The Direct Benefits Transfer (DBT) scheme is significant since it has taken up the challenge of defining a new social security structure which is bold in its vision, sincere in its intentions and has strong transformative potential

The Government of India has announced the Direct Benefits Transfer initiative with the aim of ensuring better and more timely delivery of benefits to the people.This marks a paradigm shift,where the State is explicitly taking responsibility to ensure that welfare schemes and basic entitlements reach the intended beneficiaries much more effectively than at present.

Similar schemes in various forms have been implemented in a number of countries in the world. We have had programmes like Bolsa Familia in Brazil, Oportunidades in Mexico, Samrudhi Kosh in Sri Lanka.

What will DBT do?

The DBT programme aims that entitlements and benefits to people can be transferred directly to them through biometric-based Aadhaar linked bank accounts, thus reducing several layers of intermediaries and delays in the system. The last mile of the initiative is the most important — the system will allow actual disbursements to take place at the doorstep of the beneficiaries through a dense, interoperable network of business correspondents (BCs) using biometric micro ATM machines

Why is DBT a paradigm shift?

There are several dimensions to this. First, the link to Aadhaar and the use of biometrics ensures that the problems of “duplicates,” i.e., the same person getting the benefit more than once, and “ghosts,” i.e., a non-existent person getting the benefit, are addressed.

Second, it makes it possible for money to reach the intended beneficiaries directly and on time — so, for example, pensions, which reach the beneficiary once every four to six months in many parts of India, can now reach her bank account on the first of every month.

Third, a dense BC network on the ground with micro ATMs will allow payments to happen at peoples’ doorsteps, ensuring that the poor get the same level of service that the rich and middle-class in India get.

Fourth, as it is a platform based on an open architecture, State governments can use this platform as much as the Central government.

Fifth, the potential benefit to internal migrants who send remittances to their homes is huge. It is estimated that Rs.75,000 crore worth of within-country remittances are made in India every year — many of these are lifelines for their families.

Direct Benefits Transfer - schemes

Post-matric scholarship for SC students

Pre-matric scholarship for SC students

Post-matric scholarship for OBC students

Indira Gandhi Matrutva Sahayata Yojana

Dhanalakshmi scheme

Indeed there are questions that are yet to be answered. Would it be right to include the Public Distribution System (PDS) in the ambit of DBT?

What about fertiliser and Petroleum subsidies? Does it have to be linked to inflation indexing to keep the benefits undiminished for the poor as prices of commodities rise? Should we adopt a Universal Cash Transfer model or a Conditional Cash Transfer one? What would be the distributional impact of this scheme within a family? What would be the impact of these transfers on inequality in society? There are no easy answers to these questions but there are some indicators which can throw light on it. In Latin America, the Conditional Cash Transfers had significant impact on improving social indicators like enrolment of students in school and immunization percentage of children. In Brazil, the implementation of Cash Transfer Scheme has resulted in significant reduction in inequality. But blind copying of the example of another country may be counter productive. Each country has to devise its own programmes keeping in mind its specific realities and requirements. This explains the cautious start for this programme in India.

The task ahead is mammoth and daunting. The success of the Direct Benefits Transfer (DBT) depends crucially on the expansion of the banking network in the country. To tide over this problem, the scheme envisages the Banking Correspondent model, use of micro ATMs or utilisation of the Common Service Centres. Quick coverage of the entire population under the UID project or registration under the National Population Register (NPR) could prove to be decisive factors in the outcome of this initiative.

What are the criticisms?

They are the claims that the money would not reach the lowest-income groups, they would be wasteful, they would be inflationary, their value would fall because of inflation, and they would induce laziness. All of these claims can be refuted, theoretically and empirically.

What are the advantages?

The first advantage is that, being more transparent than alternative policies, they can be directed to those in need more effectively than any scheme that goes through layers of bureaucracy.

Second, cash benefits are emancipatory. They enable people to make choices on how to spend their money, depending on their priorities. Not everybody is “food poor”. Many are “health poor” and might wish to spend more on medicines or treatments. Some are primarily “schooling poor” and might wish to spend mainly on school-related expenses. Many are “debt poor”, trapped without the cash to chip away at the burden weighing down their lives. Some are “production poor”, unable to pay for items that would enable them to become productive. Cash benefits could facilitate investments, helping families break the shackles on small-scale production.

Third, cash benefits paid regularly, each month, provide a source of insurance. The regularity of money leads people to feel some basic security; as such, they can more control of their lives. There are five design decisions to be made.

First, should the cash benefits be universal or targeted? So far, government has presumed they should be targeted. However, in the SEWA-UNICEF pilots, the principle of universalism has been applied. Everybody in the nine villages was given the right to the cash each month. By contrast, the government seems to have accepted that cash should be targeted through the BPL ration-card system, with the intention of providing help solely to those holding the relevant card.

A universal system would also overcome the notorious poverty trap. This is an automatic feature of any policy based on giving only to the poor. It means that anybody who manages to go from being poor to being just above the poverty line loses entitlement to benefits and so can be worse off. The poverty trap encourages moral hazards – i.e., a person has no incentive to work harder – and immoral hazards – i.e., a person has an incentive to conceal income. A system that works like that cannot be good.

The second design question is even more controversial. Should cash benefits be conditional or unconditional? Conditionality means that recipients must undertake some prescribed type of behavior or lose their entitlement.

Conditionality should be resisted, even though nominally CCTs (Conditional Cash Transfers) have been perceived as successful in Latin America and some other places.

The next design feature is the decision on who should receive the cash. Again there is more thinking to be done. Should the cash benefit be given to “the family” or to individuals, and should it be given to one type of individual on behalf of the whole family or household or to individuals?

A family is a stretched concept. Some families live together, some are scattered. If one takes the household as the unit for cash transfers, should the amount be determined by the number of usual residents or by some norm household size? What should happen if somebody leaves or enters? Should the amount be raised if people enter or be left as a standard amount? Merely to pose these questions should be sufficient to indicate the scope for unfairness that will arise if one proceeds on a family or household basis.

As per our estimates, the Indian state’s benefits transfers exceed Rs. 400,000 crores annually

Direct delivery of cash benefits:reform of the existing cash transfer schemes to send the money through Aadhaar enabled bank account. For example, instead of the school handing out the scholarships to students as cash, the student gets the money in her bank account. This kind of reform requires the beneficiaries to have easyto- access bank accounts, and the scheme’s management needs to align itself with the bank’s transaction processing systems.

Direct delivery of non-cash transfers: transfer of noncash benefits using Aadhaar based authentication. An example of this type of reform is requirement of Aadhaar authentication for getting a subsidised LPG cylinder. Thisreform requires development of Aadhaar-based authentication infrastructure at all outlets, and integration of back-end databases.

Conversion of non-cash benefit to cash or cash-like transfer, and then delivering it directly: An example could be the PDS system replacing the food and kerosene transfers to some form of voucher or cash. A reform such as this would involve strategic decisions about conversion of noncash benefits to cash or cashlike forms, and developing systems for delivering the benefits. If the benefits are converted to cash, they could be processed through the banking system. There are also other possibilities, such as adding conditionality to transfer of benefits.

From the long list of government schemes, some lend themselves more easily than others to a reformed system of direct transfer of benefits, with the use of Aadhaar to authenticate beneficiaries. These include: Public Distribution System, Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS), fertiliser subsidy, LPG subsidy, Indira Awas Yojana (IAY), payments to workers under the Integrated Child Development Services (ICDS), pension payments, cash and noncash transfers in the education system, health programmes (payments to ASHA workers, payments under the Janani Suraksha Yojana). For all these schemes, it is assumed that there is just a basic automation of the delivery process using Aadhaar, and the scheme is not tinkered with.

Leakage and Corruption

DBTs can help in reducing leakage in terms of payments made to officials in order to receive legitimate benefits. Since the benefit is delivered directly to the beneficiary, the scope for asking for speed-money, kick-backs, etc. to release legitimate dues is considerably reduced. However, this does not necessarily affect payments that are extortionary in nature and depend more on social coercion than control conferred by the bureaucratic power of discretion or delay, which is mitigated by DBT. For example, someone with coercive power can very well show up to demand protection money, knowing that a household has received its MGNREGS wages. Indeed, they could intercept it immediately after the beneficiary has collected them from the BC.

Nor will DBTs get rid of collusive corruption, where officials and ineligible beneficiaries collude to defraud the state. Further, as noted above, the power of discretion or delay remains in the process of beneficiary identification that remains external to the DBT system and corruption may continue there. While DBT can address certain kinds of leakage, other kinds require a wider change in social relations. However, it may be that by increasing the cash availability in poor households, DBT may affect this too, e.g., a household may be able to reduce dependence on local moneylenders.

Ghost Beneficiaries

Ghost beneficiaries are another form of leakage but since this is a core contribution of Aadhaar’s b i ome t r i c d e - d u p l i c a t i o n process, it is useful to consider it separately. Aadhaar can help to reduce leakage in the form of ‘ghost beneficiaries’, who are not ineligible real people but completely fictitious persons, who exist only in the paper records of the officials administering the scheme. The imperative to match a biometric to each beneficiary would weed out such fictitious records and thus reduce leakage.

Challenges for direct transfer of benefits:

Centre-State coordination:

Most of the schemes have the state governments playing the main role in implementing the scheme. To ensure there is adequate coordination between the reform plans and state-wise implementation is a significant challenge. The government approach of starting with a small scale, establishing the viability and benefits, and then going national, should help in making the case to the other states. This challenge also has a positive side. It is good that there is possibility for states to make changes to what the centre might propose. It is possible that some states may indeed do much better than what the centre may have planned. As we have seen in reforms of health, nutrition and education systems, some states may take lead in innovating, and the centre and other states can learn from their experiences.

Partial coverage of Aadhaar:

Till date, Aadhaar numbers have been provided only to a quarter of the population. If there is any geography where these direct transfer reforms are implemented, but the Aadhaar enrolment is not universal, some beneficiaires could get temporarily excluded. This is a non-trivial problem, and the government ought to ensure that either there is universal coverage of Aadhaar wherever the reforms are implemented, or the old system of transfer is maintained parallely for some time, before it is clear that no beneficiary is going to be left out.

Inadequate development of the banking channel:

Wherever direct cash transfer is involved, the main role of delivering the transfers is played by the banking channel. There are a few challenges that may impede using the channel for transferring benefits:

Only about half of the population has bank accounts, and the coverage of the banking channel is far from adequate. Majority villages do not have conveniently located banking service points to transact. Reserve Bank of India (RBI) has done some reforms to ensure that since traditional bank branches are not viable in most rural areas, business correspondents of banks be made available universally.RBI has also pushed for  opening zero-balance no-frills accounts or “basic savings accounts”, which are special accounts for low value customers. Six years ago, RBI allowed for the business correspodent or the agenting model for banking. This is not long enough time to see full scale of this model. But, the trend is one of rapid scale-up of the business correspondent channel. In the two years from 2010 to 2012, the number of basic savings accounts grew from less than 5 crore to 10 crore, and the number of banking outlets grew from 54,258 to 1,47,534.

The rural banking channels have found it Difficult to become viable, and the business correspondents need to be paid an optimal amount to make sure they process the benefits to the beneficiaries in a high quality manner.

There are infrastructure gaps that impede the development of banking networks in some remote geographies. Connectivity is poor, cash movement is risky, and it is difficult to ensure timely delivery of benefits. These gaps will be covered with time, but till then, these marginal areas must be given due consideration.

Most schemes are presently run on archaic systems, and many do not have it in their DNA to maintain online databases and process the transactions electronically. This poses a considerable Challenge of not just infrastructure development, but also of training and supporting the staffs. This challenge is particularly relevant for schemes where direct transfer of non-cash benefits is being attempted by automating the functioning of the scheme. For example, if PDS has to implement such reform, it would require not just development of a comprehensive database system to maintain the records, it would also require authentication infrastructure in all the PDS outlets, training those who run these shops, and providing ongoing technical support to them. This is a huge challenge in an existing system.

Direct Benefits Transfer: Panacea to remove poverty and inequality in India?

Today primary sector contributes only about 15 percent of GDP but absorbs around 55 percent of the total labour force resulting in huge unemployment and disguised unemployment with low and uncertain income creating high inequality and incidence of poverty in India

India has long been dogged by corruption in provision of basic goods and services to the poor. The subsidies meant for the poorer sections constitute around 2 percent of the GDP which is a huge amount but the actual money reaching the poor is negligible. For example, it’s an established fact supported by evidence both by World Bank and planning commission that a little more than 50 percent of food under public distribution system (PDS) is not reaching the targeted beneficiaries. In this context, for quite some time, the policy makers have been mulling over the idea of Direct Benefit Transfers (DBT) particularly since 2005. The objective of the DBT is to improve efficiency in delivery of welfare subsidy directly to the beneficiary thereby reducing the increasing subsidy burden on the economy. The subsidy regime in India so far has been criticized on the ground that the administrative cost of subsidy delivery is high and characterised by substantial leakages and corruption. Finally, the government initially planned to implement DBT in 51 districts from January 1st 2013 covering 20 welfare schemes to start with. However, it has been implemented in 20 districts covering only seven schemes to begin with due to lack of appropriate infrastructure to implement DBT. The seven schemes include student’s scholarships, stipends, Indira Maturtva Yojana and the Dhanalaxmi schemes.

The bank account and Unique Identity (UID) number are necessary requirements for the cash transfers. Therefore, it is necessary to make sure that poor families who are mostly uneducated and illiterate have bank accounts. So far, only around 40 percent of the total households, mostly the upper top of the pyramid, in India have bank accounts. It’s also not clear how the government proposes to deal with transfers to poor families who don’t have bank accounts. Moreover banks are not also keen to simply open branches in rural areas and open no-frill accounts to help poor people.

There are instances where banks, mostly regional cooperatives banks, have either curtailed or closed their operations in rural areas owing to the unsustainable business model. In case banks even open the accounts and start opening more branches, it is also essential to evaluate whether the banking system has necessary infrastructure such as bandwidth, information technology, staff etc to effectively support the cash transfer system.

Further, the UID programme has not been completed yet. Till now it only covers around 1/5th of the total population. It’s not clear what the alternative is in case the targeted beneficiaries don’t have a UID card. The supporting infrastructure for cash transfers includes also availability of information technology in remote areas which may not be economically feasible for private sector to provide. The first step for successful implementation of cash transfers scheme depends on issuing UID numbers and opening bank accounts to the total targeted population entitled for these welfare subsidies. Government also has to also put in effort to convince, at least encourage and sensitize banks, to improve their operations in rural areas. In other words, government has to improve the financial breadth and depth with the intention of creating financial inclusion and develop information technology infrastructure.

There are already pilot studies showing that households, particularly females in the households, prefer public distribution system than cash transfers. The main reason in support of public distribution is the availability of food in absence of markets nearby. Of course, it’s a unanimous demand that PDS system needs to improve in delivery of quality food items. Government also should try and make conditional cash transfers so that beneficiaries spent the money on intended goods and services. So far the evidences suggest that if money goes to hands of the household women, it is better spent than to male members of the household.

Though the DBT is meant to reduce leakages and to reach the targeted beneficiary, the process needs proper infrastructure to minimise the exclusion and inclusion errors. It has been well documented by now that provision of subsidies, particularly food subsidy through public distribution system has been off target due to exclusion and inclusion errors and also due to leakages by middlemen. The key issues would be identifying beneficiaries and deciding the amount of transfers.

Direct Benefits Transfer through Aadhar : Projected Benefits Estimation

Public Distribution System (PDS)

The PDS system is envisaged to provide food to 65 million households. Studies report large leakages and diversions of subsidised food grains. According to reports almost 58 percent of the subsidised food grains issued does not reach targeted beneficiaries.

One of the reasons for this loss has been identification errors in the PDS delivery system. These identification errors may be due to many reasons. For example, beneficiaries may be non-existent (“ghost”), or may be duplicates, i.e., have obtained multiple identities for the purpose of obtaining subsidies. This study relies on the conclusions drawn by the study conducted by the Planning Commission in 2005 concerning the PDS. It estimated that diversion of subsidised grains to non-existent (“ghost”) beneficiaries at 16.67 percent. It is assumed that utilising Aadhaar in PDS can The expenditure on kerosene subsidies in 2010-11 was around Rs.19,600 crore out of which 38 percent of PDS kerosene does not reach intended recipients. The estimated leakage is 11.1 percent of the subsidy. Again, the estimate is adjusted downwards by 25 percent to account for improvements in the scheme since the study was conducted. So, the benefit from integrating with Aadhar is assumed to be 8.3 percent of the value of the expenditure on PDS.

Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS)

The MNREGS programme is envisaged to provide 100 days of employment to all rural households. The cost of wages under the scheme constitutes about 70 per cent of the total scheme expenditure. In 2011-12, the wage expenditure bill of the government was to the tune of Rs.24,864 crore. In order to ensure that this money reaches the intended beneficiaries, the MNREGS guidelines stipulate Various Transparency and accountability measures in the form of issuance of job cards, maintenance of muster rolls, monitoring and implementation systems and regular social audits.Despite these measures, studies indicate that implementation problems have been encountered in various states.

A key problem with the implementation of MNREGS is diversion of funds, through ghost beneficiaries and inflated/ fake work records. Using the data from various surveys, it is estimated that a leakage of approximately 12 percent is being caused to the government on account of ghost workers and manipulated muster rolls. Study assumes that 5 percent of the leakages can be plugged through wage disbursement using Aadhar-enabled bank accounts and 7 percent through automation of muster rolls.

Education

Sarva Shiksha Abhiyan (SSA) and Mid-day Meal Scheme (MDM) are the government’s flagship programmes in the field of primary education. Under SSA, the government pays for schooling facilities, teacher ’s salaries, textbooks and uniforms for children. The MDM programme addresses the nutritional requirements of the students through provision of cooked meals. The allocation of benefits under these schemes is on the basis of enrolment figures provided by each state.

Fertilizer Subsidy

The government prescribes the maximum price at which fertilizers may be sold. These prices are usually lower than the cost of fertilizers or the cost of importing them. In 2010-11, the entire subsidy bill for fertilizers amounted to about Rs.62,301 crore.

At Present There is no mechanism for identifying and authenticating the individual Farmers who receive these fertilizers. This creates potential for diverting the fertilizers towards non-agricultural uses, which is a problem because the subsidies are justified by the agricultural use. The system also suffers from inefficiencies because of the low level of automation.

The Task Force on Direct Transfer of Subsidies on Kerosene, LPG and Fertilizer has proposed a three phase process of moving towards direct transfer of subsidies into the bank accounts of the beneficiary farmers. Once this process has been implemented, it should be possible to directly transfer the subsidy amount into the bank account of the farmer, when the farmer buys the fertilizer. This should be possible with adequate technology infrastructure. There are no comprehensive studies on the losses due to leakages and inefficiencies in this subsidy schemes. Using the estimates for PDS and MNREGS as benchmarks, the study assumes that using such
an Aadhar-enabled system would result in a benefit of 7 percent of the total value of subsidies.

LPG Subsidy

The government subsidises the rate at which LPG cylinders are sold to the household consumers. The subsidy is not meant for commercial use. There are reports of widespread diversion of LPG cylinders towards commercial use and other forms of leakages in the system. The total subsidy bill for the government in the year 2009-10 on LPG was Rs.16,071 crore.

Though there are reports of raids finding extensive use of subsidised LPG cylinders for commercial purposes, there are no comprehensive studies documenting the extent of leakage and diversion. In the absence of such robust studies estimating the leakage from the system towards commercial use, the study assumes that use of Aadhar would result in a benefit of 10 percent of the value of the subsidy (similar to PDS).

Indira Awaas Yojana (IAY)

Under this scheme , the government provides grants to identified households below the poverty line in rural areas for the construction and up-gradation of houses. The targeted beneficiaries include those belonging to the scheduled castes and tribes, minorities, freed bonded labourers, disabled persons, former members of the paramilitary forces and family of military personnel killed in action. The constructions assistance provided is Rs.45,000 per unit in plain areas and Rs.48,500 in hilly areas. The number of houses under construction sanctioned during the year 2010-11 was 19,52,914. Hence it is calculated that the value of financial assistance given was Rs.8,788 crore. The disbursement of funds takes place through bank and post office accounts.

Other Schemes

Since the transfer of benefits for scholarships, Pensions etc. takes place through bank or post office accounts in these cash transfer programmes, the study assumes that having Aadhar-enabled accounts will result in a benefit of 7 percent of the value of the transfer.

Scholarships

A number of scholarship schemes have been put in place by the government to support meritorious students belonging to disadvantaged backgrounds. Disbursing payments through Aadhar-enabled bank accounts will make the process more efficient and prevent funds from being diverted to bogus bank accounts. The aggregate government expenditure of Rs.4,519 crore on various scholarship schemes has been used to compute the cost savings through integration with Aadhar.

Pensions

Studies find that overall leakages in social pension schemes, particularly old age pensions, are relatively lower than other government programmes. However, leakages do take place in some areas due to duplication and fake entries, and because those who have died are not removed from the records and their benefits continue to be claimed. The study used the budget allocation for the National Social Assistance Programme (NSAP) of Rs.5,110 crore for the analysis

Janani Suraksha Yojana (JSY)

This is a safe motherhood intervention under the National Rural Health Mission (NRHM) intended to promote institutional delivery among the poor pregnant women. It is entirely sponsored by the Central Government and has special dispensation for states that have low institutional delivery rates, classified as Low Performing States (LPS) (as against High Performing States (HPS). The scheme provides cash assistance to all eligible mothers for delivery. The coverage of JSY in 2010 stood at 113.38 lakh women spread across LPS and HPS. The expenditure under the scheme for the same period was Rs.1,600 crore.

Accredited Social Health Activists (ASHA)

According to government data there are an estimated 7,30,909 ASHAS in India. The ASHA is a health activist who acts as the link between the community and the health care system. The initiative is designed to create awareness on health issues, motivate the community, and help improve access to basic health services. The maximum compensation an ASHA can receive is approximately Rs.17,2000 in a year. However, studies suggest that the average amount of incentive per ASHA is lower annually. At an average of Rs.12,000 per annum, the total expenditure on payments to ASHAS is computed at Rs.877 crore.

Integrated Child Development Centres (ICDS)

Anganwadi centres have been created under the ICDS and are part of the public health care and education system. Anganwadi centres are staffed with Anganwadi workers (AWW) and Anganwadi helpers (AWH). As of 31 March 2011, according to government data, 11,74,388 AWWs and 11,04,098 AWHs were in position. AWWs and AWHs are paid an honorarium of Rs.3,000 per month (for AWWs) and Rs.1,500 per month (for AWHs).

Courtesy : IAS Master