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To meet the socio-developmental objectives of poverty elimination and inclusive
growth, a number of Government sponsored programs and schemes have been
introduced. However, efficiency and effectiveness have not been achieved by any of
the programs and schemes optimally. Rampant leakages and corruption have made
many schemes dysfunctional. Direct cash transfer scheme has been aimed to
mitigate these malaises. Direct cash transfer scheme aims to reduce leakages, cut
down corruption, eliminate middlemen, target beneficiaries better and speed up
transfer of benefits to eligible individuals. This paper examines the broad thrust and
evolution of direct cash transfers along with its operation model in India. Also
included is a critical evaluation of the problems, impact, readiness of the scheme in
India followed by important inferences and suggestions.
In a recent study by the Planning Commission, it is ascertained that the Public
Distribution System (PDS) is so ineffective that 58% of the subsidized grains do not
reach the targeted group and almost a third of it is trajected off the supply chain.
According to the Finance Ministry, the inefficiencies of the PDS cause the
government to spend 3.65 for transferring 1 to the poor. To generate budget
savings and reduce corruption, the Government of India launched the Direct Benefit
Transfer (DBT) scheme on January 1st, 2013. The DBT program aims that
entitlements and benefits are transferred directly to the beneficiaries with the help of
biometric Aadhaar-linked bank account. At present, the scheme is covering 7 welfare
schemes in 20 districts in 16 states. The programme covers schemes like education,
scholarship for the Scheduled Castes and Scheduled Tribes and pension to the
widows. Food, fertilisers, and fuel have been kept out of its purview at this time. The
DBT scheme aims at cutting a subsidy bill of 1,64,000 crores apart from other
benefits like better delivery, accurate targeting, broader choice, reducing delays and
corruption. This paper aims at taking a deeper view at the direct cash transfer
scheme and answers the following questions:
What is direct cash transfer scheme?
What is its operation model in India along with a critical analysis of the same?
Is DBT scheme a poll plank for the UPA and will it help them win elections?
How have other countries adopted the cash transfer scheme?
As the name suggests, direct cash transfer is the direct transfer of government
subsidies and other benefits to the entitled people usually provided by the
government. In India, the UPA government is going to introduce the scheme to reach
out to poor people directly in order to plug leakages and cut delays in transfer of
subsidies to the poor. The areas that would be covered by the program include
scholarships, pensions and unemployment allowances and later MNREGA and
Public Distribution Schemes. It is assumed that it will help to bypass corrupt
middlemen, would help in cutting down wastage and duplication. It is fundamentally
being established to ease the burden of subsidies and letting the genuine
beneficiaries avail the advantage.


Cash Transfer schemes originated in middle-income Latin American countries that
had good infrastructure and supply systems. They were positioned as formal,
publicly provided safety net programmes that essentially supplied cash to the needy
and helped them tide over the period of economic crisis. The earliest of such
programmes, Progresa, was initiated in 1997 in Mexico with a new approach
integrating interventions in health, education and nutrition. It was based on the
understanding that these important dimensions were direct correlates of human
welfare. In Brazil the first CCT programme was started in 1996 with a focus on child
labour. While some more programmes based on the CCT philosophy were
introduced to address specific areas, these were integrated in 2004 into the now
well-known programme Bolsa Familia. Other countries that initiated CCT
programmes include Chile, Colombia, Ecuador, Jamaica, South Africa and Turkey. In
Asia, Bangladesh had a Female Stipend Programme as early as 1982 followed by a
Food for Education Programme in 1993. Food grants were later converted to cash
grants in 2002. Indonesia launched a pilot CCT programme called Programme
Keluarga Harapan (PKH) in 2007. Its beneficiaries are very poor households that
have pregnant women and/or zero to 15-years-old children. The PKH requires them
to access education and health services to be eligible for the cash transfer.
The government in order to leverage technology solutions and in particular
the Aadhaar i.e. the Unique Identification (UID) programme for this purpose,
constituted a task force on Direct Transfer of Subsidies on Kerosene, LPG &
Fertilizer headed by Nandan Nilekani (Chairperson of UID Authority). The task force
proposed the Solution Architecture (Core Subsidy Management System (CSMS)) to
achieve a fully electronic back-office process for direct transfer of subsidy. The
system would automate all business processes related to direct subsidy transfer and
can be customized according to the business rules. At the very core of the system
would be:Aadhaar Integration, ERP Integration and Integration with nodal bank and
payments gateway.



The money is directly transferred into bank accounts of beneficiaries. LPG and
kerosene subsidies, pension payments, scholarships and employment guarantee
scheme payments as well as benefits under other government welfare programmes
will be made directly to beneficiaries. The money can then be used to buy services
from the market. For eg- if subsidy on LPG or kerosene is abolished and the
government still wants to give the subsidy to the poor, the subsidy portion will be
transferred as cash into the banks of the intended beneficiaries.
What are the immediate critical success factors?
The governments efficiency in dealing with the fundamental issues like
the basis of targeting, definition of poverty line & identification of intended
Effectively subsidizing the poor for fertilizer or kerosene once the prices are
market determined and are liable to fluctuate
Devising a methodology to transfer the cash subsidy to the poor
State governments endeavor in taking up fundamental reforms required in
Public Distribution System (PDS)

Phase I

Phase II

Direct transfer of subsidy through state

governments/UT Administration.
manufacturers at market price


Central government transfers the differential

subsidy directly to the state govts./UT.
Subsidy amount is proportional to commodity
uplifted from the retail points in a state/UT.

Subsidy transfer to beneficiaries.

The cash equivalent of subsidy is transferred
directly to beneficiaries through their bank
accounts by linking transactions to Aadhaar.
The commodity purchase and then transfer
of cash subsidy to their account will be
based on successful authentication of the
beneficiary through Aadhaar at the point of

States reform their distribution system based

on the CSMS system proposed by the Task

The following steps have been taken by the government to guarantee a successful
implementation of the scheme:
An efficient Electronic Benefit Transfer (EBT) system would require the benefits
transfer system compatible with the banking system, transfer of funds to the
beneficiaries accounts and facilities for the drawl of the amount by the beneficiaries
as per their requirement. This will not only bring in greater efficiency in the transfer of
benefits but will also reduce pressure on the bank branches for dealing with these
transactions, reduce the requirement of multiple accounts for various schemes and
facilitate the process of financial inclusion.
To ensure that every beneficiary of the government scheme has a bank account, the
banks must map the list of beneficiaries under every scheme, already available with
the state government, with bank account details. In case the beneficiary doesnt
have a bank account, a new bank account for the family in the service area branch
should be opened. Vice versa, as soon as the bank account gets opened, the
beneficiary should get mapped.
For those who dont have access to bank branches, they rely on Banking
Correspondents or BC. In May 2012, the Department of Financial Services (DFS)
chalked out a plan to split the country into 20 clusters for BCs. Each cluster is to be
managed by one BC company, elected by a price-based auction. The function of a
BC would be to pay the person who wants to withdraw money from his account in
case the person is not able to access an ATM or bank. The authentication by the
person would be given by a fingerprint on a micro-ATM.
The Central Plan Scheme Monitoring System (CPSMS) is a public financial
management reforms initiative of the government of India which monitors programs
in the social sector and tracks funds disbursed. It provides real time information

exchange with the banks providing greater transparency and accountability to social
sector. It provides a platform for schemes for making payments directly in the bank
accounts of beneficiaries. Departments using CPSMS should map the details of the
bank account of the beneficiary in the scheme database of the CPSMS. This should
also be brought to the knowledge of the beneficiary so that she/he is aware that the
benefits shall be electronically transferred to the bank account.
Aadhaar Payments Bridge (APB) is a repository of Aadhaar number of residents and
their primary bank account number used for receiving all social security and
entitlement payments from various government agencies. This is the bridge/platform
that will be used for the Direct Cash Transfer. APB requires using Aadhaar number
as the primary key for all entitlement payments. This would weed out all fakes and
ghosts from the system and ensure that the benefits reach the intended
beneficiaries. The key steps in posting payments via APB are:
Service delivery agency that needs to make payments to its beneficiaries (such as
MGNREGA wages, scholarships disbursement, old age pension etc.) provides APB
File containing details of Aadhaar number, welfare scheme reference number and
the amount to be paid to its bank (called sponsor bank)
Sponsor bank adds bank IIN (Institute Identification Number provided by National
Payments Corporation of India NPCI to participant banks) to the APB file and
uploads onto NPCI server
NPCI processes uploaded files, prepares beneficiary bank files and generates
settlement file. Settlement file is posted to bank accounts with RBI. Destination
banks can download the incoming files for credit processing after the settlement file
has been processed
The Prime Minister has set up a three-tier architecture for monitoring the scheme.
This includes a national ministerial committee, a national executive committee and
implementation committees. The seven schemes that will now employ direct cash
transfers to beneficiaries accounts are mostly related to student scholarships and
stipends, the Indira Matrutva Yojna and the Dhanalakshmi schemes. It is estimated
that at least two lakh beneficiaries have received cash benefits from Jan 1.
Cash benefits in the remaining 19 schemes will be available from February and
March when the government will cover 23 other districts across the country. The
government had originally identified 51 districts across 16 states to be covered by
the programme under which cash subsidy benefits will directly go to the bank
accounts of beneficiaries with mandatory requirement of Aadhaar number.
The states covered in the initial phase are Karnataka, Maharashtra, Delhi,
Rajasthan, Madhya Pradesh and Punjab and UTs of Puducherry, Chandigarh and
Daman and Diu. Subsequently, four districts each of Himachal Pradesh and Gujarat
were exempted from the roll-out because of the assembly elections. This will be
extended to 11 more districts from February 1 in states including Kerala, Haryana,
Sikkim, Goa, Andhra Pradesh and Jharkhand and 12 more districts in states
including Tripura from March 1.


Over-Reliance On Aadhaar Number And Bank Account-According to UIDAI, it
is not mandatory for individuals to get an Aadhaar number. However, it does not
prevent any service provider from prescribing Aadhaar as a mandatory requirement
for availing services. Therefore, beneficiaries may be denied a service if he does not
have the Aadhaar number. The new direct cash transfer policy requires beneficiaries
to have an Aadhaar number and a bank account. However, many beneficiaries do
not yet have either.
2. Problem Of Ghost Beeneficiaries- According to the government, one of the key
reasons for changing to DCT system is to ensure better targeting of subsidies.
However, the success of Aadhaar in weeding out ghost beneficiaries depends on
mandatory enrollment. If enrollment is not mandatory, both authentication systems
(identity card based and Aadhaar based) must coexist. In such a scenario, ghost
beneficiaries and people with multiple cards will choose to opt out of the Aadhaar
system. Furthermore, key schemes such as PDS suffer from large inclusion and
exclusion errors. However, Aadhaar cannot address errors in targeting of BPL
families. It cannot address problems of MNREGS like incorrect measurement of work
and payment
3. Safeguard For Maintaining Privacy- Information collected when issuing Aadhaar
may be misused if safeguards to maintain privacy are inadequate. Though the
Supreme Court has included privacy as part of the Right to Life, India does not have
a specific law governing issues related to privacy. Also, the authority is required to
maintain details of every request for authentication and the response provided.
Authentication data provides insights into usage patterns of an Aadhaar number
holder. Data that has been recorded over a long duration of time may be misused
for activities such as profiling an individuals behaviour.
4. No Clarity Reagrding Bank Operation-The decision to operate a bank account is
with the banker and we do not seem to have understood what this entire line of
transaction does to the operations and bottom lines of banks. The banks are listed,
their performance tracked by the markets and the rewards are based upon basic
profitability parameters as per the statement of intent that the bankers sign with the
5.The Role Of Multiple Agencies- Except the channel through which the money
moves, there is no change in the basic architecture. Classifying a family as poor,
allotting NREGA work, maintaining musters, identifying beneficiaries for
scholarships, pensions, etc, will be done under the extant decision architecture.
6. Last Mile, Statistics And Multiple Scaffolding- Finally, the cash transfers go to the
bank. The last mile between the bank and the customer is designed to work through
a business correspondent (BC). This is the weakest and the most muddled link. It
does not seem to be moving in a solid direction. Fixing petty corruption using
Aadhaar needs much more structural scaffolding.


The common opinion is that the Congress wants to cash in on cash transfers. As the
UPA government has been under attack on the issue of corruption, the Congress
feels that the scheme that seeks to take the benefits of various welfare programmes
directly in the hands of their beneficiaries will help it counter the Opposition charge.
Though the announcement date was in September, the UPA waited for two months
to unveil details of the scheme. The poll season could have been the cause of the
implementation. The BJP had written to the Election Commission saying the
government should withdraw the announcement of the plan until the polls were over
in Gujarat and Himachal Pradesh in response to which the government said that the
Finance Minister in his budget speech made the first announcement about the
scheme on March 16, 2012. It added that the first press release from Prime
Ministers Office came on September 28 while the election dates were announced on
October 3.
On other grounds too, the direct cash transfer scheme is not bereft from political
criticism. BSP chief Mayawati lashed out at the Congress-led United Progressive
Alliance (UPA) governments direct cash transfer scheme, describing it as a ploy to
hoodwink voters in the 2014 Lok Sabha polls. Calling it an old book with a new
cover, she pointed that scholarships for the scheduled castes and the scheduled
tribes in the state initiated under her chief ministership was already in place where
financial aid was transferred straight to the bank accounts of the beneficiaries. She
called direct cash transfer scheme a sham to fool the voters.
Strongly criticizing the UPAs Direct Cash Transfer scheme, the Communist Party of
India (Marxist) said that the basic philosophy behind the initiative is to dismantle the
governments obligations in the social sector. They opinionated that direct cash
transfer scheme is a bribe to voters under the slogan. Mr. Arvind Kejriwal also said
that the timing is questionable.


According to Studies undertaken by the Princeton University, following the massive
success of the Bolsa Familia Programme, the beneficiaries of the programme vote to
the party implementing the programme. Also, the Non- Beneficiaries in poorer places
voted for the government, which put the plan in place. In contrast, the opposing
government did decently in poor places, but not with the poor people and definitely

not with the poor people in the richer areas. The conclusion is that with current
technology, every plan of the government has a domino and a ripple effect. A good
policy is a good gesture. And a good gesture gets you the votes.
The political parties which oppose the Congress on bringing the programme at a
time so close to the Indian Annual elections is technically correct. The favorable
voting effect is affected by the direct cash transfer scheme.
The possibility of reaping electoral returns by strategically allocating targeted
transfers to strengthen political prospects is not only a theoretical prediction but also
an issue that has caught the attention in current public debates. Conjectures on
possible political rewards linked to participation in CCTs have been reported
following presidential elections in Ecuador, Peru, Mexico and Brazil. In the case of
Colombia, different media outlets speculated right before the 2010 presidential
election that the official government had used the expansion and allocation of
Familias en Accion (FA), a large-scale CCT program to increase its votes. More
recently, due to current debates on the possible misallocation of program benefits by
local politicians, the government of Colombia has passed laws to make of Familias
en Accion a formal national poverty reduction program. Also, the law bans enrolling
new beneficiaries three months before major elections.
The World Bank study concludes that voters respond to targeted cash transfers and
that these transfers can foster support for incumbents, thus making the case
for designing political and legislative mechanisms that avoid successful anti-poverty
schemes from being captured by political patronage.
Rules and constraints can prevent the Direct Cash Transfer Scheme from becoming
a pure vote gain attempt. A good policy is implemented by a political party to stay in
power. But a good policy helps the countrys poor and the benefits should not be
denied owing to the political structure of the country.

The strongest case for cash transfers appears to be for social protection of the
elderly or as supplementary income to support children. The clearest evidence of
benefits from cash transfers pertains to the field of education and access to health
services, especially when these are associated with conditionalitys. Most of these
remarkable successes have been in contexts where there is extensive public
provisioning of services, so that CCTs have been designed as demand-side
incentives for human capital investment, complementing supply-side, public
provisioning of services.

Under the cash transfer scheme, families with Aadhaar card (a 12-digit individual
identification number) entitled to subsidies, pension, scholarships et al will get money
directly in their bank accounts. For this, they need to give their Aadhaar card number
to the service provider, for instance, the gas agency and the bank. But as of
today, the stakes do not seem high for a smooth take-off of the cash transfer
scheme. Firstly, only around 210 million (out of a population of 1.2 billion) people in
India have been registered under Aadhaar. Secondly, most below the poverty line
families, toward whom most subsidy schemes are targeted, do not have bank
accounts. Also, a major portion of villages in India does not even have bank

While the Unique Identification Authority of India (UIDAI), which issues the Aadhaar
cards on behalf of the Indian government has invited applications from approved
commercial banks deploying micro ATMs to enable Aadhaar-based payments, it is
still not clear whether these ATMs will be operational within the next month. Banks
are on an account-opening spree, but it is not clear if they will cover all in time. The
question is whether the promise of cash transfers will have people flocking to banks
and enrolment centers.In the 51 districts are concerned it is still not known whether
they have banks and ATMs. Prime Minister Manmohan mentioned that the banking
system may have to integrate the post office network, especially in rural areas.

The success of cash transfers depends on people having bank accounts, money
going into the right account, and people having easy access to those accounts. Right
now, it is not clear if India will be ready as per schedule, especially for villagers and
the urban poor.

United Nations Development Programme (UNDP), India Discussion paper: Conditional Cash
transfer schemes for alleviating human Poverty: relevance for india
Report of the Task Force on an IT Strategy for PDS and an implementable solution for the
direct transfer of subsidy for Food and Kerosene
Opposition Party Comments:,,