Cash Transfer: A Game-changer for the Poor?

The Congress-led United Progressive Alliance (UPA) Government announced yesterday that 29 existing welfare schemes of the Union Government would be replaced by direct cash transfers in 51 districts across the country from January 1, 2013. Indicative of the political ramifications, these proposals were announced jointly by Mr. Jairam Ramesh, the Minister for Rural Development and Mr. P. Chidambaram, the Minister for Finance at the headquarters of the Congress Party.    

Mr. Chidambaram announced that cash transfers would initially be introduced in 51 districts from January 1 and that the Government hopes to complete the nation-wide transition to cash transfer by the end of the next year. The Finance Minister also clarified that introduction of cash transfer in lieu of public distribution services can commence only after further consultation and studies. It is significant in this context that the Minister of State (IC) for Consumer Affairs, Food & Public Distribution Prof. K.V.Thomas announced in the Lok Sabha yesterday that that Ministry proposes to introduce a pilot scheme of cash subsidy under the Targeted Public Distribution System in six Union Territories as a pilot project.

Jairam Ramesh hailed the introduction of cash transfer as a fulfillment of a promise made by UPA in its election manifesto in 2009. He termed the scheme, “Aap Ka Paisa Aap Ke Haath” thus evoking memories of the party’s election slogan of 2004. Similarly, Mr. Chidambaram also called the scheme a game-changer.

The mainstream media has, as illustrated in this editorial of The Economic Times, welcomed the measure as a tool for eliminating the losses arising out of leakage, pilferage and inefficiency in the administration of public welfare schemes.  At the same time, questions still hover around the scheme, its legality, its impact on employment and its exclusionary potential.

Legality of Aadhar-enabled cash transfer

The introduction of cash transfer is predicated around Aadhar cards. However, as several scholars and critics have pointed out, UID Project has not obtained any form of statutory recognition. As Sudhir Krishanswamy had noted at the time of commencement of the UID project, “UIDAI is an executive authority created by Executive Orders which functions as an independent agency under the auspices of the Planning Commission of India. It is noteworthy that the Planning Commission is itself constituted by a Cabinet Resolution and does not have a constitutional or statutory status.” This ambiguity about UIDAI’s legal status has not been resolved as yet and the Unique Identification Authority of India Bill is still pending before the Parliament.

Moreover, it is not clear whether the proposed introduction of cash transfer under the TPDS would be in compliance with the rigorous obligations spelled out by the Supreme Court of India in the Right to Food case [People’s Union for Civil Liberties v Union of India (Writ Petition [Civil] No. 196 of 2001].

Inadequate coverage under Aadhar and delays in cash transfer

Further, an excessive haste in introduction of cash transfer through Aadhar Card may end up excluding a vast swath of people, covered under the existing welfare scheme, but not yet registered under Aadhar. This apprehension is far too real to ignore since, by Government’s own admission, registration of persons under Aadhar have not been completed as yet. Strangely, the Finance Minister himself stated that the scheme would be initiated in the selected districts once 80 % coverage under Aadhar is achieved. It reflects poorly on the commitment of the Government to inclusive growth when a senior minister does not find anything amiss in conscious exclusion of 20% of beneficiaries from a welfare scheme at the point of its initiation.

It must also be noted that a pilot project on substitution of subsidised kerosense with cash transfer in Beelaheri, Rajasthan has been plagued by several teething problems of exclusion of beneficiaries, duplication and delay in cash-transfer. While such teething troubles are inevitable, they certainly make a case for some circumspection, patience and better groundwork on part of the Government before introducing cash benefits through Aadhar. 

Withdrawal of public services, supply-side contraction and impact on employment

One of the most serious dangers that the transition to direct cash transfer may bring along is the contraction of the gargantuan procurement, storage and distribution chains that have been built around welfare schemes. In large part of rural India, government welfare schemes are the only channel of supply of essential services. Replacing these services with cash transfer is unlikely to work unless accompanied by development of affordable substitute market-based supply chains. In absence of such well-developed market, beneficiaries of cash transfers may become hostage to predatory pricing practices.

Apart from the effects on supply of essential services, R. Jagannathan, in First Post, argues that the livelihood of more than 10 million persons who are currently employed in a vast range of government welfare schemes may be imperilled as result of their substitution with direct cash transfer.

There has also been a conspicuous lack of clarity on the nature of banking channels and safeguards that would be employed for cash transfer. In light of the limited reach of formal banking channels and the potential of abuse inherent in informal networks like banking correspondents, the Union Government owes to the people to come clean on this point.
   
Thus, many observers are anxious about the impact of introduction of cash transfer in India. To the credit of the Union Government, it has kept the more complex schemes likes TPDS outside the purview of cash transfer at this moment. Yet, even the limited experiment proposed for the 51 identified districts would end up disenfranchising the 'aam aadmi' unless the concerns over the ambiguous legal status and limited coverage are addressed.