One step forward

The government has taken the first concrete step to start disbursing subsidies for things like kerosene, cooking gas and fertilisers to individuals, families and farmers by direct cash transfer. A task force under the leadership of Nandan Nilekani, who heads the Unique Identification Authority of India, has been given the target of getting a pilot going by the end of the year. The transfer system will piggyback on the solution and infrastructure being set up to give every resident in India a unique identity (UID) and the group’s main job will be to devise a way – the technological roadmap, so to speak – in which this can be done. As an operation like this can easily get derailed owing to lack of coordination among various stakeholders in the government system, the secretaries of various departments ranging from expenditure to financial services, food and public distribution, and chemicals and fertilisers have been included in the task force. This is the right way to go about the job and the fact that UID numbers have already begun to be issued raises the hope that the task force will meet its deadline.

Direct cash transfers to those for whom a subsidy is intended is the Holy Grail for public expenditure reformers. With such targeting, not only do you cut the free riders out but also eliminate a lot of waste that a state-run distribution and delivery system inevitably results in. And it is a matter of rejoicing that both the technology and the leaders who can see through its roll-out are in place. But it is also necessary to be clear about what cash transfers can and cannot do. The UID system will eliminate the leakage resulting from impersonation. Beneficiary A will have her cash deposited in a bank account opened with the help of the UID number already issued. So, A’s cash cannot go to B and organised leakage, via practices like securing random thumb impressions on muster rolls or the existence of large numbers of fictitious ration cards, should be a thing of the past. But what cash transfers cannot address is unintended beneficiaries getting the subsidy by using a perfectly legitimate UID number.

The issue comes into focus when we seek to identify who falls below or above the poverty line, a key aspect of targeting. To do so meaningfully with the help of the new technology, it will be necessary to have a parallel system of recording the income status of individuals and families. A rich farmer, whose family members between themselves hold 100 acres of irrigated land, should not get cash in lieu of subsidised fertiliser. But once the exercise to exclude starts, there will be an inevitable fallout. The introduction of a food security legislation has been delayed owing to controversy over what percentage of the population will qualify for the subsidised food. The dilemma is highlighted by the fact that there are states that have issued far more below-poverty-line ration cards than there can be familieswith such meagre levels of income. To point this out is not to say that the exercise should not be undertaken but to start the journey with a healthy dose of scepticism which recognises that most silver bullets eventually turn out to be made of dubious metal.