Cash transfer consequences

With an eye on 2014 elections the United Progressive Alliance government has announced that it wants to make cash transfers the default system for welfare delivery. From January 1 next year, a set of central government welfare services, such as scholarships, etc., will be delivered as money transfers to recipients’ bank accounts in 51 districts. More services — and the rest of the country — will follow by April 2014.

While the Union finance minister called the scheme a ‘game-changer’ for the UPA and pointed out that the idea was mentioned in the 2009 Congress election manifesto, the Bharatiya Janata Party has dubbed it ‘bribing the voters’ and complained to the election commission that the Congress is violating the model code of conduct in force since declaration of State Assembly elections in Gujarat and Himachal Pradesh.

While nobody can stop political parties from indulging in vote-winning manoeuvres, the real issues relate to the speed with which the party hopes to roll out cash transfers, and also whether it will be able to ensure seamless delivery of cash to the intended recipients or even allow the government to save money by eliminating fraud and leakages. The success of cash transfers depends on people having bank accounts, money going into the right account, and people having easy access to those accounts.

Conditional Cash Transfer (CCTs) programmes are a fast growing part of safety net policy and the World Bank is financing such programmes in 13 countries. The World Bank has found that such programmes are not a panacea. According to one of its reports, ‘they generate full synergies between social assistance and human capital development only where the supply of health and education services is extensive and of reasonable quality. They can also be administratively demanding.’

Of the 29 countries that dole out conditional cash transfers, most are in Latin America. These have been successful because they are seen as a complement, not a substitute, for public provision of health, education and other basic services. In Brazil, for instance, nearly all health expenses are paid by the government and basic health services like immunisation and ante-natal care at birth are almost universal. Sadly, none of this can be said of India, where public services are badly planned, grossly inadequate, ill-equipped and notorious for corruption. The jury is still out on whether cash transfer will work in India the way it has done in many countries.

The advocates of the programme tout many benefits of cash transfers that would be mediated by the Aadhaar Unique ID. They would give benefits directly to targeted beneficiaries and reduce corruption by removing middlemen and touts. The programme is also supposed to improve systematic inefficiencies and reduce the government’s subsidy bill.

The hypothesis that it will lead to reduction of the government’s subsidy bill is questionable. If the system delivers 100 per cent of the benefits to the intended beneficiaries, all it means is that the subsidies will go to the right persons. If this really happens, more people will be motivated to claim the benefits, since the earlier system had a way of deterring claimants. The only situation in which subsidies will come down would be if a large chunk of the earlier claimants receiving government subsidies are bogus. The chances are that direct transfers would cause more claimants to surface, inflating the government’s bill.

Then there are transitional losses that the system will face in shifting to cash transfers. In the current non-cash based system of welfare schemes, there are more than 10 million workers involved. They are not government employees, but provide services at the village level, for a small honorarium, by cooking food for mid-day meals, running self-help groups, teaching new farming techniques, attending to small ailments, or implementing the MGNREGS. If cash replaces the existing scheme, it would cut their source of income. They could well choose to add themselves as beneficiaries of welfare schemes, bloating the bills.

If subsidies like food and fertiliser shift to cash — which is not planned for the moment — the infrastructure relating to public distribution, food procurement, and movement of grains will become redundant, with its own consequences. The cost of the abandonment of such activities, too, will be added to the government’s bill.

Let’s look at the problem from the point of view of the beneficiary. First, he will have to open a bank account in a branch that may not be located near his village. The bank will use a business correspondent — often a private party — to make the rounds to distribute cash after verifying the ID of the recipient through Aadhaar or some other means. So the cash will actually be doled out by a person — who may have the power to delay payments and thus extract speed money.

If the year-old pilot programme on cash transfers in the Kotkasim block of 25,000 households in Rajasthan’s Alwar district is anything to go by, the scheme that the UPA reckons will be a ‘game changer’ could be undone by non-payment of cash or payment delays. According to media reports, most residents said they had either received no money for one year, or at best just one of four instalments.

Clearly, the implementation of the cash transfer scheme needs more meticulous planning and extension of banking network in rural areas. Even after this, direct cash transfers cannot be a single bullet to weed out corrupt and vested interests in delivering welfare measures as touted by the government. Most important, it can not substitute the need for the government to improve efficiency of its health delivery system and its educational institutions. In the absence of these, cash transfers could have unintended consequences of pushing the beneficiaries from public services toward private players operating in sectors like education and health care. The misplaced sense of political triumphalism over the government’s ambitious plan should not make us ignore international experience. Cash transfers have been successful in the countries where the state spends and delivers public services efficiently. In India they could force the poor to by health and education from private providers.

Upendra Nath Sharma is a  sociologist.

E-mail: upendrasarojsharma@yahoo.com