Gamechanger for Centre,headache for the aam admi?

On November 26, Prime Minister Manmohan Singh announced that the country would soon move towards a completely new mechanism of delivering social-sector benefits to the people through Direct Cash Transfers (DCT). The first phase of its rollout, slated to start on New Year’s Day, would be implemented on a pilot basis in 51 districts across 15 states. This would largely involve Central scholarship schemes under four ministries, excluding food subsidy. Food benefits would shift to cash later. Kerosene is expected to make the transition by 2014, just before the Lok Sabha elections.

In simple terms, cash transfers mean the benefits hitherto provided by the government in the form of goods and services, such as subsidised healthcare or PDS kerosene, would be substituted with cash. The delivery vehicle: biometric Aadhar cards. Bank accounts of the intended beneficiaries would be linked to these unique numbers and cash transferred to them direct.

The government is trying to project DCT as the magic bullet that would address a host of issues. As the PM himself says, it would open the doors for eliminating waste, cutting leakages and targeting beneficiaries better with provisioned benefits. “We have a chance to ensure that every rupee spent by the government is spent truly well and goes to those who truly deserve it.”

Surveys by the National Council of Applied Economic Research in 2005 showed at least 39 per cent of kerosene stocks failed to reach intended beneficiaries. Once DCT is implemented, PDS shops too would start selling kerosene at market rates, thereby eliminating incentive for illegal diversion, spin doctors argue.

Also, DCT provides the consumer the freedom to choose alternatives in the market rather than being forced to stick to subsidised goods and services provided by the State.

However, critics have a different take. First the logistics. CPI leader D Raja says a huge number of villages across the country still lack basic banking services. Therefore, it would be extremely difficult to reach the villages with cash unless this existing constraint is dealt with first. Also, Aadhar scheme has not taken off well in many states, like in Tamil Nadu, where the current enrollment stands at 70 lakh, just about 10 per cent of the population.

Second, in case of benefits like food subsidy, cash transfers could end up having a profound impact on the nutrition levels of the family. As the subsidy levels are predetermined, the value of cash would diminish with inflation even if indexed periodically. Hence, the beneficiary would have to either look for a cheaper alternative or cut down on consumption.

Third, there is also the danger of the cash not being used for intended purposes. As Venkatesh Athreya, noted economist, points out to Express: “Once the cash reaches the beneficiary’s hands, it is entirely possible that it can be spent on other things than essential goods.”

Fourth, questions of how the “unintended beneficiaries” would be weaned out and leakages plugged are still unanswered. As Athreya says, the recent cases of corruption in Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS) payments in Bihar, done in a similar manner through bank accounts, exposed loopholes in the proposed framework to eliminate graft in the delivery system. “The idea seems to be to reduce the subsidies once and for all,” he says.

Those like V Suresh, Supreme Court-appointed adviser to TN on food security, says states that have universal PDS would be adversely affected. “The DCT would sound death knell to schemes such as free rice in Tamil Nadu as it would be unsustainable without the Centre’s share of the subsidy. This would adversely affect food subsidy,” he says.

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