Domestic direct investment

Domestic direct investment

Domestic direct investment

With just a fortnight to kickstart the direct cash transfer scheme, there is a lot of confusion about how to identify the beneficiaries. The petroleum ministry has suggested pushing the deadline for LPG cash transfer by three more months.

Come January 1, a sizeable number of the country’s needy will get cash deposited into their bank accounts as an alternative to numerous benefits  they received hitherto, and the UPA, yet another ground to anchor its 2014 poll expectations on. But, the progress of the government’s ambitious direct cash transfer scheme (DCT), proposed to be rechristened as Direct Benefit Transfer to off criticism by opponents, hinges on solving various issues, including extending the banking outreach.

This will be the first time in independent India’s history that the government is planning to transfer monies mainly for scholarships, pensions and other welfare schemes to beneficiaries directly through the Aadhaar-enabled bank accounts. The whole exercise is expected to reduce the scope for exploitation by middlemen and excessive pilferage of subsidies. The government is aiming to implement 34 subsidy schemes in 51 districts from the New Year’s day in its first phase.

Many countries in the world have adopted the schemes involving cash transfers instead of doling out subsidies in order to benefit their poor and needy. Countries like Brazil, Indonesia, Mexico, Philippines and our immediate neighbour Bangladesh have embraced cash transfer rather than the provision of goods and services, and studies show they have achieved a reasonable amount of success.

And, that is why the proponents of the scheme have welcomed it. The UPA, which brought it into being, has gone a step further in terming it “Aapka Paisa Aapke Haath” (your money in your hand), prompting comments from the opponents, according to whom the government is projecting the scheme to be run on public money as a gift of Congress to poor.

On the doorsteps of 2014 elections, the government is in a hurry to implement its flagship programme in major parts of the country in the next 12 to 16 months. Government’s haste is evident from the fact that none less than the prime minister’s office has directed ministries to take up preparatory work for implementation of the cash transfer scheme from January 1 on a war footing.

Congress General Secretary Rahul Gandhi has gone on record to say that successful implementation of DCT would win the party not just the 2014 polls, but also the next.

The Planning Commission will oversee the preparedness in states before its commencement in the new year. It is social schemes like loan waiver and NREGA that fuelled the UPA’s 2009 election victory, but analysts say, the situation this time around is different. The government has very little fiscal space and resources to erect welfare planks such as direct cash transfer.

Under the scheme, the government seeks to transfer over Rs 300,000 crore in a year to beneficiaries, whereas the government's subsidy budget for the current fiscal is only Rs 1,09,000 crore. This includes food and fertiliser subsidies, which have been kept out of the cash transfer scheme for now. Another Rs 5,000 crore has to be paid out as commission to banking correspondents to disburse the enormous cash.

“Where is the money? The government laden with deficits can ill-afford to carry forward such schemes,” said an expert, who did not want to be named.

For, M S Sriram, visiting faculty, IIM Bangalore, it is different. Sriram, speaking to Deccan Herald, was optimistic the ambitious DCT can run successfully if some creaking infrastructure is put in place. “Conceptually it is not a new scheme. India has age-old public distribution system. But that has limited benefits due to huge leakages and wastage. DCT will strive to plug that,” he said, adding: “it is only the re-allocation of existing resources”.

India currently has a cash transfer system where banks and post offices are used to pay pensions to poor. Aadhaar-enabled payments are only expansion of this, according to the proponents.


Then, the bigger issue is the lack of infrastructure for basic welfare services. The basic banking facilities are not present in many of the villages. According to official data, only 1.50 lakh villages had banks till March 2012 out of 5.95 lakh inhabited villages in the country. Besides, 60 per cent of India’s population does not have bank accounts. Banks are reluctant to go to rural areas as it is not a profitable venture. Where there are no banks or ATMs, the business correspondents (BCs)are expected to pay money to beneficiaries. Not much headway has been made in this area too. There is also a fear that the self-help groups or aanganwadi workers, who are expected to disburse cash in unbanked areas may act as middlemen in due course.

The other drawback to starting the scheme in a haste is absence of Aadhaar numbers with people. Only 21 crore of country’s 120 crore people have Aadhaar numbers as yet. Most of those who have Aadhaar, reside in urban areas, but 46 per cent of country’s Below Poverty Line people, whom the scheme is expected to benefit the most, live in rural India. This implies without an Aadhaar-enabled bank account, they will not be able to access the benefit of direct cash transfer, if BCs are not in place in time.

With just a fortnight to kickstart the scheme, there still lies a lot of confusion about how to identify the beneficiaries. Apparently because of this, the petroleum ministry has suggested pushing the deadline for LPG cash transfer by three more months citing lack of clarity over identifying the beneficiaries. Rural Development Minister Jairam Ramesh claims that the new list of BPL beneficiaries will be ready by July 2013, experts take his words with a pinch of salt. India conducted the last BPL census in 2002, another exercise, which was to be completed by 2006, is still underway.   Chinks in the armour have already started showing in the handful of places where the scheme is implemented. In Alwar district of Rajasthan, for example, cash transfer for kerosene was started a year ago, but the beneficiaries are still to get their monies in their accounts and have to buy kerosene at market price. It was intended primarily to replace the state subsidy of Rs 14 a litre on kerosene. With the withdrawal of the subsidy, prices increased while the cash transfer got delayed or did not take place at all.

Reports said, in Jharkhand, where Aadhaar-enabled payment for MNREGA scheme started in 2011, people are yet to get their payments.

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