The government in election mode is hurrying what
it believes are popular reforms. But by offering to transfer cash to 10 crore
families while withdrawing subsidies that support double that population, the UPA
may end up scoring a self-goal.
The Centre is ready with the nationwide cash transfer scheme that will take
off next year and deposit Rs 3.2 lakh crore per year in the bank accounts of 10
crore poor families by 2014. On paper, the idea is to bypass the leaky subsidy channels.
But the scheme is also the UPA’s best bet for a third consecutive term.
The government plans to cover the target BPL
families before it is election time in 2014. If it succeeds, roughly 20 crore
voters – considering every family on an average has two -- will benefit. If even
half of them vote for the Congress and its partners, the alliance should be home
again. In 2009 general elections, less than 12 crore votes ensured victory for
the Congress. Its partners bagged another 2.43 crore.
But will cash transfer really help the UPA? The
scheme is dubbed as fiscal-neutral. It will replace existing subsidies for PDS,
fuel, fertilisers, wage schemes etc and will not burden the exchequer. The
government’s bill on major subsidies towards food, fertiliser and petroleum in
the current fiscal was pegged at Rs 1.8 lakh crore and has been climbing due to
a falling rupee and the rising international crude price. Much of these
subsidies go to people who are by no definition poor.
Poverty is debatable in India. The cash scheme
targets 10 crore poor families or 45-50 crore people. The Sengupta, Saxena and
Tendulkar committees, respectively, estimated 77, 50 and 37 per cent of our population
as poor. That roughly works out to be 90, 60 and 45 crore Indians. The Multidimensional Poverty Index (MPI)
developed by the Oxford Poverty and Human Development Initiative with UNDP
support put 65 crore as poor and another 20 crore as vulnerable to poverty.
Without getting into the relative merits of the
different benchmarks used, it is safe to conclude that at least 85 crore
Indians, or nearly 20 crore families, are impoverished. The majority of them
are unquestionably poor. The rest is one illness or crop failure away from
officially sinking below the fast-shifting line of poverty. All of them need
help but, unfortunately, the government plans to hand out cash to only half of
them while denying subsidies to all.
So, as 10 crore poor families get Rs3200 every
month, which, by government’s own expectation, will increase spending and trigger
inflation, the other 10 crore families, nearly as poor, will have to fend for
themselves in a non-subsidised, inflationary market. They will soon become
poorer than those who now qualify for the cash scheme. Clearly, it is not
enough to support only the poorest 10 crore families while leaving out another
10 crore who need it as much.
In any case, the one size fits all approach – a
flat cash subsidy of R3200 -- is unreasonable. There has been no clear word yet
on linking it to inflation over time. Moreover, inflation and the price index
itself is a regional phenomenon. Beyond the obvious urban-rural divide, prices
vary widely between rural areas as well.
In such a scenario, R3200 may be just enough
for subsistence in many parts of India. Worse, productivity will be hurt. For
example, very few of the 85 crore poor will be able to afford, with or without
the cash dole, fertilizer and diesel at market price. This will affect
agricultural output which, in turn, will pinch the economy and push the poor
further into poverty.
Even the primary purpose of cash transfer cannot
be secured merely by the intent. Where cash is involved, the incentive for
manipulation gets much stronger than, say, siphoning off low-quality PDS grains
which have a limited market. The test of transparency begins with the selection
of the eligible for the scheme. In the past, scores of bona fide candidates were
left out while the landed pocketed BPL cards.
The other challenge will be to ensure possession
and control of cash. Having a bank account does not warrant transparency as has
been evident from several case studies under schemes such as NREGA where the
village strongman took possession of all banking documents and controlled the
money in collusion with local bank employees.
Anyway, the cash transfer scheme as envisaged
now is only feasible when the government’s Aadhaar database covers the entire
BPL population, as bank accounts will be opened on the basis of Aadhar’s unique
identification number. In the last three years, Aadhar has covered only 25
crore people, mostly in urban areas.
Therefore, it is unclear how the government has
set the national deadline for cash transfer covering all 10 crore poor families
before the 2014 elections when Aadhar itself does not target more than 50% of
the population by the end of 2014. Worse, Aadhar’s penetration is very limited
in some of the poorest states of India.
According to the multidimensional poverty index
mentioned above, eight Indian states have a combined population of 42 crore
poor. Out of these states, only Jharkhand (26.79%) comes close to the national
average of population percentage covered under Aadhar. The rest -- Madhya
Pradesh (17.55%), Rajasthan (14.04%), Orissa (9.42%), Bengal (5.53%), Uttar
Pradesh (4.95%), Bihar (2.02%) and Chhattisgarh (1.23%) – have a lot of
catching up to do.
The idea of direct cash subsidy has its merits.
In Brazil, for example, put in the hands of the women in poor families, it made
a difference. But it will not be easy to make it work at the gigantic scale
that is India. Ideally, the government should work out regional benchmarks for
minimum means of living and pay the deficit to families whose income falls
short of that baseline. But that seems to be a near impossible task given how
generic our poverty data is.
At the same time, cash transfer can perpetuate
poverty among the poorest. These beneficiaries may not make any serious effort
to better their lot lest a small increase in income disqualify them from
receiving the monthly dole of R 3200. So, the scheme should have inbuilt incentives
for families that invest in education or enterprise and breach the poverty
barrier.
A desperate UPA is in too much of a rush to look
into these issues or even care. Since the subsidies will not be immediately
withdrawn, some money in some people’s hands may earn it some votes for now.
But eventually its results, and the country, will be poorer.
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