existing schemes. From that point, there is not much new in it because the real scope for this would be to bring in food, fertiliser and fuel subsidy through Aadhaar card. So you can target it effectively and deliver it. Identifying poor is a huge issue and perhaps we should give up the whole idea of identifying the poor.



Q: Prof Himanshu, would you agree that the distribution through Aadhaar, is better than the prevailing system or the erstwhile system?

Himanshu: Only better, if you follow Prof Kirit Parikh’s formula, it is suppose to be near-universal. If it is near universal then you still have 80 percent of the people who are basically getting entitlement. If it is going through a targeted system then it is going to be a double exclusion for the poor because they don’t have the BPL cards. They will not have even the Aadhaar and therefore they are going to be excluded much more than what they are being excluded right now.


So, the first point about having a near-universal characteristic is the key point and I haven’t seen any comment on that issue being made by any of the ministers. Even the government is not thinking in this direction which is more important than having Aadhaar or not.

Q: Mr. Deo, Kirit Parikh said that it is better to identify the rich and ensure that they don’t get any of these benefits basically fuel, food and fertilizer subsidies and ensure universal entitlement to the remaining 80 percent of the population. How many in Odisha qualify for the public distribution system (PDS) cards and do you think Dr. Parikh’s prescription is a good idea?

Deo: No, I don’t agree with that view. How do you identify the rich from the poor, how does this commence?

Q: Every state government will have to make that decision. Maybe, people with landline telephones, land and house, electricity meters, a motor car. There would be some exclusion line and people with those facilities will not be given. Each state will have to derive its own target of what it means by poor. Will it not be implemented if you are unable to draw such a line between poor and not-so poor?

Deo: No, I don’t think it will be implemented because already a decade has gone while debating on this and there have been various methods of identifying various other things. Until last decade we haven’t found a single authenticate method. We have been trying but haven’t reached to any conclusion so far.

Q: Prof. Himanshu what is your response to Dr. Parikh’s suggestion that the targeting system be made universal with an exclusion line rather than a Below Poverty Line (BPL) line, do you think it will work?

Himanshu: I think that is the only way to go. In fact the Minister from Odisha spoke about the National Population Register (NPR), SECC which is Socio Economic Caste Census which is currently going on. Compared to Aadhar numbers which is available to 20 percent of the population, the SECC coverage in the rural area has gone up to 85 percent. More thinking needs to go into designing, specially the connectivity and the way money is to be delivered to the poor, particularly in the tribal areas or where the financial services have not reached.


The way the ministry is proposing is to go through these banking correspondent models (BC). Odisha government has tried the banking correspondent model, BC model using the clustered approach. In Odisha there was a company which basically bid for it, the Seashore, some company that was going through a negative commission. So, all sorts of people are getting into this whole business of transferring money to the people from the government money and that itself has led to a complete distortion in the form of how people are going to get the money.


Nobody knows who the BC is accountable to; nobody knows whether the money is going to be withheld by the BC. In terms of being direct we are going in the more indirect way of delivering money to the people. These issues are far more important than the issue of just implementing in 51 districts.

Q: If we go through the exclusion method, the gentlemen are agreeable that at least it will be less distorting and the target will be a little better but what is the impact on the fisc? If we are going to expand it to 80 percent of the population and give them automatic entitlement, it is slightly savvier. Those who have bank accounts and those who are not literate will get the money.


People in far flung areas are less likely to get it. So, if we actually have a universal entitlement excluding the rich it’s quite possible that those who actually need the money will not get it especially in the food and fuel areas. Is that not a likelihood and secondly the impact on the fisc, do we really have that much money?

Parikh: It depends upon your consideration. If the amount of inefficiencies that is involved in PDS and the amount of money that actually reached the poor; if you account for all these things surely you can give 70-80 percent of the population the same amount of subsidy support that current PDS provides and still save some money from the fiscal point of view. So, I don’t think that this is a difficult issue.


Another way is to have a smart card or an Aadhaar based entitlement scheme. You can get food coupons linked to your Aadhaar card, go out to shop from your Aadhaar card and can also access the subsidized food. That will allow a lot of self exclusion. Many relatively better people would not be bothered to go out or put the thumbprint to entitle themselves of the food that they need to buy.


One could think of many such ways but we need to bring in little more transparency, little more accountability and use the information technology that we have in the fullest way possible. The big advantage of Aadhaar card is that it is impossible to get duplicate Aadhaar card or is difficult to get ghost Aadhaar cards. That is a big advantage from it and a lot of leakages that are currently taking place can be avoided.

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