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Cash or Credit-Continuing Dilemma


Cash or Credit-Continuing Dilemma

The DBT programme, if it manages to overcome the challenges, might well confound its critics and create a whole new paradigm for delivering of entitlements in India 

The Direct Benefits Transfers (DBT) programme was announced with much fanfare as a “game changer”. Even before it could be rolled out in 43 districts, the FM rolled back the programme to 23 districts for the pilots, within a fortnight of the announcement of the programme. Since then much air-time has been devoted to the merits and demerits of this programme with the debate largely along ideological lines.  

What needs to be clearly acknowledged that despite these initial setbacks, the idea of the DBT programme that has been announced is not just unexceptionable, it is a move in the right direction that was long overdue. Cash transfers are not a new idea, not even in India, and most of the programmes that have been brought within the ambit of this programme are existing cash transfers. The programme that has been announced is not creating any new cash transfers but is instead consolidating the delivery of the existing schemes.  

The real “game changer” in this is two-fold: the idea of universal financial inclusion and, the timely transfer of benefits to entitlement holders without intermediaries and unnecessary paperwork. The use of Aadhar enabled authentication as the backbone of this system is likely to plug leakages that are built into these programmes. The technological/ IT architecture as well as the proposed financial architecture, have the potential of transformational change in rural areas, not very dissimilar to the revolution that rural telephony and mobile telephony have unleashed over the past two decades. Critics of the DBT, in failing to recognize this transformational potential, are doing themselves a disservice.  

As Supreme Court Commissioners, we have repeatedly highlighted to the Court and the Government, through our reports, the abject failure of the both the State and Central Governments in reaching pension benefits in time to some of the most marginalized sections of our society. With the exception of a few states like Andhra Pradesh and Odisha, pensions, reach often six months late and in some instances, after even longer durations. Over the years, we have also documented many cases of duplication and fraud in pension benefits. If these pensions are channelized through the proposed new DBT architecture, it will not only ensure timely delivery at the doorstep of the pensioner through micro-ATMs, it will also cut down on fraud because of the last mile authentication by Aadhar of the entitlement holder. The same holds true for all the other schemes that are being brought under the ambit of the DBT.  

The sticky point here though is the transfer of existing “in-kind” subsidies through the DBT route, especially with food subsidies that are channelised through the Public Distribution System. There are three distinct possibilities for the food subsidy transfer that the Government could potentially use. First is the replacement of the food with cash and dismantling of the PDS. That proposal has never been on the table within Government. Even without going into the obvious demerits of this proposal, which have been extensively written about, suffice it to say that if Government adopted this approach, it would have to end the procurement regime which is not in the realm of consideration of Government.  

The second approach could be to create an Aadhar enabled PDS which has a last mile authentication, that is on-line and allows for the stock positions to be updated in real time, as has  been successfully done in the East Godavari pilot. All other variables in the system would remain the same. The entitlement holders will buy their food rations from fair price shops as they do now, with the only difference being that they would submit their biometric details to the FPS owner through a point of sale device that is connected either through a GSM network or through other means to an integrated stock management system. This would not only ensure that the right person gets her rations, the online system that allows real time updating of the lifting, would make the entitlement “portable”. In other words, the entitlement holder need not be tied down to one shop and could potentially buy their rations from any shop. Since the system would be linked to a nation-wide grid, it would allow them to buy different quantities of rations in the same month from different locations in the country. To illustrate this with an example, a family of five members where two members migrate to a different city for labour, could buy a part of the entitlement that they need in the city to which they have migrated while the remaining family members who have stayed back in the village could buy the rest of the allotted quota from the fair price shop in their area. This would revolutionize the PDS, silence the critics who believe that the only way to save the PDS is to dismantle it and provide genuine choices to the entitlement holder. It would also cut down significantly on the corruption in the PDS 

The third approach would be to transfer the subsidy of the PDS benefit (similar to the kerosene subsidy transfer in the pilot) directly into the bank account of the entitlement holder so that she can pay the full price of the susbsidised commodities to the FPS owner. Since the FPS owner would also pay the full price for the commodity while lifting the stocks from the government go down, the possibility of black marketing would be eliminated. All the other variables would remain the same. There is little to show that the subsidy transfer would in any way be superior to the second approach and could lead to diversion of the money meant from food grains to other household expenditures. I would therefore be more partial to the second approach which has also been tried out successfully by the Chhattisgarh Government (COREPDS) using the RSBY smart card instead of the Aadhar enabled system.  

From the Governments perspective, the obvious advantage of the subsidy transfer is that it would increase the revenue flow to the Business Correspondent and make them more viable. As of now, the quantum of the funds flow in the schemes that have been included in the DBT will provide very little commission for the model to be viable. Adding of more subsidies will lead to making the system more viable. But the trade off will be significant, given the fungiblity of cash and the potential of it being put to alternate uses within the household.  

In terms of the challenges that operationalising the DBT are concerned they are three-fold and daunting. It is just as well that the pilot districts have been reduced to a more manageable number. If the DBT programme has be a real “game changer” the correct identification of the poor and expansion of existing entitlement holders will have to be brought centre-stage. Contrary to the popularly held notion that Aadhar will solve this problem, the reality is that Aadhar has little to do with the identification of the poor. It will only authenticate an individual’s identity. The identification of the poor will be done through the Socio-economic Caste Census (SECC), an exercise that is mapping India’s poor, undertaken by the Ministry of Rural Development. For the urban areas, for the first time, uniform criteria will be devised based on the Hashim Committees recommendations. A lot will hinge on where the Government draws the cut off for the entitlements for individual schemes based on the outcomes of the SECC. If the number of entitlement holders does not increase and the SECC proves to be as flawed as the BPL surveys earlier, there is little hope that this will be a “game hanger”. On the other hand, if the SECC uses the “exclusion method”, first suggested by former Planning Commission member, Kirit Parikh, and decides to extend entitlements to all those who are  not on the “exclusion list” of the SECC, it could potentially change the very nature not just of rural development programmes but also be a decisive blow against the disastrous approach of trying to target the poor, which has failed miserably and remains the root cause for the inclusion and exclusion errors that have destroyed the very purpose of these subsidy regime. 

The issuing of Aadhar numbers with the ambitious deadlines set by the Government is the second big challenge. While the UIDAI may achieve its target on schedule, that will clearly not be enough, In States like Tamil Nadu, UP, Bihar, Chhattisgarh, West Bengal, it is the National Population Register (NPR) that has been tasked with the collection of biometric data. This is way behind schedule and is likely to remain so. The only solution is for Government to proactively allow UIDAI to issue Aadhar numbers across the country and not restrict them to the states that they are currently issuing them for. Even in the areas where the UIDAI is issuing the numbers, nothing short of 100 percent coverage is likely to have an impact since even a 80 percent coverage does not necessarily mean that 80 percent of the entitlement holders are covered. If Aadhar is not universalised soon, the only option would be to allow people without Aadhar numbers to be part of the DBT programme till such time that they receive their  Aadhar numbers.  

The last challenge is for Government to ensure that the financial architecture for the DBT is put in place, in time for the up scaling nationally. This is likely to prove the hardest nut to crack.  

Government must also be sensitive to the criticism of the UID that has come in from many quarters regarding the potential security risks that it could pose and the potential of misuse by intelligence services. While some of the apprehensions may be misplaced, there is a pressing need for greater legislative control over intelligence gathering. The debate around the UID is an opportunity to settle this once and for all. It is after all an issue that UIDAI cannot address and it is inappropriate to frame this question only in the context of the UID number when mobile telephony poses far greater risks of unauthorized surveillance.  

In conclusion, the DBT programme, if it manages to overcome the challenges, might well confound its critics and create a whole new paradigm for delivering of entitlements in India.  

Cash Transfer: Delivery Mechanisms 

The choice of technology plays a vital role in implementing cash transfer programs. The mode of subsidy delivery could involve direct transfer of cash by the government to the bank accounts of the beneficiaries. Timely delivery of transfer amounts into accounts of beneficiaries needs to be assured so that there are minimal lags and delays in payments. The intended beneficiaries will typically have severe cash constraints and several competing demands. Thus, timely delivery becomes a critical point in designing a successful cash transfer scheme. In the absence of bank accounts, the option of delivering cash transfers through post offices should also be explored, at least in the short term. Smart cards with biometric information are being provided as part of the National Population Register (NPR) and by the UIDAI. The UIDAI is envisaging a system where the requisite information of beneficiaries (such as thumbprints or iris scans) can be verified at the time of purchase and the corresponding transfer amount credited to the bank accounts of each beneficiary. In this case, the cash transfer would work as a, refund of the subsidy amount to eligible beneficiaries of the program, with all end users paying full market price at the time of purchase.

Biraj Patnaik The author is the Principal Adviser, Commissioners of the Supreme Court in the Right to Food case. The views expressed here are personal.  


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