Microfinance

Direct Benefit Transfer Scheme – Strategic Action Plan for India in 2014

Let 2014-15 be the year of Direct Benefit Transfer.

By Dr Amrit Patel

Dr Amrit R. Patel is the Retired Deputy General Manager, Bank of Baroda, Mumbai, he can be contacted by email at dramritpatel@yahoo.com

The Government from time to time has introduced a plethora of welfare schemes involving, inter alia, provision of subsidy or subsidized goods for the socio-economic upliftment of poor in the country. However, numerous surveys and studies reveal that subsidized goods and welfare benefits have not been reaching to intended beneficiaries.

The system of providing subsidies under various schemes of the Government has proved to be inefficient.The Central Government spent Rs.2.16 lakh crore on subsidies during 2011-12 accounting for 2.41%of country’s GDP. The budget for the year 2012-13 proposed disbursal of subsidies amounting to Rs.1.9 lakh crore. ] Government expects to reduce the cost and subsidy bill through better targeting. Union budget 2012-13, targets subsidies below 2% of GDP and below 1.75% of GDP in the next three years.

It is in this context, this article briefly highlights the scheme, its benefits, Government’s initiatives and strategic action plan to complete the task in three years focusing on productively utilizing existing institutional infrastructure, creating awareness, resolving pressing issues, among others.

direct benefit transfer india 2014

Scheme: The Direct Cash / Benefit Transfer scheme provides for direct transfer of money into the bank accounts of eligible persons for pension, scholarship, payments under the Employment Guarantee Scheme and benefits/subsidies under other Government welfare programs. This can facilitate beneficiaries to use this money to buy goods and services in quantity and of quality from the market at competitive prices. Under the scheme the difference between the market price and subsidized price is directly transferred to the beneficiary in cash in proportion to the quantity uplifted from the market.

The scheme depends upon basic two requirements viz.Aadhaar, the Unique Identification (UID) Number and Bank Account. Aadhaar is a 12-digit individual identification number issued by the Unique Identification Authority of India [UDAI]to serve as proof of identity and address. The cash transfer will be enabled through ‘Aadhaar,’ a numerical biometric identification that is currently being given to all citizens of the country.The bank account is the most important criterion for the scheme.

On 1 January 2013, Government commenced implementing DBT scheme in 20 districts covering seven programs by crediting cash directly to bank account of eligible beneficiaries involving old age pensions, widow pensions, maternity entitlements and educational scholarships for SC/STs, OBCs, and minorities. Under the scheme, money meant for recipients of welfare programsis transferred to bank accounts linked to their UID Numbers.

The scheme will be extended to 11and 12 more districts in February and March 2013. Scheme would benefit more than 200,000 people initially, and would cover the entire country in December 2013. Cash handouts will replace the money the Government currently spends on subsidies on food, fertilizers and fuel, among others, under 42 Government programs andis expected to improve standard of living of 720 million people in the course of time.

Benefits:The scheme aims at minimizing incidence of corruption, eliminating falsification and duplication with regard to payments of subsidies. Incidentally, other benefits include

[i] bringing transparency into the subsidy system

[ii]significant improvement in the governance of Government programs as benefits would reach the beneficiary without any intermediation and delay

[iii] elimination of fraudulent claimants and saving“considerable” amount.

[iv] direct cash through bank account would empower poor because they can decide how best to spend the cash to meet with their emergencies for which surveys exhibit they are compelled to borrow from informal money lenders

[v] effective implementation of this scheme leaving cash in the hands of people would lead to higher demand for goods, spurring manufacturing and eventually boosting economic growth

[vi]impact of cash transfer is robust when the beneficiary is a woman or the household is headed by a woman[vii] create “multiple effects” for good governance without any confrontation with dominant caste and elite groups.

[viii]scheme envisages to target BPL families and deposit Rs.3.2 lakh crore per year in the bank accounts of 100 million poor families that will improve financial inclusion and bank’s liquidity position.

Initiatives: Government has directed banks to reach half a million unbanked villages through bank branches, BCs and Common Service Center [CSC]. Banks would add this year 45,000 BCs to already 65,000 at present. CSCs would be ready in terms of equipment, connectivity, biometric device, card reader and printer within three months. Government will incentivize banks by paying a transaction fee and developing a business model to help banks recoup transaction costs.With the efforts put in by the UDAI to invite applications from approved commercial banks deploying micro-ATMs to enable Aadhaar-based payments, it is possible that these ATMs will be operational in due course.

By end of August 2013, every gram panchayat, mandal and district will be on the micro ATM network. Beneficiaries need not to run to banks or post-offices to get money but will receive at their doorsteps. Today, it is one bank, one business correspondent, one beneficiary. The new model would be one bank, multiple BCs and one beneficiary. The beneficiary will have choice of BC.In 43 districts camps are organized to enroll every beneficiary of 34 welfare schemes and 3500 machines are deployed each with a capacity of about 50 enrolments per day and put in place accelerated process of generating Aadhaar for these beneficiaries.

Strategic Action Plan:The success of the DBT scheme depends upon Government’s commitment to address fundamental issues viz.

[i] appropriate definition of poverty line, identification of intended beneficiaries under individual social welfare programs and accuracy in targeting only eligible beneficiaries including BPL households

[ii] effectively   subsidizing the poor for food, fertilizer and fuel once the prices are market determined and are liable to fluctuate

[iii] devising appropriate system, method and procedure to instantly transfer the cash subsidy to the poor and enabling them to withdraw hassle-free and

[iv] State Government’s endeavor to initiate fundamental reforms to streamline PDS, if food is kept out of the scheme.

However, currently there are serious constraints viz.

[i] only 222 million people in India have so far enrolled into a biometric identity scheme and most poor families do not have bank accounts

[ii] only 40% of country’s population has bank accounts. The current banking network does not have adequate penetration to handle expected number of accounts. Financial inclusion and availability of information technology infrastructure are grossly inadequate to transfer cash.Government expects more than 600 million, or about half of the country’s population, would receive the Aadhaar cards by 2014.

Institutional infrastructure:Existing institutional infrastructure to speed up the implementation of the scheme should be productively utilized, viz. District Rural Development Agencies, District Industries Centers, Block Development Offices, Gram Sabhas, Gram Panchayats, PanchayatSamitis, ZillaParishads, State Level Bankers Committees, District Level Coordination Committees, Block Level Bankers’ Committees, Lead Bank Office, NABARD’s District Offices, Financial Literacy and Credit Counseling Centers in each district, Rural Self-Employment Training Institutes in each district, among others. Effective coordination is a sine qua non among State and Union Government, UIDAI, RBI and Banks to achieve a collective goal.

Action Plan: Need is, therefore, to formulate Strategic Action Plan [SAP] for three years [2013-16] indicating month-wise and State/ district/ block-wise targets for issuance of UID Numbers and opening bank account in urban India comprising metropolitan, urban and semi-urban centers which have significant number of branches of public and private sector banks and urban cooperative banks.

Rural Areas:

[i]In rural area existing public and private sector banks have been providing banking facilities in about 90,000 villages with population above 2000out of 700,000 villages. For these 90,000 villages, immediate need is to formulate SAP indicating village-wise and month-wise targets for issuing UIDs and opening bank account.This task should be completed in 2013. Banks can consider providing banking facilities in few villages around their existing branches particularly in the Service Area which the RBI has allocated to each branch since April 1989 and bank staff is much more familiar and gained field experience while financing IRDP and SGSY

[ii] The Union Government in consultation with State Governments can considerinvolving all viable Primary Agricultural Credit Societies and rural post offices as BCs

[iii] Progressively existing banks need to formulate SAP to provide banking facilities in all unbanked villages in five years

[iv] Simultaneously, exercise to identify eligible beneficiaries under each of the social welfare programs of the Government should continue throughout the country covering all villages, block and district headquarters and completed in two years.

Monitoring:

[i] Banks through their SLBC, DLCC and BLBC should be provided a list of all existing UID holders with full addresses to facilitate opening bank accounts

[ii] State Governments should utilize existing SLBC, DLCC and BLBC forafor opening bank accounts of all UID holders in a time bound plan on lines of financial inclusion program. In fact, SLBC should direct all banks to introduce a three years Bank Account Opening Plan for their branches. BLBC must monitor progress based on targets every month, DLCC quarterly, SLBC half-yearly and RBI/Ministry on an annual basis. A robust information system should be put in place at block level with website in public domain.

Awareness campaign: Government can consider announcing in its ensuing budget to celebrate 2013-14 “Direct Benefit Transfer “Year to create awareness among all stakeholders through a systematically designed massive result-oriented campaign.Awareness has to be created to sensitize all stakeholders for issuance of UID Number, opening bank account, identifying eligible beneficiaries under social welfare programs of the Government, crediting benefit in the form of cash in the bank account and facilitating hassle-free withdrawal of the cash. The print,   electronic and other mass communication media along with Government, banks, MFIsand SHGs can spread the details of the scheme among all citizens of the country through holding seminars, discussions, interviews, village meetings, among others. .

Issues: Issues that need to be sorted out expeditiously to speed up implementation of the scheme include, among others, viz.

[i]  Issue of the collection of biometrics data for Aadhaar and the National Population Register [a comprehensive identity database being maintained by the Ministry of Home Affairs].

[ii] Millions of people are being enrolled for UID without any legal safeguards. The UIDAI’s draft bill rejected by the parliamentary standing committee should be expeditiously reconsidered to support UID enrollment with legal framework.  The committee had urged the government to “reconsider and review the UID scheme as also the proposals contained in the Bill in all its ramifications and bring forth a fresh legislation before Parliament.”

[iii] Problems viz. fingerprints, connectivity, power failures, truant BCs etc.

[iv] Single women, disabled persons and the elderly/sick persons who cannot easily move around to withdraw their cash

[v] Inflation will easily erode the purchasing power of cash transfers accentuating poverty and starvation. DBT must be indexed to inflation, thereby giving no excuse to reduce welfare subsidies.

[vi] UIDAI estimated 300 million people of 1.2 billion  population have no official identification documents, viz. no electricity bill, voting card, bank account . This prevents them from opening bank accounts

[vii] Budget allocation for food and fertilizer subsidies in 2012-13 was 136,000 crore, which is expected to rise in the revised budget-estimates. The Commission for Agriculture Costs and Prices [CACP] has recommended direct cash transfer of food and fertilizer subsidies to beneficiaries could rise to Rs.200,000 crore next year. CACP estimated Government’s savings of Rs.20,000croreby direct cash transfer of subsidy to farmers.

According to UIDAI, apart from the herculean task of enrolment of eligible beneficiaries, it needs to be ensured that the authentication platform must not fail [it has to be 24×7 instantaneous and real time], operationally the system should not breakdown, no bugs or glitches in the system, to build with every delivery system that uses Aadhaar authentication for service delivery, an exception management system so that Aadhaar authentication failure does not become an excuse for denial of services to the people.

Need for: Measures that are needed include

[i] The banking system may have to expand its network of both brick and mortar branches as well as branchless banking operations through technology adoption. Besides, integrating the existing vast network of post office network in rural areas, Primary Agricultural Credit Societies operating in 95000 villages, Non-Banking Finance Companies engaged in micro-finance operations, urban cooperatives, reputed NGOs, registering corporate houses as BCs and operating the scheme in a Public-Private-Partnership Mission mode  would in course of time yield expected results. For example, Ujjivan Financial Services, a microfinance institution is servicing about one million people. But only 20% to 30% of its clients have bank accounts.

[ii] When the Government expects Aadhaar penetration in 51 districts to be above 80 percent by December 2013, simultaneously the banks in these districts need to gear up their efforts to put in place at least branchless banking through technology adoption and ATMs

[iii] Private-owned BCs whose performance is unsatisfactory and fraught with malfeasance needs to be relooked

[iv] Banks have opened millions of no-frills accounts in rural areas which they through their ingenuity and professional knowledge can convert into business model and build capacity of clients to operate these accounts hassle-free

[v] To expedite the implementation, bank accounts can initially be opened for one member per household. The withdrawal can be done at bank branch and ATM through debit card and through BC model using smart card, PoS devices etc.

[vi] To minimize vulnerability to fluctuating market prices, prices can be averaged out yearly based on forecasts

[vii] Beneficiaries need to have flexibility in the choice of commodity while receiving cash subsidy. The amount of subsidy should be calculated based on the number of individuals per households rather than assuming an average household size

[viii] Expand and improve cash transfers without waiting for UID.Appropriate people-friendly uses of modern technology can be explored and exploited [viii] Persons receiving pension from the local post offices can continue till UID system is perfected

[ix] State Governments and PRIs must be serious to improve considerably the literacy level of poor people including adult persons to facilitate them to understand the scheme and empower to access modern technology and operate ATMs, minimize incidence of frauds and redress their grievances

[x]Ahead of the cash disbursal, the top executive of the State Government, say, the Chief Secretary should hold a video conferencing with senior officials in the district administration and banks.

Conclusion: One of the most successful cash transfer social innovation programs has been Brazil’s ‘Bolsafamilia‘ It contributed significantly to the drop in poverty during 2000. Most important lesson has been meticulous targeting the beneficiaries. The DBT scheme cannot be termed a panacea for all evils but it is certainly a significant step in the right direction to transfer benefits to intended beneficiaries and contain subsidy burden. Concern by the legislatures and commitment by bureaucracy accompanied by the accountability will surely yield better results.

1 Comment

1 Comment

  1. MD DALIM SK

    June 18, 2016 at 8:26 am

    Our society name astha welfare society

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