These subsidy payouts should be interlocked with foolproof debit cards. Without this, the possibility of cash being diverted towards undesirable ends is very real.

When a depositor in a Capital Gains Account Scheme, 1988, seeks to withdraw, the bank not only asks him to produce the relevant documents from the builder, but takes the additional precaution of issuing a banker’s cheque in favour of the builder.

The precautions are designed to foil diversion of deposits made for reinvesting in a house within the prescribed time, in return for the taxman granting exemption from long-term capital gains tax here and now. Kisan credit cards too, have an in-built interlocking device to frustrate diversion of funds, placed at the disposal of farmers, for purposes other than farming.

Something similar must be done with the funds transferred under the various cash transfer schemes of the governments.

The Central government would soon be directly making cash transfers of various subsidies and entitlements, such as old age pension, in as many as 51 districts on a pilot basis, and hopefully would learn many a lesson from it so that the cash transfer regime is gradually made as foolproof as possible.

But unlike in the case of Capital Gains Accounts Scheme, it would be impossible to issue a banker’s cheque to the designated kirana store in a locality, given the fact that foodgrain and sugar traders are ubiquitous. It would just not be possible for a single trader, or at best a couple of traders, to cater to the requirement of the entire locality.

Dangers of cash

Cash transfer, in lieu of distribution of foodgrains through fair price shops, would plug leakages, wastages and huge expenditure on food bureaucracy besides rendering redundant considerable procurement and storage costs of the Food Corporation of India (FCI).

But the flip side is that cash bristles with dangerous possibilities. The amount swept into the bank account of the head of the family with a click of the mouse would lend itself to diverse uses, given the fact that cash is the most fungible of commodities.

The money earmarked by the government for food thus could be diverted for drinking, smoking, gambling and other dubious activities. Even if the deposit is made into the account of a woman, there is no guarantee that the domineering male can be tamed or reined in. Should the males go on a rampage thus in large numbers, punch drunk with the fresh moolah pouring in, the strategy of cash transfers, described as game-changer and vote catcher could well boomerang, with women especially voting angrily against the UPA dispensation.

But it is not as if men alone would be in the wrong. Women too might be tempted to divert the funds to please the biradari by indulging in social spending like dowry and lavish marriages. Unlike an ebullient male, she is, however, likely to squirrel away some part of the cash transfer so that she can be seen keeping up with the Joneses.

Fresh lease of life

Inevitably, therefore, the government will have to set up more super bazaars and Kendriya Bhandars across the country, from which alone the BPL segment should be allowed to purchase foodgrain, sugar and other items on offer.

Tailoring debit cards payable to these institutions alone seems to be the only workable solution. What this would mean is the employees of FCI, hitherto functioning as procurers, packers and storekeepers may have to morph into the roles of distributors and unpackers, as it were, working with a new employer.

In other words, the distribution of foodgrains for those entitled to food subsidy must be nationalised. As of now, it is in private hands.

One may turn around and say -- what is wrong with a few private dealers bagging this lucrative job through a competitive bidding process?

Well, a private trader may be amenable to obliging his customer by giving a bill for food-grain whereas what he has actually sold is toiletries and beauty products. Government-owned shops are less amenable to this sleight of hand and diversion.

Private trade, however, would be very much in the loop. FCI can be mandated to call for tenders, district-wise or otherwise, in the run-up to every harvest season, with the broad objective of food grains and other items on offer being delivered to various branches of Super Bazaars and Kendriya Bhandars on ‘Just in Time’ inventory basis (JIT). This would obviate storing and handling costs for the exchequer without there being a stock-out.

Adieu to Food Security Bill

In the hullabaloo over the cash transfer announcement, the commentariat has forgotten to glean a significant but unspoken message in the air --- the setting aside of the Food Security Bill.

The centrepiece of the Food Security Bill was the gargantuan food bureaucracy with its omnipresence across the country.

The FCI would have got fresh sinews and more food grains would have rotted in the open. Community kitchens would have sprung up across the country in an unseemly throwback to the Dickensian era.

It goes to the credit of Congress President Sonia Gandhi, the purported brain behind the Food Security Bill, that she has heeded the advice of those who made a pitch for cash transfer. The Bill, despite its pious intentions, would have leaked like a sieve, besides setting off a scramble for meal tickets.

Direct cash transfer is any day a better alternative, except that it bristles with the problem of diversion which can, of course, be addressed. But then what applies to computer software applies to cash transfers as well --- garbage in garbage out. The success of cash transfer hinges on the success of Aadhaar.

There are reports that Aadhaar has been issued indiscriminately at several places without proper checks. In the event, willy-nilly, the doles may be swept into the bank accounts of undeserving persons. In areas where banks are conspicuous by their absence, the void, according to Finance Minister, P. Chidambaram, would be filled by banking correspondents whose integrity must be beyond reproach.

The hand-held ATMs taken to doorsteps of accounts holders would encourage sleight of hand on their part and a scramble among family members. That is why foolproof debit cards must be integral to cash transfers, indeed its lynchpin. A debit card that ironically does not lend itself to withdrawal is what the doctor has ordered.

(The author is a New Delhi-based chartered accountant)

(This article was published on December 3, 2012)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.