The government’s headlong rush to Aadhaar-linked payments for welfare schemes is bound to lead to their disruption and the exclusion of people who need them. 


AT least three questions come to one’s mind on hearing the news about the government’s big move towards “direct cash transfers”. These are: What are the lessons we can learn from Brazil and Mexico, which are often invoked as examples of successful implementation of cash-transfer schemes? What is new about the government’s announcement? Can cash transfers win votes for the ruling coalition in the 2014 elections? A careful examination of the Prime Minister’s announcement of November 26, 2012, suggests that what is being planned as a big repackaging exercise will boomerang on the rulers in the elections.

The case of Brazil will give us an understanding of what cash transfers actually are. Comparisons with Bolsa Familia, Brazil’s successful conditional cash-transfer programme, are made out of context. In Brazil, cash transfers are one among many social protection measures. Cash transfers were put in place to encourage people to use existing public services. As far as food security is concerned, the Brazilian government is now putting in place systems for the supply of subsidised food that the Indian government is trying to dismantle. In fact, health, education and food are legal entitlements in Brazil. The most important lesson for India from Brazil would be to get on with the enactment of the National Food Security Act, which was tabled in Parliament last December.

Further, Brazil is a very different country—with lower poverty rates, higher rate of urbanisation, near-universal literacy rates and a better administrative capacity. Going by the poverty benchmark of $1.25 as PPP, or purchasing power parity, less than 7 per cent of Brazilians are poor. In India, one-third of the people live below the poverty line. Higher rates of urbanisation (85 per cent of Brazil’s population is urban, compared with 30 per cent in India) means greater access to banks. Given this, it is not surprising that Bolsa Familia has been a big success in Brazil.

No clear game plan

The government’s announcement on cash transfer appears to have been made without a proper road map. For example, it lacked clarity on which subsidies are to be converted to cash transfers. On December 9, the Rural Development Minister said that food would not be included in the cash-transfer scheme. In a written reply in the Rajya Sabha the next day, the Food Minister stated that in fact the failed Kotkasim kerosene model (tried in Kotkasim mandal in Alwar, Rajasthan) was going to be rolled out in six Union Territories and Puducherry. Within a few days, some clarifications were issued, which included a hint that the government was backtracking. It appeared that food and fertilizers were not part of the game plan, whereas scholarships and pension schemes, which are already cash transfers, were part of the plan. When this was pointed out, the government asserted that it was putting in place a new and superior system of making these payments: a micro-ATM network, interoperable and Aadhaar-enabled. As it turns out, in many States, cash for these schemes is already routed through the bank accounts of the beneficiaries. Except for linking bank accounts to the Unique Identification Number (UID) and a different name, there was very little new in the government’s announcement.

In fact, there are three components to the government’s proposal on direct benefit transfers (DBTs): computerisation, extending banking services and linking with Aadhaar. The real potential for changing the game lies with the first two, whereas Aadhaar-enabled transfers carry the risk of excluding current beneficiaries.

The Central government has woken up somewhat belatedly to the transformational potential of computerisation in implementing welfare programmes. State governments have already developed many intelligent applications of this technology. Chhattisgarh has demonstrated that end-to-end computerisation of the public distribution system (PDS) combined with other reforms is a game changer: leakages dropped from 50 per cent to just 10 per cent between 2004-05 and 2009-10, the period during which computerisation was undertaken. Andhra Pradesh’s MIS (management information system) for the National Rural Employment Guarantee Scheme (NREGS) facilitates real-time tracking of all payments at each step. Similarly, payment through bank or post-office accounts provides protection from fraud and corruption. In 2007-08, leakages from the NREGS in Andhra Pradesh were between 1-3 per cent.

Since 2008, it has been mandatory to pay NREGS wages through bank and post-office accounts. The Reserve Bank of India allowed “zero balance” accounts for NREGS workers. This led to the largest financial inclusion drive: more than 80 per cent of job card holders have bank accounts. It is claimed that since Aadhaar is “know your customer”, or KYC, compliant, it will lead to financial inclusion. This is true, but there are two caveats: one, just about a third of the population has an Aadhaar number. Two, the requirements to open a bank account and to get Aadhaar are the same: proof of identity (ID) and proof of address. Aadhaar’s only value addition is that it has an introducer system for those without these documents.

It is claimed that Aadhaar-enabled payments are portable (cash can be withdrawn from any ATM in the country) and interoperable (it can be withdrawn from any bank’s ATM). But portability and interoperability are possible thanks to centralised online real-time environment (CORE) banking, not Aadhaar. It has also been claimed that Aadhaar’s superior “plumbing” will fix delays in payments (such as NREGS wages and pensions). However, the main reason for delays is the lack of accountability. For instance, engineers do not visit worksites for inspection without which payments cannot be sanctioned.

Ghost and duplicate beneficiaries exist in schemes such as pensions and the PDS: benefits are either used by their family or by corrupt dealers. The Andhra Pradesh government’s pension social audit suggests that 1 per cent of beneficiaries were ghosts or duplicates across six pension schemes. The figure is likely to be higher for other schemes, but we do not know the size of this problem. Biometrics (of which UID is only one variety) can weed out such beneficiaries.

Some argue that linking with Aadhaar will reduce corruption. This is possible only in very specific cases. As the Unique Identification Authority of India (UIDAI) itself has admitted, Aadhaar cannot help us identify the poor. What it can help with is to weed out “ghost” names. However, there are other efficient ways of doing this, for example, by computerising records and bringing about greater transparency (pasting printouts of the list of beneficiaries on panchayat walls).

Banking correspondents (BCs) have been used to remedy problems of poor reach of modern banking in rural areas. BCs take cash to the village, and authenticate payments using handheld biometric machines. But first-generation BCs, introduced with fanfare only recently, are now described by the Rural Development Minister as “discredited”. Aside from technical hurdles, extortion and financial viability (because of poor commissions and low volumes) have been issues. A new model (BC 2.0) is being launched with equal fanfare: a million-strong BC network, consisting primarily of front-line government workers (anganwadi and health workers, PDS dealers, cooperative societies, and so on) but also kirana (neighbourhood grocery) stores. A higher commission (3.14 per cent) is suggested. To ensure volumes, all in-kind transfers may be “cashed out”. For food, the Kotkasim kerosene cash transfer model is being tried out. Given the experience of triumphalism preceding rigorous testing, one needs to proceed with caution. In any case, it is not clear whether BC 2.0 needs Aadhaar.

The Kotkasim ‘success’

Even if there is value addition in what is being proposed, the pilot studies conducted so far suggest that there are bound to be teething problems such as poor access to banks, over-crowding and connectivity issues. For example, the government proposes to link NREGS and pensions to Aadhaar. It is now well known that biometrics of the elderly and of those who do physical labour often throw up authentication hurdles. It is unlikely that the elderly, for whom pensions are a lifeline, will take these troubles kindly. Further, these “teething” problems are likely to come up at a crucial time—just before the elections.

In the case of kerosene and liquefied petroleum gas (LPG), the government proposed that consumers buy them at the market prices instead of subsidised prices. The subsidy will be reimbursed into their bank accounts if kerosene is bought. Under the Kotkasim kerosene pilot project, consumers now pay Rs.50/litre of kerosene instead of Rs.15. The balance amount of Rs.35, is supposed to be deposited in their bank accounts. The pilot project was initiated in December 2011, and in the initial months, a crash in kerosene sales was reported. This crash was projected as a success—an indication of how the new system plugged “leakages”.

However, a visit to some villages in Kotkasim suggests that a large part of the crash in sales is actually because many ration card holders do not have bank accounts. This means that their subsidy cannot be reimbursed, and that they have stopped buying kerosene. Even those who have bank accounts have not received the subsidy or have received it erratically. Many of them have stopped purchasing kerosene.

There were other hassles too, such as those relating to bank accounts. Though these were supposed to be zero-balance accounts, some were forced to deposit Rs.500 to open accounts. In some cases, money was deducted if they failed to maintain a minimum balance. Many did not get subsidy at all. Banks are located far away from their houses, and there is very little public transport. At the banks they are not treated very well.

Funnily (or scarily) enough, this nightmare hit the headlines in June 2012 as “a stunning success in stopping leakages”; the business press gave the news “star status” on the basis of the District Collector’s report. The refusal to acknowledge failure is not new, but to project it as a success is certainly new. The Kotkasim experiment shows that while there is no guarantee that delivery mechanisms would be improved, it could end up leading to a collapse of the existing system by driving people out.

Another glimpse of the disruption that linking social welfare schemes with Aadhaar can cause is visible in Jharkhand where the UID-NREGS pilot project began in December 2012. Fingerprint recognition failure, software issues, connectivity and so on have caused repeated disruption. In the capital Ranchi, these problems continue in the three panchayats where it was launched last year. The lack of banking infrastructure, a questionable BC model with mixed success so far, and an administrative capacity that is already overstretched mean that no significant scaling up has been possible.

Aadhaar is being made, de facto, compulsory for welfare schemes. With two-thirds of the population not having an Aadhaar card, many are bound to be denied entitlements. Such reports have already come in from the 20 districts where the pilot study was launched. Things may fall in place eventually, but one can imagine the impact of being denied work or salary—even for a month—because of the lack of an Aadhaar number.

On preparedness, too, there is confusion: 51 districts were chosen for the pilot study reportedly because Aadhaar enrolments in them were high. As per media reports, this is not true. In Rajasthan, the three chosen districts have very low rates of enrolment: Alwar had an enrolment rate of 23 per cent, Ajmer 21 per cent and Udaipur 20 per cent. Similarly in Ramgarh (Jharkhand), two hours from Ranchi and the site of a UID-NREGS pilot project, it was 40 per cent. Low enrolment rates combined with making Aadhaar compulsory can only lead to exclusion of existing beneficiaries.

Also, possession of an Aadhaar number does not automatically guarantee access to any welfare benefits. Today, Aadhaar is neither a necessary nor a sufficient condition to get, say, your pension or scholarship. The fear is that once the programme is rolled out it will become a necessary condition without being a sufficient condition. This, if it happens, will mean that if you are entitled to Rs.200 a month as your old age pension today, you will not get the pension from January if you fail to complete the necessary paperwork by January 1.

Nobody denies that there is huge scope for improving the reach of welfare schemes, especially through computerisation and expansion of banking. However, linking benefits with Aadhaar carries the risk of disrupting schemes even where they work well currently. The poor will be left with the bathwater as the biometric industry runs away with the baby.

Media reports suggest that the government believes that the push towards direct cash transfers will be a “game changer” and even help the ruling alliance garner votes in the 2014 elections. However, on the ground, the rush to Aadhaar-linked payments is bound to lead to disruption of these welfare schemes and the exclusion of people who need them. Shankar Singh’s (of the Mazdoor Kisan Shakti Sangathan) words at Jantar Mantar, New Delhi, are more likely to come true: “You transfer cash, we’ll transfer our votes.”