Business Today

UPA's Talk Show

twitter-logoShweta Punj | Print Edition: Dec 23, 2012

The United Progressive Alliance (UPA) government appears to be making just the right kind of noises before the 2014 general elections. If the easing of rules in sectors such as retail, pension and insurance were aimed at pleasing foreign investors and the corporate world, the government is now targeting the poor - its biggest vote bank - with its direct cash transfer scheme .


This (cash transfer) is a fantastic move... Things will be better than what they have been"

Bindu Ananth

President, IFMR Trust

The government aims to transfer Rs 3.2 trillion (one trillion is 100,000 crore), or $58 billion, a year to beneficiaries of its subsidy schemes and welfare programmes. The new scheme aims to plug leakages in the current subsidy regime and will cover more than half of India's population, making it the world's largest cash transfer programme.

But there are some glaring gaps in the gargantuan scheme.

For one, it is unclear how the government arrived at the Rs 3.2 trillion figure. The government's subsidy budget in 2012/13 is Rs 1.9 trillion. This includes food and fertiliser subsidies, which have been kept out of the cash transfer scheme for now.

The scheme is contingent upon some infrastructure issues that could take a considerable amount of time to address. Rural Development Minister Jairam Ramesh, who coined the slogan "aapka paisa aapke haath" (your money in your hands), as also Finance Minister P. Chidambaram did not spell out the most crucial contours of the scheme when they fielded questions, rather unconvincingly, at a press conference in New Delhi on November 27.

India currently has a cash transfer system where banks and post offices are used to pay old-age pensions to poor people. What the government is now talking about is a significant expansion in the scope of cash transfers. This rests on two pillars - bank accounts and the Aadhaar, or the Unique Identification (UID) Number, programme.

The bank account is the most important criterion for the cash transfers to work. But only 40 per cent of India's population has bank accounts. The current banking network does not have the bandwidth to handle more accounts, and such a network cannot be built within a month, given that the first phase of cash transfers is slated to begin in January 2013.

"Infrastructure is a big question, and if they (government) try and do it in a hurry, it can all get very messy," says Samit Ghosh, founder of Ujjivan Financial Services, a microfinance institution servicing about one million people. Ghosh says only 20 to 30 per cent of his clients have bank accounts.

Ramesh, however, argues that aanganwadi and other such workers will be used as business correspondents to disburse cash. Critics say this again will entail the involvement of middlemen and could hurt efforts to reduce pilferage and corruption.

The other pillar that the cash transfer scheme leans heavily on is the UID programme, India's monumental version of social security numbers in the US.

The implementation of UID has been cumbersome - getting banks to rural areas and sensitizing administrators working at the grassroots level have been some of the challenges. So far, about 21 crore Aadhaar numbers have been created. This is less than a third of the number of people targeted under the cash transfer scheme.

Banks have been reluctant to come to rural areas. This is because no-frills accounts in these areas do not fit in with their business model as they lack the capability to go into rural areas.


It would be difficult to fix the monthly cash subsidies in view of fluctuation in market prices:"

Raman Singh

Chief Minister, Chhattisgarh

Problems with support systems for direct cash transfer, however, do not undermine the concept's efficacy.

"This (cash transfer) is unambiguously a fantastic move," says Bindu Ananth, who worked with ICICI Bank's microfinance division for four years and is now the President of IFMR Trust, which works on spreading the reach of financial services. "There will be apprehension but things will be better than what they have been. Subsidy transfers have been just so inefficient."

Some beneficiaries prefer cash transfers, too. One such is Geeta Das, 38, who works as a cook in Silchar, Assam, and earns about Rs 1,600 to Rs 1,700 a month. She has been trying to get a ration card for 12 years since her husband's death, and depends on her mother, who holds a ration card, to get subsidised food. "Cash is good because sometimes we do not get our quota of ration and the quality of food is often poor," says Das.

But not everyone is convinced. Some state leaders have voiced their concerns about the scheme. In a letter to Prime Minister Manmohan Singh, Chhattisgarh Chief Minister Raman Singh has said financial inclusion and availability of information technology infrastructure are preconditions to cash transfer and there are substantial problems in the state on both accounts. "It would also be difficult to fix the monthly cash subsidies in view of fluctuation in market prices."

No doubt, the Centre has embarked on an ambitious journey. The danger lies in setting unrealistic deadlines driven by expediency and tarnishing an important reform in the process. The UPA would surely be hoping that, in the 2014 poll, the scheme figures as prominently as the rural job guarantee programme did in the 2009 elections.

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