Thursday, 11 April 2013

Direct Benefit Transfer Scheme Analysis

Direct Benefit Transfer Scheme

-The Union Government has launched the Direct Benefits Transfer (DBT) programme to give benefits like scholarships, pensions, NREGA wages, etc. directly to the bank or post office accounts of beneficiaries. There are also talks of direct transfer of subsidies for food, fertilizer and kerosene at a later stage.

(Veerappa Moily recently said that the Government working on extending DBT to LPG)

-The idea was mooted in the Government's Economic Survey for 2010-11


-The proponents of cash transfers tend to present this as a radically new idea, but it actually has a long history.
-  Kautilya's Arthasastra specifies a system of taxation payments from the rich in order to enable transfer payments to the poor, including not only financial assistance during calamities but welfare payments to the chronically indigent and those unable to earn their own livelihood.
-Islamic rulers in the Middle Ages were required to follow the tenets of zakat, using state revenues to provide income transfers for the poor, the elderly, orphans, widows and the disabled. 

How it works (some steps)??? 

1. Preparation of ‘Digitized Beneficiaries List’ under various beneficiary schemes

covered under DBT:
2. Seeding of Digitized Database with Adhaar No. (UID No / EID No): 

3. Seeding of Bank Accounts with Adhaar / UID No.:

As a pilot project, the schemes like pension, scholarship and rural employment guarantee scheme beneficiaries having bank, Adhar cards will get direct cash transfer to their respective bank accounts.

-  Major subsidies in ‘kind’ like food and fertiliser will come later. 

-Let’s take an imaginary case of an MNREGA worker, Dinu, to whom the government needs to remit Rs 500.

 -Right now, the money has to go through two stages. 

Stage 1:  it moves from the Centre -> state -> district -> block -> Dinu’s account.
                So, Leaks and Delays 

 Stage 2: More leaks and delays as it moves from the bank into Dinu’s hands. Why????

Since banking cover is abysmal in India, Dinu will either lose a day in going to a branch, or have to risk giving his passbook to a middleman who will charge a commission, or may not pay him for weeks.

-The government claims the Aadhar-based platform will solve above mentioned delays and leakages in  Stage 1 and 2. 

How it works ????

-Each ministry (in the case of MNREGA, the Rural Development Ministry) will have an electronics payments file which identifies all beneficiaries by their Aadhar number and bank account.

 -Using a high-tech back-end involving the National Payment Corporation of India, the money can be remitted directly into Dinu’s bank account (I here leave the details of the process). 

-For solving stage 2, a business correspondent (a sort of outsourced agent of the bank) will travel to Dinu’s village every month with cash and a cellphone-linked biometrics (thumb print/iris) reader for validation. 

-After validation the Rs 500 has been credited to his account. Once verifications come through SMS, the Bank Correspondents pays Dinu Rs 500 in cash. Simultaneously, the back-end will debit Dinu’s account by Rs 500 and credit the Bank Correspondents’s account by the same amount.

Benefits of Direct Benefit Transfer Schemes

Cash transfer can be a good way of helping the poor in many circumstances. Indeed, many schemes that are not directly cash transfer schemes also work mainly through cash transfer, such as the National Rural Employment Guarantee programme, which certainly has helped the poor through creating jobs and generating cash income for a great many poor people in rural India. Cash is easy to handle and can be, in many cases, easily monitored. It cannot be sensible to be generically against cash transfer schemes, in a country with a lot of poverty and a commitment to use public money to make the very poor a bit less poor.

-the poor will actually get the money meant for them, because, under this scheme, the alotted money will directly deposited in the beneficiaries bank account.

-The purpose of cash transfer schemes is to provide poor people with money and give them the freedom to choose what to do with it

-Bank account is to be opened in the name of the female head of the family, because women are more cautious and judicious when it comes to spending on family needs.

-for govt. this is simpler, it will not bother about the disbursement of different items, through various sources -> no need to buy, collect and store and sell food items -> people not required for this large chain -> government save the salary and maintenance of infrastructure cost

Area of Concerns

-basic requirement of opening a bank account itself raises a couple of doubts. Poor should literate enough to understand bank operations

-should have enough bank branches in every village and remote areas

-illiterate poor again depend on someone to do the bank formalities. They may also have to bribe the local business correspondent or bank correspondent to get their due.

-what is guarantee that the poor will use the money for the right purpose, and not spend it to unnecessary items like alcohol and luxury?
                Dominant family members may not allow woman to whom the money is given, to spend it wisely, according to her choice.

- exclusion and inclusion error 

Targeting often leads to the actual poor not getting the benefits (exclusion error), and
leakage to better-off or to those who do not ‘need’ the benefit (inclusion error). Evidence
shows that even the most ‘successful’ targeted programmes in Latin America fail to reach a large proportion of the poor. For instance, in Brazil’s Bolsa Familia, 59% of the poor were not reached. Similarly, Mexico’s geographically targeted PROGRESA/Oportunidades programme did not reach 70% of the poor

-Rising prices in deregulated markets ,effect of inflation

-Ensuring that the cash transfer actually

goes to the intended beneficiaries

*NOTE on Targeting -Public provisioning of goods and services often involves choices about whether these are to be provided universally or should be targeted to a particular section of the population. Under universalism (which can also pertain to categories such as “all old people” or “all young people” or “all infants” etc.), the entire population is entitled to social benefits,

while under targeting, only those deemed eligible are entitled to get the benefits.