Reality Check India

Direct Transfer of Subsidies – the visibility problem

Posted in Uncategorized by realitycheck on November 29, 2012

Everyone sees who gets what – a social dampener

The UPA government is going to roll out the Direct Cash Transfer scheme for Kerosene, Cooking gas, and fertilizer in the next few months. There is plenty of material in the media already so I wont bore you with a recap.  There is one major piece of the puzzle no one is talking about – it is easy to miss it if you aren’t as obsessed with monitoring of benefits as I am. So what’s the big hole ?

The Interim Task Force report that I base this blog post on itself isnt very interesting. It is like a giant IT Solutions Provider sales pitch trying to upsell everything from Biometrics, ERP systems, Call centre software, cloud solutions, POS, mini ATM, all kinds of modules interfacing with outside systems, etc.  I want to focus on the most basic stuff. Consider this.

In the three sectors above (kerosene, LPG and fertilizer), the State is the provider of the subsidized goods, directly or indirectly, to the intended beneficiary. The Task Force does not recommend substitution of public provisioning by the State. Instead it recommends a solution whereby the subsidies that are being provided by the State now can be more efficiently provided to the intended beneficiaries directly. It complements public provisioning by the State, rather than supplanting it.

Interim Task Report DTS Page 5 – Link

For a moment ignore the administrative costs of this system and also the absence of pilferage data.  If the proposed cash transfer only complements what is available, then you can have no complaint. All the good is carried over to the new system and none of the bad is made worse.   Is that really the case ? No. The proposed system destroys one fundamental check and does not replace it with anything remotely comparable. The built-in feedback that flows from a visible benefit platform.  Let me explain this.

Lets not lose sight of the main problem with any welfare program – the identification of beneficiaries and continuous monitoring of them.  This is a monumental problem that turns intractable in the Indian context when politicians introduce all kinds of eligibility criteria.  Given this, I assert that the current scheme of subsidy works better.

Take ration rice for example (I know PDS isnt rolled out in this round, but easier to illustrate)

  1. Today : You pick up your bag, your BPL (green) ration card, and stand in line along with everyone else. In full view of your locality. When your turn comes, the vendor weighs 10Kg rice . You put it in your bag, pay the subsidized price,  leave the line and go home.
  2. Post Cash Transfer : You go to Reliance Fresh, buy 10Kg of rice, pay and go home. No on sees you. Even if they did, they have no idea if you are about to use DTS cash for this purchase. You later check your bank account and find new cash.

The second has no visibility whatsoever. It is a private deal between you and the government.  You can walk into a room full of people and have no idea who is getting what.  Today, a social disincentive is baked into the scheme. You are really going to think twice before driving over in your car in full view of your immediate society and partake in the welfare program. This is simply not done or if you do it people who observe will react appropriately and increase your cost in other ways such as rent seeking.

At this point, many of you might say – “You are wrong, people send their servants all the time to stand in line“.  That just reinforces my point. People are able to send their servants to the ration shop because they have illegally obtained a BPL card.  Once again, the servant knows,  her friends know, the vendor knows, and this knowledge acts as a check on the system. There is nothing in the Direct Transfer that has this feature. Can they catch the the illegal BPL card ? Grand analytics is touted as the answer.  At best, analytics may catch the extreme cases at a terrifying cost of privacy.  An example cited to me was :  If you buy a lot of air tickets using your credit card, that is linked to the Aadhar via your cards bank, that in turn feeds back  and can cancel out your entitlement.  In this scenario the deep state knows what you are up to. What is even more terrifying is : You dont get to choose what analytics they run or dont run, they do.

Blocking a rich man like Nandan Nilekani from taking a 5 Kg rice ration is the insignificant boundary case. The real story is  the masses who are spread around the entitlement line. Today they watch each other and even co-operate  – everyone’s entitlement is known in advance and the delivery happens in full view.

Algorithmic benefit tweaking

Remember India is all about adhoc benefits, so this scheme will be used to that end.  Since the cash transfers are private, to the extent that someone isn’t motivated enough to look you up specifically or use RTI, a lot of things can happen that are not possible with the current system.

  • Late payment – you need rice today but payment hasnt happened yet.
  • Scaled payment – you got less than last time because someone tweaked something.
  • Suspicion of others – you have no idea if your neighbours got their payment. They just bought rice from Reliance yesterday.
  • The govt rolls out an algorithmic increase or decrease for your state, district, tribe, caste, religion.
  • You got more, but you wonder if others got even more.You got less and wonder if others stayed the same.

I have also read some material about the programs as they have been deployed in Mexico and Brazil. To me they appear to have limited utility in our Indian context. Their classifications are very simple and they are wealthier countries than us.

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3 Responses

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  1. Deepak said, on November 30, 2012 at 3:11 am

    Biggest problem in cash transfers is that once the cash reaches the beneficiary’s account, it may be spent on other purposes. In rural areas many men folk may take the cash and go in search of arrack!! Result – drunk house head and no ration!!

    This is going to be a mega flop, they would have rather dry run it in Yuraj’s consituency for a year before taking this decision. Congress will not benefit from this, rather they may lose out because of this!!

  2. Sonu (@Sai_SRS) said, on December 2, 2012 at 5:52 am

    DCT is another deceit programs. Households, specially in critical need, depending on the whim and fancy of few people sitting in palace of dilli is dangerous. it will be like present days movie who based on few bought film critics make 100 crore business in few days but forgotten the next week. difference is that unlike movie this will have irreversible impact on policy. this is like a last try to some how be in power by UPA.

  3. Rishikesh Shenoy said, on December 3, 2012 at 5:56 am

    Inspite of having all the Oxford Harvard and what not university educated morons in CONgress they don’t have the common sense to see the disaster in waiting. On the contrary this is going to be a legal form of Cash for Votes scandal.


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