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Direct Cash Subsidy

In a landmark step, Prime Minister Mr. Manmohan Singh announced the much-awaited

direct cash transfer scheme wherein the subsidy amount will go directly into the bankaccounts of the beneficiaries.

The government will implement the scheme for cash transfer to the beneficiary's

account in 51 districts from January 1, 2013.

What is direct cash transfer scheme?

It is a poverty reduction measure in which government subsidies and other benefits are

given directly to the poor in cash rather than in the form of subsidies.

Advantages

It can help the government reach out to identified beneficiaries and can plug leakages.

Currently, ration shop owners divert subsidised PDS grains or kerosene to open market

and make fast buck. Such Leakages could stop. The scheme will also enhance efficiency

of welfare schemes.

How is it implemented?

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.

Disadvantages

It is feared that the money may not be used for the intended purpose and men may

squander it.

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Has it already been implemented in India?

Electronic Benefit Transfer (EBT) has already begun on a pilot basis in Andhra Pradesh,

Chhattisgarh, Punjab, Rajasthan, Tamil Nadu, West Bengal, Karnataka, Pondicherryand Sikkim. The government claims the results are encouraging.

Drawbacks

Yes, because only Aadhar card holders will get cash transfer. As of today, only 21 crore

of the 120 crore people have Aadhar cards. Two other drawbacks are that most BPL

families don't have bank accounts and several villages don't have any bank branches.

These factors can limit the reach of cash transfer.

World wide scenario

Many Latin American countries have conditional cash transfer schemes in which money

is transferred to poor families through women. The money is given, subject to them

ensuring that their children attend school regularly, take preventive healthcare

measures and provide better nutrition to their children. The Indian scheme is

unconditional.

What are the scheme's political implications?

While many studies have assessed positive impacts of such schemes, few have looked at

their political benefits. A World Bank study recently reported there is a direct link

between cash transfers and voting behavior. It was found beneficiaries express a

stronger preference for the ruling party that implements and expands cash transfers.

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