Direct Cash Transfer: Complement or Alternative?


Author: Parveen Kaswan (Follow)


If at this point of time we are saying that UPA-2 is trying to impress people from all dimensions including foreign  and Indian entities, than we are correct in one sense. If the easing of rules in sectors such as retail, pension and insurance were aimed at pleasing foreign investors and the corporate world, the government is now planning to target the poor – its biggest vote bank – with its direct cash transfer scheme.  Even there are people who are arguing that if Narendra Modi is successful in booking his victory on development projects, now congress wants to cash their victory on cash transfers.


There are many major obstacles in path of  this ambitious scheme. The success of Cash Transfer scheme depends on cooperation from all three tiers of  Panchayati raj system (Village Panchayat, Panchyat Samiti and Zila Parishad)   and state governments . The problems also  include identification of genuine beneficiaries, technological and structural reach, apart from stakeholders education.

The most important criterion  for cash transfer to work  properly Bank network system. But according to current conditions India is mostly a unbanked country and the condition is worse in case of Rural Areas. According to statistics only 40 per cent of India’s population has bank accounts. The current banking network does not have the bandwidth to handle more accounts, and it is not possible to build such a vast network in short time. Even with new legislation (Banking  Laws Amendment bill, 2011) there are chances new entities to come in the banking sector and further expansion of this field, but one has to stay and watch. But experts are little bit sceptical about expansion of banking system by private banks in rural areas, because it is not a profitable business for private banks to enter in rural sector.

According to the claims made by government it is the largest cash transfer scheme of the world. The aim of  government is to transfer Rs 3.2 trillion (one trillion is 100,000 crore), or $58 billion, a year to beneficiaries of its subsidy schemes and welfare programmes. But it is not said by government how it reached at this figure when the government’s subsidy budget in 2012/13 is Rs 1.9 trillion. This also includes food and fertiliser subsidies, and which  have been kept out of the cash transfer scheme for now.

Deciding the monthly subsidy value that should be transferred to the beneficiaries is also little bit complex  because of fluctuation of market price. According to experts there is also  a problem of  inflation that  will  arise because of pumping the huge cash(liquidity) in the market but earlier that was not there. In earlier schemes not the cash but the good was provided to people in exchange of less money(less than market price).

And argument above are well justified when government itself has scaled down the launch of cash transfer system to cover 20  districts in place of 43(as planned earlier).The move has been made because of lack of  bank accounts to receive cash transfer and Aadhaar enrolment is also insufficient with the people. Initially 51 districts were selected in 16 states. This is the condition with pilot project than we can imagine about the pan India coverage for the same scheme, even these districts were selected.

If infrastructure is developed according to requirements for this scheme and implementation will be also practiced efficiently than no doubt it will help in curbing many faults in current Public Distribution System. But here is big question of food security also arises as it is very important to provide availability of the food grains in all parts of country not just the cash. I think here the danger also lies in setting unrealistic aims and deadlines because currently we don’t have such Infrastructure.

When talking about this scheme some  people even  take wrong impression that it is a complete new scheme of government, but ground reality is that it is just a mean of providing other schemes efficiently. India has a active cash transfer system currently in which banks and post offices are used to transfer pensions including old age pension to the beneficiaries. Now this move by government is an expansion of the earlier scheme by adding more scope. This system is mainly going to rely on Bank accounts and the Aadhaar, unique Identification Number which is also called as monumental version of social security numbers of  US. Cash transfer will be efficient only when other schemes are in place. So according to current situation in our country in a  broad sense the direct cash transfer scheme is a complement not an alternative.

Post By Parveen Kaswan (65 Posts)

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