The curious thing about subsidies being replaced by the so-called direct cash transfer scheme is that the initiative is unlikely to have the effect the government hopes for and the Opposition fears.
The curious thing about subsidies being replaced by the so-called direct cash transfer scheme is that the initiative is unlikely to have the effect the government hopes for and the Opposition fears. Despite the Congress’ catchy slogan — “Aapka paisa, appke haath” — a surge in the number of seats the party bags in Gujarat elections and the 2014 Lok Sabha polls is not likely. Hence, the BJP’s fear as stated in its complaint to the Election Commission about the timing of the announcement affecting the poll result in Gujarat this month may also prove unfounded. Even though the government has only announced cash transfers for welfare schemes like pension, scholarships and healthcare, keeping the much larger amounts involved in food, fuel and fertiliser subsidies out for the present, there are likely to be foreseen problems. Prime Minister Manmohan Singh said last week that through the “innovative use of technology and the spread of modern banking... we have a chance to ensure that every rupee is spent truly well and goes to those who truly deserve it.” This is a myth. The Unique Identification Database (UID) system (Aadhar) on which the direct cash transfer scheme relies is a far from reliable technology and modern banking has spread only to a fraction of the target rural population. Among the many hurdles that the UID system faces is the fact that in a country like India the fingerprints of many labourers are bound to be unreadable or illegible. A report from 4G Identity Solutions, contracted by the Unique Identification Authority of India (UIDAI) for supply of biometric devices, notes that: “It is estimated that approximately five per cent of any population has unreadable fingerprints, either due to scars or ageing or illegible prints.” In the Indian environment, where over 50 per cent of the population is engaged in agriculture, the percentage of people with scarred or illegible fingerprints could be higher. Experience with schemes like MGNREGA has already shown that the reliability and success rate of fingerprint recognition, especially for those who do manual work, is low. Apart from this, there are connectivity glitches, with the local computer all too frequently failing to access the main computer in Delhi. Since the UID technology is the bedrock of the cash transfer system, its high rate of failure means that the system is inherently flawed. A similar worrying forecast applies to the myth about “the spread of modern banking”. While cash transfers are likely to be more manageable in cities and small towns where pensions and scholarships would be concentrated, their applicability in rural areas is questionable. Despite brave attempts, rural banking is plagued with problems of demand and profitability. Though there are close to 32,000 bank branches in rural India, this is not enough for serving the country’s 650,000 villages. As many as 26,000 rural banks have shut down since 1992 because they were considered unviable. This gap is sought to be filled by “banking correspondents” who take banking services, including payment for MNREGA work, to the villager — the last mile, so to speak. They would have to be exceptionally upright people who won’t take advantage of the needy and illiterate. Thus, the system heavily depends on the integrity of people delivering the cash in addition to the efficiency of the technology.
Direct cash transfer also begs the question whether the government is preparing to abandon vital social schemes, like the public distribution system (PDS) with its backbone of fair price shops, and its responsibilities for healthcare and education which would inevitably be taken up for a profit by the private sector. Recent surveys indicate that poor families prefer distribution of subsidised food grain to cash transfers. In a May-June 2011 survey conducted in Delhi’s slum settlements by the National Federation of Indian Women (NFIW) and the Right to Food Campaign, 91 per cent of the families said that they wanted the distribution of subsidised food grain to continue. A March-June 2011 study of 1,227 households in 100 randomly selected villages in nine states by Jean Dreze and Ritika Khera showed that 81 to 91 per cent of those interviewed wanted food grains and not cash. One reason that cash transfer has become fashionable is that the policy is backed by the World Bank and the UN Development Programme. They point to leakages in the PDS and corruption in administering the distribution of subsidies. Their case has been taken up by policymakers in Delhi, the Planning Commission, the big media and business lobbies. Instead of reforming the system, our planners want to dismantle it. Cash transfers allow the government to wash its hands of administering the delivery of essential public services. The argument that the PDS stabilises prices to farmers and provides food security to the poor and the country at large, is forgotten. The Planning Commission and the finance ministry seem to think that the government should have no direct administrative role in the social sector. The signs of this thinking were visible as early as the 2011 Union Budget in which the government announced its intention that instead of subsidies on kerosene, fertilisers and food, some form of cash would be given. A policy of cash transfer would mean a weakening or shutting down of the PDS, ration shops, government-run hospitals, schools and welfare programmes so that the private sector can move in. And the government thus abdicating its social responsibility would mean that the cash transferred would land up in the hands of predatory commercial interests. One hopes that the experience the government gets from its first limited foray into cash transfer will be shared with its critics and the response and suggestions be assimilated fully before it wades into the more turbulent waters of abolishing all subsidies and government welfare programmes in its haste to implement the direct cash transfer scheme.
The writer is a Mumbai-based freelance writer