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    Posted on 03 Dec 2012

    Cash Transfer Debate: Experts speak

    The cash transfer debate has turned political with BJP complaining to the Election Commission about the timing of the announcement. It claims the scheme was declared with Gujarat polls in mind. However the Congress-led Central government rubbished the allegation and said the announcement happened in March. Even the political slugfest continues, the debate among experts and activists hasn’t died down. Akshai Jain spoke to a few experts about the various aspects of the cash transfer debate

    Illustration: Tanmaya Tyagi

    Reetika Khera, Economist and social activist, professor at IIT Delhi

    On implementing cash transfers in the pensions and scholarships
    If the idea is to control corruption, what’s happening currently is only a big repackaging exercise. Studies have shown that corruption in pension schemes is very small, in the range of 4-7 percent. Linking these schemes with Aadhar can however, end up excluding a large part of the population (the elderly in particular) who for various reasons are not able to manage the paperwork.

    The government’s larger plan
    The government needs to come clean on what they’re going to link to Aadhar and what they aren’t. As of now there’s complete confusion. The timeline that the government has put out is completely unrealistic – even the government seems to be admitting to that. Mihir Shah of the Planning Commission has apparently pointed this out in a letter that he’s written to the Prime Minister.

    How best to control corruption
    Corruption is much better controlled by digitising records and making them publicly available, pasting them on the walls in villages for example. Biometric technologies can be used independently of Aadhar to weed out ‘fake’ beneficiaries, as is being done in Andhra Pradesh for NREGA payments.

    Sharon Barnhardt, MIT’s Abdul Latif Jameel Poverty Action Lab

    On starting out with direct transfers in pensions and scholarships
    They’re starting out with low risk areas. These are areas where there’s much lower variation – which is an important consideration for the success of cash transfers. In PDS however, there will be much greater variation, since prices of food grains vary from place to place.

    Creating the banking infrastructure
    The whole business correspondent model – where business correspondents affiliated to banks will execute banking operations in villages – is problematic. Research done by the Institute for Financial Management and Research, Chennai, found that most of the accounts that have been created under this model have remained dormant, with no transactions happening.

    You’re reducing the number of gatekeepers the poor have to pass to access subsidies that they’re entitled to. It’s analogous to having a ‘single window’ clearance system. So the hope is that corruption will come down.

    Bibek Debroy, Economist, Centre for Policy Research

    The fiscal argument
    The broader issue underlying the whole direct transfer debate is the correct identification of the BPL population. A correct identification, if it happens, might just negate the entire fiscal argument. It is by no means obvious that once the BPL population is correctly identified that subsidies will decline. They could very well go up.

    There are also huge inefficiencies like those in (food) procurement and Food Corporation of India (FCI) functioning that need to be addressed.

    Security implications
    Will the government do away with KYC banking norms in the 51 districts where direct transfers are initially going to be introduced? I don’t think anyone has even looked at this.

    Indexing subsidies to keep pace with inflation
    Once direct transfers are introduced in food (PDS), subsidies will have to be indexed to inflation and local price variation. Not only is this going to be very difficult it will also be subjective and arbitrary.

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    Posted on 03 Dec 2012



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