3 December 2012

Direct Cash Transfer (DCT) Scheme of UPA2 Government-A Study

Conditional cash transfer (CCT) programs aim to reduce poverty by making welfare programs conditional upon the receivers' actions. The government only transfers the money to persons who meet certain criteria. These criteria may include enrolling children into public schools, getting regular check-ups at the doctor's office, receiving vaccinations, or the like. CCTs are unique in seeking to help the current generation in poverty, as well as breaking the cycle of poverty for the next through the development of human capital.
Cash Transfer (CT) Schemes –World View
Cash Transfer (CT) Schemes more than that Conditional Cash Transfer (CCT) Schemes are implemented all over the world. It began in some industrialized nations during the 1960s aimed at workers, unemployed and the aged. However, the schemes became popular and widespread with their introduction in the Latin American countries such as Brazil and Mexico in the 1990s.Schemes like Bolsa Escola/ Bolsa Familia,(Brazil1995/2003) and Progresa/Oportunidades (Mexico 1997) have evolved into a sort of models for other countries.
Latest reports suggest that about 35 countries are experimenting with one or the other form of CTs, spread over Europe, Latin America, Africa and Asia. Countries like the USA, Germany, France, UK, Norway, Sweden, Japan and Australia are not excluded.
A CT Scheme known as ‘Opportunity NYC’, funded by the Rockefeller Foundation was launched in New York City in April 2007, and ended on August 31, 2010. The program built on the conceptual framework and success of international conditional cash transfer (CCT) programs and was the first major CCT initiative implemented in the United States. The principal objective of Opportunity NYC Family Rewards was to test the impact of monetary incentives on children’s education, family health and adults’ workforce outcomes
Some Asian developed countries like Bangladesh, Combodia and Philippines too have recently introduced CT programmes of their own.
A number of bodies of the UNO and the World Bank are playing a role in formulation and implementation of these schemes and conducted a number of studies on their implementation and the impact thereof. Almost all of them are appreciative of the results and advocate similar schemes in countries where welfare measures, particularly the in-kind subsidies, are given to people.
Benefits from CCT
·       Under the CCT scheme implemented in most of the countries, money is directly provided to the poor families after entering into a “social contract” with the beneficiaries —- for example, the cash is paid on the condition that the beneficiary should send the children to school regularly or bring them to health centers. The cash provided is expected to bring in emergency assistance to the poor while the conditions promote longer-term investments in human capital, in terms of increased health and education. The cash is generally paid to the female member of the family.
·       The burden of the scheme on the exchequer is also not heavy when compared with the benefits accrued to the society. The CCT scheme of Brazil, for example, which is treated as the largest single anti-poverty scheme in the world, covers 11 million, a quarter of the country’s population, and yet it involves an outlay only equal to 0.8% of the GDP. Similar is the experience in Mexico where, too, 25% of the people are covered under the scheme.
·       The administrative costs under the scheme are also not much. In Mexico, for instance, though $1.34 was spent for providing one dollar during the initial year, it has now come down to 5 cents after putting the necessary infrastructure in place.
·       Impressed with this success of CCTs, the World Bank has decided to lend $2.4 billion in 2009 to support CCT operations in 13 countries. The Bank, in its recent review at Washington, found the scheme to be addressing multiple objectives of health, education and nutrition. It was also found that the scheme’s administrative costs are relatively low; it can better target the poor than the other schemes; it empowers the women; gives freedom to the families to priorities their expenditure; and has a positive impact on the overall welfare of the poor.
·       More importantly, it helps to boost the demand for goods and services to encourage higher output and employment. This is seen as greatly advantageous by governments all over the world to bring the economies out of recessionary spiral while helping the poor to cope with the situation. In fact, it is claimed in countries like Brazil that CCT could insulate the poor from the ongoing world economic crisis.
The Brazil Model - Bolsa Familia
Brazil's cash transfer scheme Bolsa Familia is improving the lives of the poorest and it is another example of how the emerging economies are increasingly becoming players in the global debate on aid and development. The biggest and best known of all the cash transfer schemes in the developing world is the Bolsa Familia in Brazil. Since 2003, 12 million families have joined the scheme and receive small amounts of money (around $12 a month). Inequality has been cut by 17% in just five years. The poverty rate has fallen from 42.7% to 28.8%. Such is the fascination in this "social technology" that Brazil is now being sought for advice on cash transfer programmes by countries across Africa (Ghana, Angola, Mozambique), the Middle East (Egypt, Turkey) and Asia (including India). Even New York City has implemented a version of the programme.
"It's social policy diplomacy," suggested Dr Romulo Paes de Sousa one of the ministers involved in the Brazilian programme, , He's delighted by the interest. "Brazil is developing a new model of donor whereby we give expertise as well as aid. Brazil is already one of the largest donors of food aid in the world." He is also struck by the paradox that Brazil is expanding its welfare state just as Europe is cutting back on welfare. There are some aspects of the programme, he explains, which have attracted particular interest. The first is conditionality. The payments are dependent on the family's children staying in school until 17, and attendance must be at least 85% up to 14 years and 75% for the remainder. Another form of conditionality is that children get the full set of vaccinations in their first five years and that mothers attend pre and post-natal care."Bolsa Familia has definitely contributed to the improvement in infant and maternal mortality that we are seeing in Brazil," said Dr Paes.
One of the advantages of the conditionality is that the investment in welfare has a real bang for its buck. For just 1% of GDP, Brazil is simultaneously boosting education levels, improving dire health indices and reducing poverty. What has been controversial is the transparency. All the names of recipients are publicly available on a website. Individual claims can and have been checked. Anyone can report abuse. But it's working. Independent evaluations found that 80% of the money is reaching the poor; pretty good in a country in which welfare has been dogged by corruption.
One clever aspect of the programme was to put all payments through the banking system. Recipients use a debit card to draw out the money from their bank accounts at ATMs. The registering of claims is a more complex process and since the scheme started in 2003, a network of social services centers has increased from 1,000 to 9,000.
Inevitably, the programme has led to criticism that it will generate a dependency culture. Unlike another comparable programme in Mexico, it is not time limited. But Dr Paes points out that the level of support is low so it is designed to supplement income from a job, never replace it. It helps that studies of its impact show how the injection of this cash into particularly poor communities is helping stimulate the local economy. Other studies have shown that the vast bulk of the money is spent on necessities such as food, school supplies, clothing and shoes - that helped squash arguments that if you gave money to the poor, they would simply spend it on alcohol.
Such evaluations (including publications by the World Bank) have helped the programme win legitimacy, but Dr Paes admits it was very hard at the beginning, when the Brazilian economy was weak, to persuade middle class voters of this disproportionate investment in the "bottom of the pyramid". "It's got easier since then as the Brazilian economy has grown," he added. It seems as long as everyone's share of the cake is growing, the middle classes are prepared to tolerate this modest degree of redistribution.
Bolsa Familia is another example of how the emerging economies – such as Brazil and China – are increasingly becoming players in the global debate on aid and development. Dr Paes saw Brazil as now being in the driving seat in helping to forge new welfare models for export.
The reasons for mooting an alternative scheme like direct cash transfer (DCT) or conditional cash transfer (CCT) in India.
·       The reasons for mooting an alternative scheme like direct cash transfer (DCT) or conditional cash transfer (CCT) include the failure of the existing myriad schemes of poverty alleviation or targeted poverty reduction programmes (TPRPs) with ‘top-down’ approach and the many leakages in their implementation whereby the benefits did not reach the targeted people to the full extent.
·       It has been acknowledged that much more than half of the amounts  spent on welfare measures are pocketed and wasted due to leakages, inefficiency, poor infrastructure and other such problems. Former Prime Minister Rajiv Gandhi once commented famously that only about 15% of the allocations reached the beneficiaries.
·       Faulty implementation has resulted in inefficient functioning of the programme, leading to diversion of benefits by intermediaries, exclusion of the most vulnerable and appropriation by the ineligible groups.
·       It is estimated that the subsidies on food, fuel and fertilisers aggregate to Rs 200,000 crore, but only a fraction of it actually benefits the poor people. The leakages are so heavy in certain schemes, such as the public distribution system, that as per one estimate only 11% of the amount spent actually reaches the poor.
·       Although there have been some schemes of DCT in India since the 1960s, like the old age pensions, they are not in the form now being contemplated, influenced by the ones in practice in many countries across the globe, particularly in Latin America.
CCT/ DCT in  India
In India too, the subject of CCT is widely being debated. In India cash transfers are not a new thing. The aged, students, physically challenged and girl children are already in receipt of money benefits. Both the Centre and the States have been implementing such schemes.
The Planning Commission constituted a working group in December 2008 to consider the introduction of CCT in India. It has also earmarked Rs 9,000 crore under XI plan for CCT, mainly in the area of maternity and child benefits.
Telugu Desam Party announced in its Election Manifesto for 2009 State Assembly elections, the Scheme of cash transfer to people’s account to directly attack poverty. The scheme offered by a local Party in Andhra Pradesh, has the potential to create a similar demand all over the country. The scheme envisages direct monthly payment of Rs 2,000 to the poorest of the poor, Rs 1,500 to the poor and Rs 1,000 to middle class families. The cash will be electronically transferred to the beneficiary’s account in a nationalized bank, opened with the facilitation of the government. The female member will draw the money through an electronic cash card or automated teller machine.
Bihar CM Nitish Kumar said Bihar has already implemented the cash subsidy payout to beneficiaries in several schemes. Bihar government has been paying cash subsidy directly to students to buy cycles under a scheme. The money is directly made available to students for school uniforms to avoid any leakage.
In his budget speech last year, then-Finance Minister Pranab Mukherjee had announced that UPA2 was planning to reroute subsidies in kerosene, fertilizers and LPG as cash transfers to beneficiaries.
On November 26, 2012 Prime Minister Manmohan Singh formally announced the launch of much-awaited Direct Cash Transfer Scheme. 10 lakh households in 15 states and 3 Union Territories would benefit under 29 welfare schemes that are being operated by various ministries through Aadhar-enabled accounts. The scheme proposes to transfer subsidy amount that is given away by various departments of the government for the poor and the deserving, directly to the bank accounts of beneficiaries.
29 schemes of the government, including those from the Health Ministry, would be part of this scheme. The scheme should also eliminate falsification and duplication with regard to subsidies. The Indian government provides INR 3.2 trillion (US$57.7 billion) in subsidies every year.
Every person is expected to hold a bank account to enable such transfers. Initially, 29 welfare programmes out of over 150 subsidy schemes operated by different ministries of the Central Government will be covered. These 29 are largely related to scholarships and pensions for the old and disabled. It may also include fuel subsidy. According to government sources, it would consider the feasibility of cash instead of food (under the Public Distribution System) and fertilizers, at a later stage.
It will be implemented from January 1, 2013 covering 51 districts across 15 States and 3 Union Territories. At this time, 29 schemes have been brought under the ambit of the cash transfer programme. Schemes that would come under the purview of the DCT plan will include those of the ministries of social justice and empowerment, Human Resources Development, Minority Welfare, Women and Child Development, Health and Family Welfare and Labor and Employment. All the districts in 18 states come under the scheme from 1st April, 2013. More services and all districts in all the states will follow by April 2014.
All the BPL families and others who are presently eligible for various governmental subsidy programmes will come under the DTS scheme.
            Families with Aadhar card, entitled to subsidies, pension, scholarships etc, will get money directly in their bank accounts. Direct cash transfer of subsidies would be done through Aadhaar-enabled bank accounts. Under the cash transfer scheme, families with Aadhaar card (a 12-digit individual identification number) entitled to subsidies, pension, scholarships, etc, will get money directly in their bank accounts. For this, they need to give their Aadhaar card number to the service provider, for instance, the gas agency and the bank.
Aadhaar card is an ID card with a 12-digit unique number issued to all the citizens of India (on voluntary basis). It will carry the demographics and biometric information of the holder. Payments of Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) wages are being done using this card
The government plans to inform the district collectors about the program. The US$57.7 billion cash transfer scheme will be launched in stages and cover the entire country by the end of 2013.An estimated Rs.3.24 Lakh crore (US dollars 65 Billion, 3.5% of the GDP) is allocated annually for over 150schemes by the Centre alone. In addition to this, all the states put together earmark no less than an equal amount annually.
At present, beneficiaries of various schemes have to pay intermediaries before they get any money from the government. The Finance minister said that with the cash transfer scheme, beneficiaries would not have to pay any money to get the benefits. Banks would be the distribution point for cash subsidy initially.
The Union Government promised that the Direct Cash Transfer Scheme arrest the wastage due to leakages,falcification,duplication, favoritism, inefficiency, poor infrastructure and other such problems in implementing welfare schemes.
Benefit people more, achieve targets in a better manner and also save a great deal of money for itself on spending on infrastructure, man power, transportation, and on   administrative expenses. (A financial paper reveled that nearly about Rs,15000 Crore per year may be saved as there will be no more diversion of cylinders for commercial use and no diversion of kerosene to mix  with diesel )
A high-power National Committee on Direct Cash Transfers was constituted by Prime Minister Manmohan Singh.
 DCT Scheme a boon or bane for the common Man?
·       This system is aimed at eliminating fraud, middle-men, black-marketing, and bribery in dispersing of the subsidies.
·       The Prime Minister Manmohan Singh has welcomed the move and believes the initiative can make a positive impact on the lives of a large number of people and see the aim of financial inclusion being achieved. He also mentioned that the success of the direct transfer system depends on the Aadhaar platform and financial inclusion. He mentioned that the banking system may have to integrate the post office network, especially in rural areas.
·       Finance Minister P.Chidambaram, described government’s ambitious direct cash transfer scheme as “nothing less than magical”, saying the move is aimed at plugging the loopholes in the delivery mechanism and ensure that poor get complete benefits of government schemes He also terms the scheme as revolutionary and game-changer. Chidambaram said the move is aimed at ensuring that the benefits of government programmes reach the masses. He said the scheme will eliminate chances of duplication and help the exchequer to make considerable saving and make the economic system more efficient. The infrastructure needed to implement the scheme was already in place and would ensure that the transfer of money to the Aadhar-enabled accounts take place in a smooth manner.
·       Union Rural Development Minister Jairam Ramesh recently said that cash transfer was an election promise that the Congress had made in 2009. He rejects the "notion" that the direct cash transfer scheme would abdicate government's commitment to welfare state and said it is an answer to the "incompetent Army of corrupt delivery agents". Ramesh also termed as "ludicrous and bogus" Aam Aadmi Party leader Arvind Kejriwal's argument that this programme is a "bribe giving" one.
·       Several Congress ministers are saying that it is not transfer of cash but it is the 'haq' of the people.
·       Sachin Kumar Jain, a right to food activist based in Madhya Pradesh, said the World Bank and UN Development Programme (UNDP) have been backing cash transfer policies in India. These world bodies believe that people are deprived of their due services and transfer of cash can be an ideal alternative to address the issue. The argument goes that the whopping amount that is being spent every year on fertilizers can be better used if cash is transferred directly to the beneficiaries or democratic rural bodies and it can also implement schemes for the betterment of the poor. The UNDP has also funded the Delhi government's cash-for-food initiative, which is set to replace food from the rationing system.
·       Prof Sudhanshu Handa,  Professor and Chair, Department of Public Policy, University of North Carolina felt this is  an exciting move for India. The CT Programmes are now taking root all over the developing world. He said  I encourage them and also strongly suggest rigorous impact evaluation of the program be designed and conducted from the outset, to ensure money is getting to the right people, and to understand the benefits of the program.
·       The ECONOMIST magazine in its editorial fully supported the measure and advised making cash transfers conditional can make welfare payments even more effective.
Critics point out to the practical shortcomings of the scheme.
·       It will generate a dependency culture and if you gave money to the poor, they would simply spend it on alcohol.
·       Some Critics  say that the real intention of the government in the short run is to garner votes in next elections and gradually withdraw itself from welfare regime as per the reform process, in the long run.
·       DCT/ CCT cannot be treated as a panacea for all ills. Doling out cash without providing employment opportunities is feared to lead to a situation of eternal dependence of the poor for external support and transferring of poverty from one generation to other generation.
·       DCT unlikely to be a success story in India The cash transfer scheme is actually a worse alternative to the idea of subsidization, a concept which has already been proved to be a flawed one.
·       The success of cash transfers depends on people having bank accounts, money going into the right account, and people having easy access to those accounts. Accessibility to banks in remote villages is still a problem. Most below the poverty line families (toward whom most subsidy schemes are targeted) don't have bank accounts. And a large chunk of villages in India don't even have bank branches. Banks are on an account-opening spree, but it is not clear if they will cover all in time. The question is whether the promise of cash transfers will have people flocking to banks to open accounts.
·       The Unique Identification Authority of India (UIDAI) has issued only 21 core  Aadhaar cards so far. While the Unique Identification Authority of India (UIDAI)--which issues the Aadhar cards on behalf of the Indian government--has invited applications from approved commercial banks deploying micro ATMs to enable Aadhaar-based payments,
·       The scheme, called by many as political bribe, will face immense social hurdles and physical infrastructure. The ground realities in this country are entirely different to allow the cash transfer scheme to succeed.
·       If we take into account the poor, both urban and rural, surveys have revealed that most people from these sections prefer kind to cash. A survey conducted by the National Federation of Indian Women (NFIW) and the Right to Food Campaign in Delhi observed people prefer kind to cash. They also wanted subsidized food grains to continue. They want a better rationing system over cash.. The rising prices of food items will soon exhaust the cash stock and these people will be left to starve. The same thing will occur in other sectors like health as well. Moreover, in distant rural parts, there is hardly a second shop besides the government rationing units and cash will not going to get the targeted beneficiaries any benefit.
·       Besides the economic challenge, socio-psychological problems will also harm several households if the DCT scheme comes into play. It has been seen that male members of a family support the idea of direct cash transfer more than the females. The reason is that males cherish cash in hand to fulfill their worldly desires, including liquor consumption and take part in gambling. The women, the homemakers, will not get to see the cash in most cases and in this way, the money will get spent without buying food and several poor families will face a threat to their survival. It is because of these reasons that majority of people in several states in the country have objected to the cash transfer scheme.
·       The political motive behind the Aadhar is also not above doubt. Union Minister Jairam Ramesh recently said that cash transfer was an election promise that the Congress had made in 2009. Then why did it suddenly take up an initiative on these three years after coming to power? If the Congress ministers are saying that it is not transfer of cash but 'haq' of the people, then why isn't the question of 'haq' taken up at other times? Is the popular interest only a relevant term during the election season?
·       Another concern is that the Aadhar scheme has not really made any remarkable penetration in India. Andhra Pradesh and Maharashtra are the only two states that have some substantial coverage but is it because these two states are important strongholds for the Congress?
·       Latin American examples won't work in India. Many have cited the examples of Brazil, Mexico and Chile where conditional cash transfer has worked but these countries cannot be equated with India for they have high-income rates, literacy rates and degree of urbanization. India has a huge population living below the poverty line, is still largely a rural economy-based country with a high rate of illiteracy and poor infrastructure, like the rural banking system.
·       And then there is the universal problem of corruption.
·        The majority of India's population depends on state favors for survival and it is important for our policy-makers to wear a lens of realism and try to improve the existing system in a shambles instead of trying to destroying it to make way for a worse alternative.
·       The UNDP in its published paper emphasizes on Conditional Cash  Transfers in India  and some felt that the amount Rs.2000 billion that is spent annually on food, fuel and fertilizer subsidies may be better utilized by providing Cash directly to the beneficiaries.
·       World Bank Steve R. Tabor supports cash transfers to in-kind ones but prefers conditional transfers to unconditional ones.
·       Most of the Experts say make health care conditional.
·       According to National Advisory Council member Aruna Roy, the government did not take away any lessons from NREGA, which has shown that direct cash transfers cannot contain corruption.“There is also the problem of delayed cash transfer from banks,” she said. Roy said that while direct cash transfer may have worked in countries like Brazil, India presents different set of challenges. “Every nation has its own set of socio-economic issues which need to be taken into account while designing a scheme of this scale. In this case, that seems to be missing,” said Roy. In her view the scheme is  “ just a move to control and track people and push the UID PROJECT”.
·       Renowened Economists like Reetika Khera, Praveen Jha and Ravi Srivastava feel that such schemes do not suit hugely populous countries like India, with high incidence of poverty. They think the intention may be to gradually withdraw from welfare schemes by diluting them and leaving people to the market forces.
·        Lastly, as several voices have already pointed out, direct cash transfers are effective if they are conditional, and if there are systems to monitor them properly.

The opposition and Left have their own share of criticism.
·       Opposition parties including the BJP complained to the Election Commission against direct cash subsidy transfer scheme, saying it violates the code of conduct in view of the Gujarat elections, BJP spokesperson Ravi Shankar Prasad said two senior Ministers had announced the scheme at the Congress headquarters on Monday even though Parliament was in session. Another BJP Spokesperson Prakash Javedekar said, the government deserved no credit since no additional amounts were going to be transferred to people. Only the present schemes will turn from kind to cash. And some are in cash anyway.
·       The Communist Party of India (Marxist), criticized the Congress for the “blatant misuse” of the party symbol in announcing the scheme. According to Mr. Yechury the direct cash transfer was being proposed to be carried out under the ‘Aadhar’ or Unique Identification (UID) card scheme but the Bill to give UID legal sanctity was yet to be passed by Parliament. Mr. Yechury said when inflation was high, the cash being transferred would actually cut subsidies and fetch lesser and lesser amounts of food grains or other essential items meant under the scheme and dismantle the public distribution system.
·       Arvind Kejriwal's AAP have accused the government of trying to buy votes through such scheme ahead of the various elections coming up over the next one year before the mega general polls in 2014. Aam Aadmi Party leader Arvind Kejriwal's argument that this programme is a "bribe giving" one.
·        Anna Hazare  opposed the  UPA government's electronic cash transfer policy, alleging it would  help Congress   party cadres, not people,"
International bodies such as the UNO, UNDP, ILO, FAO, ODI and a host of developmental experts and economists argue that the Cash Transfers are better than transfers in kind. Significantly they are also unanimous in saying that the monies will yield even better result by linking them up with social objects which is called “Conditional Cash Transfer” (CCT). They also recommend making payments to housewives instead of men, and creating a mechanism to monitor implementation. This has been the practice in most of the countries
Economists from around the world have written to top Congress leaders like Manmohan Singh and Sonia Gandhi on issues like cash transfer and food security.
However, the UPA government made no mention of any of these arrangements. It  also did not explain why. The Indian government has expressed its preference for the policy of cash transfer replacing subsidies that are given to people under social welfare schemes like health, education, food, agriculture, etc. The government in Delhi has also started a cash-for-food pilot programme in two urban slums, saying the people are free to buy services in social welfare sector.
One wonders if the UPA government has conducted any studies of its own on what the beneficiaries themselves prefer. Transfers in kind or cash, and if in cash want them to be unconditional or conditional.
While the above discussed teething problems promise to persist for a long time for the proposed DCT Scheme and it is not far away to be implemented, one can only hope that the government will be able to organize things in an efficient manner in the short time available.
Now t he question arises  is will the government spend more time to deliberate on a better model to promote welfare of the people or will it just be content with a hastily-crafted populism.
1. Swati Prasad - India ready for the cash transfer scheme?
2. R.Keerthana- Direct Cash Transfer Scheme.
3.  Shubham Ghosh – Cash transfer scheme
4. Madeleine Bunting- La Bolsa Familia
5. P S M Rao- Cash transfer schemes can be effective in poverty alleviation? 
6. Wikipedia- Conditional Cash Transfer.
7. Danish Raza -Direct cash transfer ready for roll out?
8. Hans India – Have money, shape your welfare.
9. The Economist Magazine.
10. UNDP Published Report
11. Steven R Tabor – World Bank Comprehensive Discussion Paper on Conditional Cash Transfers Schemes – A Study.
12. Direct Cash Transfer: the cart before the horse?-Vandana Kohli

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