A smiling Bali Bai from Rajasthan was shown in the media recently receiving Aadhaar card number 210,000,000 from the prime minister and the chairperson of the United Progressive Alliance, as part of an initiative to use cash transfers through bank accounts linked to the Unique Identity (UID) system to deliver welfare support more effectively. This is vital, but the scheme properly implemented could do far more — bring about a grassroots transformation that changes the lives of India’s poorest people.
India’s human welfare indicators are dismal. Six decades after independence more than 40 per cent of our children under five are stunted or underweight; half of India’s women are anaemic, largely due to a lack of protein, iron and other micronutrients. Our infant mortality rate is worse than much-poorer Bangladesh, and many African countries. Clearly the impact of our enormous welfare spending, over Rs 3 lakh crore a year, has been deeply disappointing.
A major reason is the poor performance of the Public Distribution System (PDS) that delivers subsidised food and fuel. A 2005 Planning Commission performance evaluation estimated that only 42 per cent of PDS benefits actually reached the poor. Worse, the evaluation found that PDS implementation is very expensive — of every Rs 100 of government subsidies, only Rs 27 reach the poor — a loss of nearly three-quarters!
The Supreme Court’s Central Vigilance Committee on PDS has come to the same conclusions. A 2009 report on Orissa concluded that “the whole system is built on corruption. There are more leakages and maladministration and benefits to the poor are low.” A report by the committee in September 2010 for UP stated: “PDS in the state is in shambles. Implementing machinery is corrupt. There is large-scale diversion of PDS food grains in the black market. Principal sources of diversion are the supply chain and the Fair Price Shops.” And a 2011 report on Maharashtra told the same sad story.
Just think, out of every four rupees, only one actually reaches the poor. Naturally attention has turned to less leaky ways to deliver welfare — and particularly to bank account-linked cash transfers, for which Aadhaar today offers a reliable technical basis.
Some civil society activists are very hostile to using cash transfers that would allow beneficiaries to purchase food and other items instead of receiving it physically through PDS shops. Their concern is that if money is provided, poor beneficiaries might squander that money instead of buying food or fuel. The poor apparently cannot be trusted to use the money properly. This seems a rather disparaging and patronising perspective. All the evidence suggests that it is also wrong.
Several pilot projects have been undertaken including a 2011 Delhi government/Sewa one. They have all shown that poor beneficiaries in fact used the cash transfers effectively to improve family nutrition while reducing leakages. My own experience working in IFAD, an international development institution that finances rural poverty reduction programmes, showed clearly that even very poor people in Africa, Latin America and Asia use cash effectively to improve their family’s nutrition and welfare. But the money was used much better when women had control over it. For poor women, the family’s welfare always came first.
So, one key element of the cash transfer scheme is that it should be channeled through women of the household. Putting cash in the hands of women means that they would have a choice. They would no longer be vulnerable to erratic ‘Fair Price’ (PDS) shops, but have the money to decide where to buy and what — perhaps some pulses to enhance protein intake. They could also buy from a wholesale market in a group at lower prices, as happened in the SEWA pilot. The women would be empowered rather than made dependent as with the PDS.
Utilising cash transfers rather than physical delivery of subsidised products means that established market channels can be leveraged. When fully implemented the government would no longer have to maintain an enormous bureaucracy, nor finance the huge storage costs for food reserves that in recent months have amounted up to 80 million tonnes.
Of course India’s existing private food distribution system is hardly a paragon of efficiency. Much of the debate about FDI in retail has rightly focused on the necessity to make the value chain from farm field to the family thali more efficient thus reducing food losses and price escalation caused by layer upon layer of middlemen. But this is an argument for reforms to make the private system more efficient — not one for a public distribution system which costs Rs 4 to deliver Rs 1 of benefits.
Providing payments of MNREGA, scholarships and similar schemes through UID- linked bank accounts will help ensure their timely payment to the correct beneficiaries. With the cash transfers/bank accounts modality you could multiply the impact of welfare programmes while reducing substantially their cost to the exchequer.
But this is just the start. Targeted PDS covers about 65 million below-poverty line households. An additional 80 million households above the poverty line get (some) subsidised food grains. Together these groups represent well over half of our population and include most of the poor. Moving to a programme of cash transfers/bank accounts to cover such numbers will be a major undertaking. It will have to be implemented with care and innovation over several years, recognising that there are rural areas where banks and kirana shops will need time to respond.
But imagine: women from more than 100 million poor households will gain bank accounts and access to microcredit and savings facilities — an unprecedented platform for growth and development. Considerable experience shows that organised in Self-Help Groups, even very poor women can use financing to start successful income-generating activities. Instead of remaining helpless victims of poverty the women will become agents of change in their communities.
Today we have a huge, inefficient and corrupt system of subsidies that does not deliver effectively to the poor, but enriches non-poor middlemen. Moving to cash transfers through Aadhaar-linked bank accounts could transform these into development programmes that not only benefit the poor effectively, but also give women in the poorest households in India the opportunity to enter the modern economy. These 100 million poor but empowered women could launch a transformation that makes a real dent in poverty and hunger. Bali Bai and tens of millions of women like her will then have good reason to continue smiling.
