Current General Studies Magazine (September 2014)
General Studies - II (Development Based Article)
The first step towards welfare reform
The Mahatma Gandhi National Rural Employment Guarantee Scheme
(MGNREGS), a make-work scheme that was the pet project of Congress president
Sonia Gandhi, was considered by many in the Indian Right as the epitome of
wasteful populism. Indeed, there could be very little said in defence of any
such government programme that promises to “empower” the poor by doling out
unearned benefits. But now with a “right-wing” prime minister in office, the
erstwhile critics in the Right have gone mute even as Narendra Modi launched a
big bang welfare programme .
The financial inclusion programme, named Pradhan Mantri Jan
Dhan Yojana (PMJDY), kicked off with 1.5 crore bank accounts opened on the very
first day. Each account holder is covered by life insurance worth Rs.30,000,
accident insurance worth Rs.1,00,000, provided a debit card and allowed to
overdraw up to Rs.5,000. All that without any due diligence or a single penny
paid in as premium!
The Prime Minister proudly proclaimed, “Never before had
insurance companies issued 15 million accident insurance policies in a single
day. Never before in economic history were 15 million bank accounts opened on a
single day.” Indeed. It does not take much to see that insurance companies and
banks do not possess the privilege of taxing productive citizens to splurge on
Now despite the launch of such a big bang welfare programme,
quite ironically, the primary belief among the mute supporters of the “financial
inclusion” programme seems to be that direct benefits transfer would cut down
welfare expenditure by plugging leakages from the system. Nothing could be
farther from the truth. Notwithstanding the many delusions of the Indian Right,
statesmen of all kinds pursue only those policies that serve the purpose of
aggrandizement of their own political power and stature.
Democratic politics as a system is tuned to pander to
populist interests, which leads to competition among politicians to increasingly
splurge on populism. Thus, every five years the size of welfare doled out to
voters rises progressively. While this may not always hold true in the short
term, the trend since the early 20th century, when democracies began to spring
up, points to increasing plunder of productive citizens. This has happened
despite rising living standards that should have decreased welfare spending.
Some states have shown clear evidence of politicians actively
competing to increase spending each term to stand a step ahead of the promises
of others. This has meant not just an increase in the size of doles, but also
new measures to make welfare delivery more efficient—such that benefits are
actually received by the targeted groups rather than the corrupt bureaucracy
that is tasked with the job. Thus, it is the desire of political parties to
fully reap the political benefits of their welfare programmes by reining in
leakages that has culminated in support for direct benefits transfer.
Direct benefits transfer, in other words, is a mechanism
evolved to keep up with political competition in spending more on targeted
groups receiving benefits. So, banking on technological advances—that were
adopted not to reduce spending but to pander more effectively to populist
demands—to cut down welfare expenditure would be no less than folly.
The previous government’s Aadhaar programme was supposed to
prevent leakages to help the Congress keep pace in the game of competitive
populism. The party was voted out of power before the scheme could be
implemented on a large scale. Today, PMJDY is nothing more than Modi’s own
attempt at efficient delivery of welfare to please voters. This trend of
competitive populism can only mess up the state of public finance, which is
already nothing to write home about.
The Direct Benefits Transfer (DBT) scheme first found mention
in the 2011-12 Union Budget speech, by the then Finance Minister, Pranab
Mukherjee who had stated that the government plans to move towards direct
transfer of cash subsidy for kerosene, Liquefied Petroleum Gas (LPG), and
fertilizers. A task force headed by Nandan Nilekani was set up to work out the
modalities of operationalising Direct Cash Transfer for these items. Later this
task force submitted its report in February 2012.
The Government launched Direct Cash Transfer scheme on 1
January 2013 to transfer cash into bank accounts of beneficiaries across 20
districts in the country. The scheme has now been rechristened as Direct
Benefits Transfer (DBT) and curtailed beneficiary districts to 20. It covers 7
welfare schemes instead of 20. At least two lakh beneficiaries are expected to
benefit from DBT scheme immediately. Food, fertilisers, and fuel have been kept
out of its purview for the present.
The National Food Security Bill, 2011, pending in Parliament, includes cash
transfer and food coupons as possible alternative mechanisms to the Public
But it should be borne in mind that DBT is just been launched. There would be
several lessons on the way as scheme expands and progress and is implemented in
the entire country before 2014.
How does the Scheme Work?
The money is directly transferred into bank accounts of
beneficiaries having Aadhar cards. The Aadhaar number is a unique identification
number that every resident of India (regardless of citizenship) is entitled to
get after he/she furnishes demographic and biometric information.
LPG and kerosene subsidies, pension payments, scholarships
and employment guarantee scheme payments as well as benefits under other
government welfare programmes will be made directly to beneficiaries. The money
can then be used to buy services from the market.
Already on a pilot basis Electronic Benefit Transfer has
begun in Andhra Pradesh, Chhattisgarh, Punjab, Rajasthan, Tamil Nadu, West
Bengal, Karnataka, Puducherry and Sikkim. The Government claims the results are
Under the DBT each and every beneficiary has to establish his identity and
eligibility many times by producing multiple documents for verification. The
verification of such documents is done by multiple authorities.
Interestingly an Aadhaar enabled bank account can be used by the beneficiary
to receive multiple welfare payments as opposed to the one scheme, one bank
approach, followed by a number of state governments.
A Game Changer
Government believes that the Direct Cash Transfer or Direct Benefits Transfer
is likely to be a game-changer in more than one way.
The Centre releases as much as Rs 2, 00,000 crore as
subsidies under various schemes for the targeted sections across the country.
Therefore it is within its right to devise methods to reach beneficiaries the
way it wants.
Firstly, the Direct Benefits Transfer (DBT) scheme is aimed at cutting the
bloated subsidy bill of Rs.1, 64,000 crore. India’s budget deficit was 5.8 per
cent of gross domestic product in the financial year ending 2012 March.
Secondly, unlike other welfare scheme launched so far by the Centre, DBT
helps in timely and quick transfer to intended beneficiaries.
Thirdly, the transfer of direct cash into account of targeted
beneficiary is a winning proposition for the recipients as it aims to eliminate
middlemen in various government sponsored welfare schemes and subsidized food,
fuel and fertiliser schemes. Take for instance, it's estimated that public
coffers can be richer by several crore yearly just by switching to cash handouts
for LPG and kerosene, a proposed move that would also curb diversion of
subsidised cylinders for commercial use and diesel adulteration with inexpensive
kerosene. Bringing all subsidies under DBT's ambit can be the major fiscal
game-changer the economy needs very much.
Fourthly, the Direct Benefits Transfer scheme is likely to be simple and
error free. On the basis of Aadhar cards money is deposited in beneficiaries’
Fifthly indirect transfers are more prone to leakages than
direct cash transfers. So, that is why the Central Government has put in a
mechanism of direct cash transfer. According to Planning Commission the Public
Distribution System has become so inefficient that 58 per cent of the subsidized
grains do not reach targeted beneficiaries while one-third of it siphoned from
Sixthly, the Aadhar based DBT helps eliminate duplicate cards and cards for
non-existent persons or ghost beneficiaries often found in schemes such as the
PDS and MNREGS.
Seventhly, with the actual transfer of cash taking place with
the help of micro automated teller machines (ATMs) it would infuse financial
inclusion on a greater scale in rural India. Quoting a World Bank Study the
Reserve Bank of India last year in its annual report has said, in India only 35
per cent have formal accounts versus an average of 41 per cent in developing
economies. With the implementation of DBT, it could fuel financial inclusion.
Eighthly, aided by Aadhar technology Direct Benefits Transfer
will not be a mere welfare scheme but also the world's largest experiment in
administrative reform. It will revolutionise the delivery of welfare measures in
world’s populous democracy.
DBT: Not a Magic Wand
Can Direct Benefits Transfer Scheme act like magic wand? Probably it cannot
solve all the problems by India’s poor and improve country human resources
It will have problems with banks, post offices and online connectivity. These
have to be resolved. But there is no point in throwing the baby with bath water
attitude and abandon DBT altogether.
DBT in ultimate analysis aims at poverty elimination, inclusive growth and
delivering better welfare measures. No doubt rampant corruption, inefficiencies
and leakages have made many welfare schemes dysfunctional.
Direct Benefits Transfer to the poor aims to mitigate these many malaises.
Considering these benefits, India would be in right direction to implement
cash transfer though there would be many lessons to be learnt and hurdles to
(Courtesy- Livemint and PIB)
1Q. Direct benefits transfer, is a mechanism evolved to keep up with
political competition in spending more on targeted groups receiving benefits.
Comment. (200 words) 10