Sunday, January 27, 2013

Cash transfers

There are indications that the government is having second thoughts on cash transfers- it is being restricted to fewer schemes in fewer places. This is appropriate. Without rigorous testing and feedback, the scheme can give rise to serious problems.

There are two issues here. One is the use of cash transfers for existing payments, some of which are made in cash and the rest by cheques. Another is the use of cash transfers in lieu of subsidies.

As for as the first is concerned, transferring directly to bank accounts should be fine in principle. Still, one must question whether such transfers need to be linked to Aadhar at all. Where pensions or loans are concerned, identities of individuals are not an issue. It is not clear why somebody, who has a bank account to which funds are to be transferred, should have an Aadhar identity as well, unless the idea is to give Aadhar itself wider currency. In the case of MNREGA, perhaps, Aadhar may help to avoid duplication of payments to individuals but this has to be clearly established through trials.

Cash transfers in lieu of subsidies built into prices of foodgrains are a different matter altogether. Paying cash may not ensure availability of food; and it is hard to find out what the market price for foodgrain is at a given point in time at a given place and, therefore, whether the cash transfer is adequate to enable purchase of the necessary quantities of foodgrain. Nor can cash transfers mean the dismantling of PDS. If the idea is to plug leakages in PDS, then it is important to take into account the fact that, in several states, leakages have been greatly reduced. These practices must be emulated elsewhere instead of opting for cash transfers to Aadhar accounts.

A letter signed by several economist and social activists in EPW says it all. It should be compulsory reading for those involved in making policy on cash transfers.

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