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Economy Nov 28, 2012

Is direct cash transfer ready for rollout? Not yet, say experts

By Danish Raza

The direct cash transfer scheme, already being hailed by the UPA government as the 'game changer', has drawn flak from experts working on social inclusion programmes, some of whom said initial experiments with the scheme had not been as successful as claimed.

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.

Criticising the government's move, Roy told Firstpost,"In fact, it allows the middle men to play havoc with people's lives."

Money in hand? Experts say the government has to iron out kinks before rolling out the direct cash transfer system. Reuters

"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.

Bharat Bhatti and Madhulika, field researchers with development economist Jean Dreze, carried out a study on the pilot project of the cash transfer scheme carried out in Kotkasim, a tehsil in Rajasthan's Alwar district.

Kotkasim residents buy kerosene at market price and the subsidy that they are to receive is transferred directly to their bank accounts. To begin with, an advance subsidy for three months is paid followed by subsequent subsidies for every three months depending on the household's kerosene requirement.

However, for many beneficiaries, the amount spent traveling to banks exceeded the amount they would collect from as subsidy, noted the study. The payment of subsidies was also found to be very erratic and untimely.

The dealers in Kotkasim were also reportedly forced to buy kerosene at a loss, to show that the scheme was a success.

The report concluded, "If the purpose of the experiment was just to reduce the amount of subsidy (if need be by driving the beneficiaries out of the system) then yes, it was a success. But if the purpose was to put in place a more effective and equitable system, then it certainly cannot be considered a success."

Reetika Khera, assistant professor at the Department of Humanities and Social Sciences, IIT, Delhi, said that connecting cash transfers with UID meant there were bound to be issues.

"There will be a range of teething troubles and overcoming them is not an easy task considering the scale of the project. For example, the limited coverage of our network of banks and the confined coverage of UID," she said.

The social milieu of the country poses another hurdle when it comes to schemes like cash transfer in bank accounts. They are sold as programs which empower the society, which, according to sociologist Shiv Visvanathan is a flawed notion.

"To empower people, you have to supplement money with information and community building. Information or direction, on how to utilise money and a community, to give them a sense of collective unit," he said.

by Danish Raza

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