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Cash transfers have been described as the world's favourite new anti-poverty device. As India gets set to implement it, TOI-Crest finds out if the politics will ever be divorced from the cash
The UPA government's ambitious plan to introduce direct cash transfers (DCT) by January 1, 2013 reflects both the political desperation of a beleaguered government and the urgent need to reform India's inefficient and corrupt public welfare schemes and institutions. The Congress-led government's googly has stumped the opposition, and it has reason to be worried. The decision could result in a few hundred to a few thousand rupees reaching poor families every month, as well as work as a powerful vote inducer in favour of the ruling coalition. The world over even as DCT gains status as the most preferred social welfare methodology, studies are beginning to show that it also significantly influences the recipients of these cash transfers to vote in favour of the ruling front.
Over the last two decades, cash transfers, both conditional and unconditional, have found widespread international acceptance, with over 40 countries using them in some form for handing out cash to families, instead of subsidies and welfare schemes. In some cases, the intent is only to increase the income of an economically poor family, in other cases cash is an incentive linked to targets such as sending children to schools.
The largest CCTs exist in Brazil, where in 1995 two cities began to transfer cash to accounts of poor families that agreed to a set of conditions including sending children to school. Today Brazil's CCT programme, Bolsa Familia, is believed to be the largest in the world, covering some 12 million families. Its impact has been dramatic. Between 2003 and 2009, poverty has fallen from 22 per cent to just 7 per cent of the population, and some estimates say that the income of the poor has grown at a rate almost seven times that of the rich during the same period. It stands out in contrast to the severe squeeze that the world's poor suffered because of the global economic slowdown. An average family gets about $12 a month, but this small amount has had such an astonishing impact that Brazil is now a role model all over the world for its transformative programme.
In Mexico, Oportunidades has over 5. 8 million beneficial families, where they receive up to $120 a month if their children are in school. There are further incentives built into the entire system. Academic and field assessments have shown significant improvement in the welfare of the poor-lesser malnutrition, reduction in stunted growth, improvement in literacy, drop in child labour etc.
Similar experiments in cash transfers are under way in countries such as Ghana, Angola, Egypt, Turkey, and even some cities of the US. Among all social welfare programmes, cash transfers seems to be the most preferred in most parts of the world today. Many call it the fastest spreading new social policy in the developing world.
Besides its efficacy, there is an obvious political reason why many political leaders prefer cash transfers over every other social safety net. Studies, especially from Latin America where cash transfers are thriving, suggest that incumbent governments get significant support among people who have received cash from their government.
In studies on the 2006 presidential elections of Brazil, when Luis Inacio 'Lula' da Silva returned to power, there was a marked shift in his voter base, from the developed regions of the country into the poorest parts, where his cash transfers were showing significant improvement in the lives of people. Such studies have emerged from Colombia and elsewhere too. So an efficient DCT is both good policy and good politics.
So it was not for any other reason that finance minister P Chidambaram and rural development minister Jairam Ramesh chose the Congress party's official briefing to discuss the cash transfer programme. Chidambaram said the programme would be a "game changer" and called it "pioneering and path-breaking reform". He said it was not linked to the elections. "Elections will come and elections will go. Governments will come and governments will go. Parties will come and parties will go. But look at it through the eyes of the people of this country, " the finance minister said.
Jairam Ramesh, on his part, coined the slogan "Aapka paisa, aapke haath", and said it was a "revolutionary programme that had been promised in the 2009 election manifesto of the Congress party. In fact, in his budget speech of March 16, 2012, then finance minister Pranab Mukherjee had indeed announced the government plan.
The programme will be implemented in the first stage in 51 districts starting January 1, 2013. As part of the implementation plan, district magistrates of all the 51 districts are being summoned to New Delhi for training. The politics cannot be missed: Rahul Gandhi will be summoning the presidents of the Congress party from these districts.
Initially, payments for 29 welfare programmes such as pensions, scholarships, unemployment allowances and health benefits, would be transferred to the Aadhaar-enabled accounts of the beneficiaries. Most of these payments are already being credited to the accounts of the families, so in the initial stages what the DCT would do is to cut delay in cash credits.
By the end of the next year, the entire country would be covered under DCT. And it is in the long run that the programme could emerge as an effective social welfare policy.
The 29 programmes identified for now under the cash transfer scheme are part of ministries such as Social Justice and Empowerment, Human Resources Development, Minority Welfare, Women and Child Development, Health and Family Welfare, and Labour and Employment.
All ministries with schemes under the proposal would be setting up implementation committees to prepare a roadmap. Ministries have already been instructed to digitise their databases of beneficiaries and link them with Aadhaar, so that Aadhaar enabled payment systems could be operationalised.
The Ministry of Rural Development estimates that it has a digitised database of 12. 5 crore families under MGNREGA along with their banks accounts - 45 per cent in banks and 55 per cent in post offices. These are seeded with Aadhaar numbers in 65 districts. The department of minority affairs is already giving all pre-matric scholarships through an online system, though it is not linked to Aadhaar.
In case of school education, while the mid-day meal will continue to be served as hot cooked food, as ordered by the Supreme Court, there are other components of Sarva Shiksha Abhiyaan such as school uniforms that could be considered for direct cash transfers. Bihar, Jharkhand and Madhya Pradesh have already agreed to transfer cash to beneficiaries for this component.
In higher education, scholarships are transferred electronically to beneficiaries for the past four years, though it is not linked to Aadhaar. In the health department, components where there are cash payments could also move into the scheme.
According to the department of food, a pilot project in East Godavari district of Andhra showed positive results for a pilot project for Aadhaar enabled DCT to PDS beneficiaries. The de-duplication through Aadhaar has reduced pilferage and leakages significantly, the department's secretary told a recent meeting of secretaries reviewing the progress of DCT.
For now, there is no plan to include payments in lieu of subsidies for PDS food items and fertiliser in the proposal. While in case of fertilisers it is because of the complexity of the subject, and in the case of PDS there is the big concern about money not being able to ensure food security for people. While the family heads could divert money meant for food to other purposes, the PDS system could be dismantled for all times to come, government fears. And then there is the fear that while dismantling an existing inefficient system, the government could end up creating a bigger mess because of the severe challenges facing Direct Cash Transfer.
For one, Indian banking and post office networks have not covered the entire population. According to the Department of Financial Services, by March 31, 2012 all banks will migrate to the Core Banking platform which will facilitate direct cash transfers. The plan is to cover all villages with more than 5, 000 population with branches, and those with more than 2, 000 population with business correspondents. Besides, Indian post offices today have 2. 7 crore bank accounts, with 1. 5 crore of them being zero balance accounts. There are technical issues with postal department now for electronic transfer at all levels, officials said.
Second, and the most important challenge, is that Aadhaar has only reached 21 crore people. Even if it is able to cover the entire population, there are serious security concerns, especially in areas where illegal immigration is a huge challenge.
THE MAGIC PILL
According to government's own estimates, when the scheme is fully mature across the country over Rs 400, 000 crore would be annually distributed directly to the people. A below poverty line family could end up getting almost Rs 40, 000 every year in their account. While it may add to inflation and there could also be spillages, it is expected to be far more efficient system than any existing welfare measure. The fundamental driving force behind the entire strategy is to just give the poor money, in the belief that they are capable of taking appropriate decisions that would maximise their welfare.
However, given the positive political gains for the ruling front there is an urgent need for the government to look at legislative measures to distance the programmes from the ruling political coalitions, and convert them into a national mission with political consensus. Only a national political consensus can ensure the success of such an ambitious programme, which is integral to a more efficient governance system for the whole country.
If such a political consensus emerges, Direct Cash Transfers could well be the magic pill that could transform India's social welfare efforts, helping drastically reduce the daunting challenges of malnutrition, illiteracy, child labour, healthcare and whatever else. Almost on all these counts, India is today home to the world's largest populations-of illiterates, of malnourished children etc. What two decades of economic liberalisation failed to achieve on the social welfare front may well be within reach if government were to implement an efficient Direct Cash Transfer programme.
THE CASH TRANSFER ADVANTAGE
The government argues that cash transfers in other countries have shown encouraging results
They are generally well-targeted and have managed to concentrate their benefits on the poorest households.
They have managed to enhance household consumption when the transfers are substantial. Recipients have spent more on higher quality food.
They have helped reduce poverty and child labour.
They have shown promise in addressing long term structural poverty. They can address sudden shocks like calamities, distress and economic shocks if they are unconditional and countercyclical.
They have little or no negative effects like crowding out private transfers and private investment, reducing labour supply or impacting wages.
Countries which have developed strong targeting, delivery and monitoring mechanisms as a result of cash transfer systems have found these useful for other social safety programmes. Some have developed cutting edge technical systems as a result of the need for coordination. The Centre believes the following schemes could immediately benefit from direct cash transfers
Merit, SC, ST and OBC scholarships, sports scholarships, cultural scholarships etc. Fee reimbursement schemes run by many state governments.
Old-age pensions, pensions for destitutes etc could get a leg up.
Income support of other types:
Unemployment allowances, other benefits for the poor.
Through national programmes like the Rashtriya Swasthya Bima Yojana, state programmes like Arogyasri. Often, payment is by insurers directly to the agency, but making the transfer electronic and linking it to Aadhaar will ensure accuracy and traceability to individuals.
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