The central government seems to have taken allegations of policy paralysis a bit too seriously, chalking out Bills at blinding speed without having a serious debate to analyze if the country is even ready for them. The most recent one is the Direct Cash Transfer (DCT), planned to be implemented from April 2013 but now advanced to the beginning of 2013. DCT will pilot in 51 districts across 18 states, enveloping around 29 to 42 schemes, from Jan 1 2013. Not surprisingly, the BJP has moved the Election Commission questioning the timing of the scheme’s announcement as it comes in the wake of Gujarat Assembly elections.
Cash transfer schemes per se have had quite a successful run in most developing countries. Even New York City is running its own version of the concept. But undeniably the most successful is Brazil’s Bolsa Familia and there is one very important reason for its success – conditionality. The payments are dependent on the condition that the family’s children get the full set of vaccinations in their first five years and have 85% attendance in school till they turn 14. Payments are also dependent on mothers attending pre and post-natal care. The government ensures that the level of support is low enough to supplement the income of the poor but not replace it. For just 1% of GDP, Brazil is improving education levels and health of millions and reducing poverty all at once.
Theoretically, cash transfers are an ingenious alternative to subsidies. Subsidy of any commodity, inevitability, creates a black market. Just take the example of fertilizer. Subsidized fertilizer is hoarded by middlemen who sell it at a higher price in the black market. This creates a shortage in supply and distorts the market price. Direct cash transfer to the bank accounts of farmers would bypass all these ‘leakages’. There would be no artificial inflation of prices and the farmers would actually reap the benefits. DCT coupled with other schemes like MGNREGA will also make the delivery system more accountable and efficient. Sounds fantastic, doesn’t it? Well, so did Aadhar when it was first conceptualized.
A year- long project in Kotkasim, Rajasthan shows exactly how this scheme could turn turtle. This pilot project involved using DCT in place of kerosene subsidies for a block of 25,000 households. Instead of selling subsidized kerosene to ration-card holders, the government would transfer the balance between the market price and subsidized price to the card holders’ bank account. The transfers were supposed to happen every three months, but a year later most bank passbooks still show zero balance from the day the account was opened. So, in the inevitable eventuality of non-payment and payment delays this scheme will be rendered all but useless and the poor will end up paying a lot more than they do now.
In a country like India where even the process of mending roads creates additional holes in it, it would be foolishly optimistic to call DCT a ‘game changer’ when it could just as well become another body in the graveyard of Indian policies.