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Economy Nov 21, 2012

Is govt’s direct cash transfer plan working wonders?

By Rajesh Pandathil

Will the government be able to belie doubts over direct cash transfers? Initial indications are it will.

Direct cash transfer is an ambitious government plan to transfer subsidy as cash directly to poor families-the target population of such subsidies. The plan is to link cash transfers to Aadhar.

This, it hopes, will help it cut the transmission and distribution loss in the present subsidy programme.

As per the plan, the government will start the project in 51 districts from 1 January 2013. By next year-end, it will be rolled out across the country.

The government is piloting the cash transfer project in Alwar in Rajasthan. Reuters

The government is piloting the cash transfer project in Alwar in Rajasthan.

However, doubts have been expressed that the Congress's rush to start the project is aimed at canvassing voters.

The UPA's rush to implement cash transfers in lieu of subsidies can also be seen as a pre-election reform that will be like a fully legal bribe to the voter, an earlier Firstpost article had argued.

But the Alwar experiment may be offering some hopes for the government.

In Alwar, kerosene supplied through public distribution system was replaced by cash transfer to the target consumers.

"In a brief period, the monthly off-take of kerosene in the district dropped from 80 kilolitres to only 14 kilolitres, or by 80 percent," said an article in the Business Standard today.

This is significant because kerosene supplied through PDS is largely diverted for adulteration of auto fuel.

That the present subsidy programme is not reaching the needy a widely accepted fact. According to the finance minister, the government spends "Rs 3.65 on transferring Rs 1 to the poor", the BS article said.

The diversion of kerosene is just one instance of the failure of the present misgoverned subsidy programme.

The 80 percent fall in kerosene sales in Alwar "reveals the extent of diversion (for adulteration) that has been taking place", the BS article says.

So if the government manages to put all necessary systems in place, cash transfers are sure to help the government cut the T&D loss in the subsidy system.

But that is a big if because, as pointed out by an earlier Firstpost article, the success of thecash transfer scheme hinges on plugging the leaks. Big holes have already been spotted in the new system also.

The Bangalore police had recently busted a fake unique ID (UID) racket and also seized thousands of fake UIDs with official Aadhaar logos. Reports said five persons had been issuing them.

"The system needs to be made leak-proof if it is to achieve the objective of ensuring subsidies are better targeted at end-users, without interlopers and con artists walking away with the money," the Firstpost article had said.

by Rajesh Pandathil

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