MNREGA moment

The Prime Minister had earlier said the unique identity number would help 1.5 crore students get scholarships, 2 crore elderly get pensions, 3 crore avail health insurance and 5 crore people get the benefits of MNREGA.

The scheme will be the UPA government’s calling card in the 2014 elections. It is being viewed as “MNREGA moment” for UPA-II, which has been facing a rash of corruption scandals and accusations of policy paralysis over the past two years. MNREGA was the differentiator for the UPA in 2009 and the direct cash transfer scheme has been called a “game changer” by Finance Minister P Chidambaram. Every plan has its pitfalls and even MNREGA, considered widely successful, has been criticised for having hurt both agriculture and industry.

Though it will be an important governance reform, the scheme has clear political goals in the run-up to the 2014 elections. Chidambaram and Rural Development Minister Jairam Ramesh used the Congress headquarters in Delhi to announce the rollout of the scheme instead of a government platform.

Jairam Ramesh said the scheme was called “Aapka paisa, aapke haath” — the “haath” or the hand also happens to be the Congress symbol. In 2009, the Congress had gone to the people with “Congress ka haath aam admi ke saath”. Since Arvind Kejriwal has named his party the Aam Aadmi Party (AAP), the “aam admi” pitch may have to be tweaked differently.

Ambitious target

Congress heir apparent Rahul Gandhi will brainstorm on the scheme with district Congress presidents of the 51 districts where the scheme will be rolled out in the first phase on January 1. The political message is clear as the scheme was announced at a Congress rally near Jaipur last month.

The target is ambitious — to cover the entire country by next year and before the next general election. There is a huge task cut out for the government — cards have to be made, bank accounts opened even in remote areas, records have to be digitised and seamless implementation of the scheme has to be ensured. The Indian system is not known for governance delivery and while there is no dearth of good schemes, implementation will be the key.

Sources say even though a proper database is available, pensions are not reaching the beneficiaries. Considering that the direct cash transfer is on a much bigger scale, it will have to be implemented effectively. Ramesh Adige, a public policy expert, says: “It can be a reality, wherein every household in India, particularly in the rural areas, can have a bank account based on the Aadhaar card by 2013-end. With their large branch network assisted by banking correspondents, public sector banks will be able to do this. District collectors will also have to play an important part in successfully rolling out the financial inclusion and direct cash transfer scheme.”

Fiscally neutral

The optics of a scheme is important. What Aadhaar seeks to do is not only ensure that the government dole reaches the beneficiaries by cutting out middlemen and leakages in the system, but also transfer cash instead of goods in their accounts. Though the scheme is fiscally neutral, it makes people feel richer as earlier they were getting goods, and now it is coming in the form of cash. Apart from the benefits of cutting pilferage, it creates a feel-good ground swell among the poor, who never had a bank account or cash, and now see it coming from the government.

The scheme’s biggest advantage is cutting leakages, falsification and corruption. The government has estimated that there are several advantages of moving benefits to direct cash transfer system. These include improved benefit targets, checking corruption and eliminating waste arising out of poor targeting and leakages as a result of corruption. It is also intended for checking waste in subsidies, and as an entry point for reforming subsidies for better targeting, cutting out duplication and eliminating leakages. Adige says: “The greatest benefit of direct cash transfer is that there will be no bogus muster roll. Money (subsidy) will reach the actual beneficiary and leakages will be eliminated.”

The fear, however, is whether cash, instead of goods, can be utilised properly for the intended purpose. In land acquisitions, it is often seen that money is frittered away and the source of income, land, is also lost. “There is a possibility that the money received by direct transfer would be misused by the beneficiary for unnecessary and wasteful expenditure. This may cause serious social problems like alcoholism, gambling and drug addiction. The below poverty line (BPL) family may be shattered,” says Adige.

To begin with, 29 government schemes have been identified for rollout in the initial phases. Food and fertiliser subsidies have been kept out as they are deemed complex. Subsidy will be the most difficult to implement as not all people will get it. The eventual target is to move to cash transfer for all schemes, entailing Rs 3.4 lakh crore.

Banking spread

Enrolling and opening bank accounts across the country is a challenge, as is ensuring that there is no misuse of accounts and ATM cards. Given the financial literacy levels in the country, the jury is still out on it. On the financial inclusion front, it has been mandated that there should be no resistance in banks to open no-frills accounts and there should be no need to have separate accounts for each scheme. For the goal of financial inclusion, the banking system will need to integrate the post office network, especially in the rural areas. The banks will have to ensure that the front end infrastructure is in place across the country, so that people have no trouble in opening accounts and withdrawing or depositing cash.

As part of the rollout plan, various ministries have to digitise their database, most of which are with the states, and seed them with Aadhaar numbers. The electronic transfer of benefits is a simple change as the transfers are already taking place and the only modification would be movement from a paper-based, cash-driven system (with or without the use of banking channels) to an electronic direct transfer system. Pilot projects are taking place in Andhra Pradesh, Chhattisgarh, Punjab, Rajasthan, Tamil Nadu, West Bengal, Karnataka, Puducherry and Sikkim.

Aadhaar penetration

Database digitisation of beneficiaries, both at the state and Central level, is critical for rolling out cash transfers. It has been estimated that the tipping point for rolling out cash transfers would be an Aadhaar penetration level of 80 per cent of beneficiaries. The Unique Identification Authority of India (UIDAI), headed by Nandan Nilekani and rolling out the cards, has been asked to ensure that this target is achieved. So far, 21 crore cards have been registered.

Nilekani headed a task force on direct transfer of subsidies on kerosene, LPG and fertiliser. Oil companies have launched LPG transparency portals to reduce leakage. A pilot project for selling LPG at market price and reimbursement of subsidy directly into the beneficiary’s bank account is being conducted in Mysore. A similar project for kerosene has been initiated in Alwar, Rajasthan. The Aadhaar platform has been used to validate public distribution system ration cards in Jharkhand.