Are direct cash transfers feasible for welfare schemes? - YES

A. Srinivas | Updated on March 12, 2018 Published on November 30, 2012


From January 1, the Centre will begin the implementation of cash transfers for its welfare programmes in 51 districts – in other words, transfer of the subsidy amount directly into the bank account of the beneficiaries.

Students’ scholarships and pension payouts are expected to be the first off the block.

This would be extended to LPG, fertiliser, MGNREGA and Indira Awas Yojana, among others.

The study by National Institute of Public Finance and Policy on the benefits of direct cash transfers concedes that while all forms of leakages cannot be plugged, those pertaining to non-existent or duplicate beneficiaries can be weeded out through Aadhaar.

Even if these leakages are conservatively estimated at less than 10 per cent of the total subsidy bill, as the study has done, it amounts to a substantial annual sum, given the subsidy bill of about Rs 300,000 crore.

Therefore, there is no need to be dismissive of the potential gains arising out of the Aadhaar technology.

It will help the migrant population avail of state services.

The Rs 30,000 crore or so saved can, in fact, be used to raise welfare spending, as it would rob fiscal diehards of the argument that such expenditure is wasteful because it does not reach the final beneficiary.

The benefits will be perceptible in areas where fake identities are the norm, such as in MGNREGA, pension and scholarship payouts. In the case of LPG subsidy, where the beneficiaries include taxpayers, correct identification could enhance tax compliance.

The same model could be extended to diesel subsidy, depriving private vehicles of the benefit and bringing their owners under tax scrutiny. As the study points out, the diversion of fertiliser to other uses can be checked.

However, as Jean Dreze of the Delhi School of Economics points out, cash transfers should not be used as a pretext for the state to abdicate its social responsibilities – in other words, where the state decides that health services and education can be provided by the private sector and all that it has to do is channel the subsidy into bank accounts.

Dreze cites the example of Brazil where cash transfers co-exist with much higher levels of public spending on health than in India.

Leakages will occur, no matter how competent the delivery system, if short supply of services is not tackled.

In sum, cash transfers are not an unmitigated evil.

Also read: Are direct cash transfers feasible for welfare schemes? - NO

Published on November 30, 2012
This article is closed for comments.
Please Email the Editor