Cash Transfer or Congress Calling Card!

 

If Narendra Modi, mascot of middle-class, urban India’s politics of Hindutva,  hopes to ride his Prime Ministerial ambitions on “ Asian tiger” style pro-rich developmental projects in Gujarat,  UPA-2 has already upset the political calculations of BJP led NDA by embarking upon the world’s largest ‘cash transfer scheme’ or ‘electronic benefit transfer’ scheme for the poor in India.

 

Though left-liberal critics and electoral rivals of UPA2 have called it ‘Congress Calling Card’ (CCC), direct cash transfer (DCT) or ‘aapka paisa, aapke haath", "(your money, in your hands") through AADAHR enabled Unique ID has emerged most historic one-shot transformative social policy instrument India after Zamindari abolition, Green Revolution, Nationalization of Banks, Right to Information Act and MGNREGA in the history of post-independent.

 

This explains the overhyped optimism in the statement of Finance Minister who calls it “a pure magic” and unusual haste in the steps of Union Rural Development Minister Jairam Ramesh, a fire-brand progressive democrat, who has launched the direct cash transfer scheme from Gollaprollu Mandal of East Godvari district of Andhra Pradesh on January 2, 2013. That the direct cash transfer has been sanctioned by the top leadership of congress party is clear in the fact that despite opposition by some prominent NAC members and also  by “200 academicians and activists” who oppose the governments plan for “accelerated mass conversion of welfare schemes to UID-driven cash transfers, the scheme will be rolled out in 20 select districts for 26 schemes”.  Also, there is not very encouraging results from the implementation of Kotkasim (Rajasthan) pilot of cash transfers for Kerosene.

 

 Opposition ruled States have called for caution on the  UPA’ s ‘game-changer’ plan for direct cash transfer of subsidies, especially food. Among the most vocal are the Chief Ministers of Tamil Nadu, Odisha, Madhya Pradesh, Chhattisgarh, Tripura and Jharkhand and Chhattisgarh which recently became the first state in the country to launch “ State Food Security Law”.  Most critics, however, do not oppose cash transfer of pensions, maternity benefits and scholarships. Calling it “farewell to welfare”, MKSS and Right to Food activists support pensions but are strongly opposed to cash transfer in food, employment, health services, and education and prefer making these entitlements universal so as to not exclude the poor and needy.

 

Civil society critics argue justifiably that direct cash transfer will lead to accentuation of poverty and starvations as cash transfers are not indexed to inflation and also they may be used as excuse to reduce welfare subsidies in the name of “good economics”!  In a highly patriarchal society like ours, exemplified by tragic Delhi rape, the tyranny of male heads over the women in family in rural India opens the flood gates of intra-household inequity. Development economists such as Duflo argue that outcomes of cash transfer are robust when the beneficiary is woman or household is headed by woman. Also manipulation of ‘welfare cash’ by the local elite & money lender is a distinct possibility if micro ATMs are placed at neighborhood grocers who often double up as local money lenders. 

 

Given the phenomenon of “democratic upsurge” where poor vote more frequently and regularly than rich and middle classes in India, it is no surprise that UPA-2 being pilloried for “policy paralysis” and “crony capitalism” eventually  has  lent ‘patronage democracy” a new respectability, blurring the lines between popular and patronage democracy. Continuing with Nehruvian vision of “ state welfarism”, Indira Gandhi’s ‘pro-poor populism’ and Rajiv Gandhi’s  ‘new age digital solutions” for governance, Sonia Gandhi led UPA 2, after reaping handsome electoral benefits from MGNREGA, in 2009, has come out with so-called “Congress Calling Card”, a potential game changer for parliamentary elections in 2014.

 

 Elections are indeed mirror of democracies and also reflect struggles for identity but they are also fought on issues of “bread and butter”. Therefore, the increasing popularity of MGNREGA across political divide is not counter intuitive as most politicians and political parties love serving their constituencies especially poor voting population through marketing of social welfare policies. Parties and politicians all over the world generally avoid the messy and cost inefficient work of mobilizing masses and prefer safer politics of hand-outs. Though it would be foolish to equate cash transfer scheme’ with plain vanilla ‘economic voting’ but it would also be naïve to ignore its potential to turn ‘incumbency disadvantage’ into a winning proposition. Elections in India also indicate the decline in the trend of anti-incumbency moods of the electorate.  It is in this sense, UPA’s proposal for cash transfer challenges conventional wisdom on welfare politics. 

 

It also offers a master stroke to blunt the sharp edges of neo-liberal agenda in economic policy especially FDI in retail and reduction of subsidies on fertilizers and petroleum products. Though generally direct cash transfers are meant to plug leakages, stop collusion and eliminate cheating in the delivery of welfare entitlements and services to poor, they also create ‘multiplier effects’ for good governance without any confrontation with dominant caste and elite groups in the society. More importantly, direct cash transfers promise to suspend fundamental issues of inequality and exploitation arising out of contradictions of land, labour and capital.  Therefore, direct cash transfers don’t effect any change in the power relations, a deviation from the spirit of social welfare state!

 

Policy lessons from the implementation of conditional cash transfer schemes from Brazil’s Bolsa Familia, Mexico’s Oportunidades, Peru’s Juntos, Turkey’s Şartlı Nakit Transferi, Indonesia’s Program Keluarga Harapan etc, highlight enormous challenges in the conceptualization and implementation.

 

 Most South American experiences had started in the 1990s and gradually expanded through trial and error. And also, these are primarily “conditional cash transfers” (CCT) which are implemented on condition of fulfilling various conditions such as school attendance, professional skills, and regular health checkups etc. However, there is no clarity about the role of “conditionalities” played in the outcomes.  DFID studies indicate that cash transfers help poor overcome demand-side(costs) barriers to schooling and health care but  they can’t solve supply side problems with service-delivery. Similarly, studies from Zambia and Nambia point out that cash transfers may  stimulate local demand and local market development, but there is no evidence of a relationship between cash transfers and aggregate growth.

 

 Advocates of direct cash transfer also cite examples of South African Old Age pension scheme, Bono de Dessarollo Humano( BDH) of Ecuador and Old age pension in Bolivia. Randomized control trial of cash transfer to households with school going girls in Malawi shows robust improvement in school enrollment and reduction in teen age pregnancies.  But we cant forget that Brazil’s Bolsa Familia succeeded largely because it was implemented through state owned banks and financial institutions.

 

 Therefore, the tender floated by Finance Ministry for converting entire India into clusters of privately owned Banking Correspondents for cash transfer not only raises genuine fears of monopoly and but also incentivizes moral hazards in the name of financial inclusion. Without any regulatory framework and standards of services, Banking Correspondents will free ride Aadhar enabled payment settlement platforms; this presents us with a worst case example of promoting crony capitalism.  

 

The results of study of Gangopadhyay, Lensink and Yadav (2012) may have prompted Sheila Dikshit to launch  “SARAL Money” and introduce direct cash transfer for food subsidies in Delhi  but the concern of compromise on food and nutritional security remains. In places like Melghat, Kalahandi and Keonjhar, notorious for starvation deaths and malnutrition, direct cash transfer is potentially disastrous.

 

With 100 million bank and post office accounts, MGNREGA undoubtedly  stands out as single largest cash transfer program but the delay in payment has robbed of its transformational impact on the lives of poor in rural India. As the Socio-Economic Survey for identification of poor has not yet been completed, the issue of bogus BPL beneficiaries will wreck havoc with public money, money that can be invested in creating durable public goods such as health, education, sanitation etc,.

 

 It is also instructive here that success of cash transfers are affected by multiple factors such as  design of payment system, institutionalization of operational structures,  tackling various trade-offs between targeted and universal transfers, involvement of beneficiaries in design and monitoring and convergence with complimentary interventions (e.g. vocational training). More importantly, the success of cash transfers crucially hinges on financing social transfers and domestic political support.

 

 Given customary delivery failures and institutional voids at the grassroots in India, transferring cash for 26 government welfare programs will be a massive administrative undertaking and also management nightmare involving indentifying beneficiaries, deciding their eligibility and linking them with AADHAR. Therefore, it is no surprise that government has decided to roll out DCT in a phased manner in only 7 welfare schemes.  Another major challenge is to open bank accounts or expand the reach of postal network quickly  as only  40% of India\\\’s 1.2 billion people have bank accounts, and only 36,000 of India\\\’s 600,000 villages even have a bank branch.  Note, the total number of bank branches has been increasing  but the number of rural bank branches has declined from 35,134 in 1991 to 30,572 in 2006.

 

 Therefore, RBI needs to play a proactive role in ensuring expanding rural branches while it issues new banking licenses.  All is still not lost and policy makers of UPA2 have rightly decided to focus on Postal network of 155,516 branch post offices in India, ICDS branches, NRLM promoted self-help groups of women and Rural Points of Service (PoS). In fact, privately owned Banking Correspondent agencies whose performance is at best patchy and fraught with malfeasance, will become irrelevant if each Branch Post Office is provided core banking solution and acts as banking correspondents. Though they deploy the seductive term of “financial inclusion”, it is an open secret that Johnny-cum-lately business correspondents or banking facilitators are interested only in profiteering from poverty. 

 

Direct cash transfers are indeed radical but they are inspired by flawed  “libertarian doctrine” to  ensure that the poor are adequately empowered to avail themselves of the benefits due to them to the extent that poor may end up spending precious monetary hand outs on social waste such as buying liquor, gambling, weddings, funerals, etc,.  Ideologically inspired by libertarian philosophers like Fredric Hayek and Milton Freedman, direct cash transfers promise to restore autonomy of the individual, introduce greater transparency in service delivery and  mitigate individual poverty but they are no  panacea for widespread poverty, hunger and starvation in the country.  Hope, policy makers  have not forgotten Premchand’s classic story “ Kafan”( The Shroud) where poor father-son duo blew the money meant for funeral of daughter-in-law on consuming liquor. 

 

With sluggish economy, runaway inflation and continuing food crisis, if direct cash transfers are not backed up by a near universal Food Security Act, they may end up restricting the scope of universal entailments for poor and lead to end of Rawlsian dream of social justice in India. Hope, policy makers have not forgotten Premchand’s memorable story ‘Kafan’( The Shroud) where poor father-son duo blew the money meant for funeral of daughter-in-law on consuming liquor! In the stupor of liquor, Premchand starkly reminded us, poor indeed started ‘singing, dancing, springing, jumping and swaggering” to celebrate a false case of “ pure magic” amidst increasing tyranny of poverty and dehumization. Therefore, direct cash transfers are surely “a game changer”, at least in the sense of  rewriting electoral games but they are ideologically and politically disturbing, if not dangerous!