Encashing sops

The government’s decision to implement an electronic cash transfer system for delivery of subsidies to eligible persons in 51 of the country’s 659 districts from January 1 next year is an important reform measure. It has already been experimentally tried in some areas. The plan is to extend the system to 18 states from April 2013 and over the entire country by April 2014. There could be an electoral intent in the government’s road map because it would like to benefit in the next general election from the perception that it has put money into the hands of people. But most opposition parties have not been able to find much fault with the plan and that attests to the intrinsic worth of the plan which has long been discussed and debated.

It is well-known that the existing system of subsidy disbursement is inefficient and riddled with corruption. The government disburses about Rs 3.25 lakh crore worth of subsidies every year in providing food, fertilisers and petroleum products to citizens. But much of the subsidy is lost in transit and the real beneficiaries are the middlemen. Technology now helps to make direct cash transfers to people. Under the new scheme cash will be transferred to the bank accounts of beneficiaries after they have bought the subsidised item from the open market. The scheme will first be implemented in the case of 29 welfare schemes operated by the Central government, and will gradually be extended to food, power and other welfare schemes like pensions and scholarships. Many countries in the same level of social and economic development as India, like Brazil and Indonesia, have tried direct cash transfers and found that they have been a success.

To avail the benefits, poor families need to have a bank account, a kisan credit card and a unique identity number under the Aadhar scheme. There are still doubts about the efficiency and even the desirability of the Aadhar idea but the government has decided to base its cash transfer scheme on it. It will not be an easy task to create bank accounts for crores of people. There are likely to be many initial problems and hiccups. But if the plan is successfully implemented it will mean a radical shift to a new and more efficient system. The results of the implementation in 51 districts should be evaluated thoroughly before it is extended to other areas, if necessary with changes.