The direct cash transfer scheme for the poor is a preparation for gradual elimination of subsidies. We now plan to tackle the issue of poverty directly! Subsidies were introduced to benefit the poor who can buy food and other commodities at a rate lower than the market rate. Food and fuel subsidy were the most prominent one. As in case of every government scheme this scheme too was misused by the middlemen. Food and fuel meant for the poor were siphoned off by the middlemen, who procured them at low prices and sold in the general market at high market prices. The actual beneficiaries had no option but to buy from the market, because the ration shops showed ‘No stock’ sign! The Direct Cash transfer scheme is meant to plug such loopholes.
Benefits of Direct Cash Transfer
Well, the most obvious benefit that comes to the mind is that the poor will actually get the money meant for them. This is because, under this scheme, the allotted money will be directly deposited in the beneficiaries bank account; so no role of any middlemen.
Secondly, when cash is given, people have the option to buy things according do their specific needs and priorities.
Third, it also leaves the option of saving if any, which people can use as they wish or earn interest in their savings account.
The bank account is to be opened in the name of the female head of the family, because women are more cautious and judicious when it comes to spending on family needs.
The benefits considered for the government is, this is a simpler form of welfare program. The government will not have to bother about disbursement of different items, through various sources. There will be no need to buy, collect, store and sell food items. The large number of people involved in completing the entire chain will no more be required. The government can thus save on their salaries and on the maintenance of all the infrastructure required. It will simply have to transfer the allocated money to the bank account of the beneficiaries.
This scheme is also expected to bring down corruption, by removing the sources of leakages in the chain.
How does the scheme operate
To analyse the pros and cons of the scheme we need to understand how it will function. Here is a simple step by step cycle of the proposed Direct Cash Transfer Scheme; how the poor will get the money -
1. The beneficiaries (who should have the Below Poverty Line card) have to get a UID (Unique Identity).
2. Give biometrics (fingerprints and retina scans) at the nearest Aadhar enrollment centre and get the Aadhar number.
3. Open a bank account. Aadhar number is enough to fulfill the ‘Know your customer’ forms.
4. Ensure Aadhar number and account number are harmonized to enable receipt of direct payment.
5. Business correspondents, not bank branches, will disburse the funds. Local business correspondents could be anyone nearby, like the grocery store owner, tailor etc., or anuone authorized by the bank. So the beneficiaries will not have to go far in search of a bank.
6. Beneficiaries can withdraw their full or partial entitlement, depending on the scheme.
7. Give Aadhar number and cross check biometrics on micro ATM, which will be with the local business correspondents.
8. National Payment Corporation of India is the nodal body to electronically clear the payments.
9. Business correspondent gives the cash directly in the hands of the beneficiary.
10. The correspondent is compensated by the bank. An Equivalent amount is deposited by bank directly to correspondent’s bank account immediately.
11. Government will pay a commission of 3.14% (upto a maximum of Rs. 20) per transaction to the correspondent.
(Ref: India Today, December, 17, 2012)
Apprehensions about the scheme
The very basic requirement of opening a bank account itself raises a couple of doubts. First, are the country’s poor literate enough to open and understand bank operations? Illiteracy is the root of most problem of the poor. Operating a bank account may seem to be a monumental task for people who can barely manage to keep account of their household expenses! Secondly, does the country have enough bank branches in every village and remote areas?
These drawbacks mean that the illiterate poor have to again depend on someone to do the bank formalities. They may also have to bribe the local business correspondent to get their due. There is also the likelihood of the correspondent cheating the illiterate and ignorant beneficiaries. The government may free itself from maintaining a huge infrastructure and save on that front, but the problem of corruption still remains!
What about inflation? The increment in the cash entitlement will have to keep pace with the rate of inflation in the country. Otherwise, there will hardly be any benefit for the poor, who do not have any savings to fall back upon, during difficult times.
Lastly, what is the guarantee that the poor will use the money for the right purpose, and not spend it on unnecessary items like alcohol or luxury? Dominant family members may not allow the woman to whom the money is given, to spend it wisely, according to her choice. She may have to give away the money to the dominant male members in the family!
Thus, in spite of the sincere motive, a lot still seems to be lacking. The scheme requires a lot more brain storming to make it truly beneficial and help eradicate poverty. Otherwise it will meet with the same fate as the earlier schemes. Some countries have implemented such schemes with conditions attached. For example, a person will be entitled for the money only till the graduation of the children. The aim is to see real benefits from the money. The money should help the poor to come out of the vicious circle of poverty and rise higher in the social and income level. The progress should be visible!