THE United Progressive Alliance government in India is embarking on an ambitious, ‘game-changing’ programme from the New Year, transferring cash subsidy directly to bank accounts of the poor.

The direct benefit transfer (DBT) scheme will hopefully result in cutting down on wastage, corrupt practices by middlemen, petty bureaucrats and local politicians, and importantly, boost the sagging government’s image that has been battered in recent months.

Initially to be rolled out across 43 districts, the project will cover 34 identified central sector or sponsored schemes, mainly related to scholarships. Gradually, it will be expanded to cover millions of poor families across the country by 2014, or just before general elections, and will include subsidies relating to food and fuel.

DBT envisages transfer of subsidies directly to the beneficiaries, instead of doling it out through state government agencies, contractors and petty officials. While most of the poor do not have bank accounts at present, the government has directed nationalised banks to offer no-frills accounts (with zero minimum balance), where the DBT funds will be transferred.

The beneficiaries would theoretically be having unique identification (or Aadhaar) biometic cards, which would ensure that only genuine individuals would get the subsidies.

The UPA government had launched a similarly ambitious — and by now partly successful — National Rural Employment Guarantee Scheme just before the 2009 general elections. Many in the Congress — which dominates the UPA — believe that the party was voted back to power because of the scheme, which ensures partial employment during a year to at least one member of a poor family.

The UPA has been toying with other social welfare schemes including the Food Security legislation, to be launched before the 2014 elections.

However, the government has been wary of introducing the legislation because of the heavy burden on its finances. The DBT though is being seen as a win: win formula, as millions of poor people across the country will get cash in hand.

While initially the scheme will target only educational scholarships and other aid for children of poor families, the government aims to gradually expand coverage to include food, fuel and fertiliser subsidies.

“The funds that are provisioned for direct benefits like pensions, scholarships and health-care benefits must reach the intended beneficiaries without delays and leakages,” declared Prime Minister Manmohan Singh while launching the scheme. “Apart from these direct benefits, the government also provides an amount of over Rs3 trillion (about $55 billion) in subsidies which too must reach the right people.”

Ultimately, each BPL (below the poverty line) family is expected to get Rs3,000 to Rs4,000 a month transferred to their bank account by way of various subsidies.


THE concept of direct cash transfers has had a mixed response in other developing countries. It has proved to be successful in Brazil and Mexico, but in some African countries the gains have been marginal.

There are fears in that in a large country like India — where the number of poor runs into hundreds of millions — DBT might end up as a disaster, especially when it relates to transfers of subsidies for commodities such as food and fuel, but not in the case of transfers of pensions, scholarships or unemployment benefits.

Finance minister P. Chidambaram asserts that the government has not devised or implemented the scheme in a hurry. “Our watchword for the scheme is we will not hasten, will implement it slowly, step by step,” he says.

According to him, DBT will lead to seamless transition. “We believe that the new system will be more transparent,” says the finance minister. “It will eliminate leakages, delays and falsification. The government firmly believes this will introduce a very high degree of efficiency and transparency.”

A major test for the success of the scheme will be in the transfer of subsidies for cooking gas. The government recently laid a cap on sale of subsidised cooking gas. While in the past, state-owned oil marketing and refining companies and the government bore the cost of subsidies on the sale of liquefied petroleum gas (LPG), the government imposed a cap of six subsidised cylinders a year.

It hopes to transfer the subsidy amount to the bank accounts of cooking gas subscribers. Similarly, the scheme could be expanded to cover kerosene subsidies, which are given to BPL families and even for diesel, another highly-subsidised fuel.

Pilots of DBT are already being carried out in states such as Rajasthan and Karnataka and have proved to be successful. But transferring cooking gas subsidies on a large scale can prove to be challenging, especially since many consumers have still not got their biometrics-based unique identification numbers.

In fact, the initial launch in January itself could face problems as more than half the population in nearly a third of the 43 districts selected for the launch does not have Aadhaar numbers. Overall, only about 55 million of the 85 million beneficiaries in these districts have the unique identity numbers. In some districts, barely 15 per cent of the beneficiaries have the unique numbers.

But the government is making serious efforts to ensure that Aadhaar coverage in the 43 districts is enhanced and that beneficiaries also have bank accounts. Chidambaram met the collectors of all these districts and has also been urging nationalised banks to open branches.

***** A MORE ambitious roll-out of a similar scheme has been undertaken by the Delhi government, which has just launched its flagship food security programme, ‘Dilli Annshri Yojana,’ which will cover almost half a million poor people. The scheme envisages a monthly food subsidy of Rs600, to be transferred to each beneficiary’s bank account every month.

While many NGOs and activists have criticised the government for rushing through the project, especially with an eye on the 2014 elections, the biggest opponents of DBT are the ration shop dealers, who fear their businesses will be destroyed.

The All India Fair Price Shop Dealers’ Federation, which represents the thousands of ration shops in the country, observed a daylong strike last week protesting against the government’s DBT scheme. “The government should strengthen the existing public distribution system across the country so that BPL and APL (above poverty line) families gets food to eat,” said Biswambhar Basu, general secretary of the Federation.

Demanding immediate withdrawal of the scheme, Basu said it would destroy the public distribution system (PDS) in the country. Of course, the PDS is one of the most inefficient schemes in India, riddled with corruption and wastage.

The system of issuing ration cards is also outdated and there are several instances of irregularities, with even affluent people being issued cards meant only for BPL families. The PDS is also misused, with many middlemen stealing the subsidised food and fuel (especially kerosene) and selling it in the black.

The DBT essentially aims to address these issues of wastage and corruption and ensure an efficient delivery of government subsidies to the deserving poor. Obviously, vested interests — who stand to lose most — have started hitting back at the scheme. But the Congress-led UPA is in no mood to listen and is keen on pushing ahead with it.

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