New Policy Reform-Direct Cash Transfer- A Bane or a Boon,only time will tell

Continuing with its effort to revive the Indian Economy, the Congress government announced its new flagship policy - Direct cash transfer, "Apka Paisa Apke Haath", a very catchy slogan i must admit.The announcement of this new policy came under a lot of fire from opposition,since Gujarat is scheduled for elections from 13th - 17th December and the Bhartiya Janta Party fear that if Modi is defeated in his own den, then it will be the knockout blow to them ahead of the 2014 LS elections.The EC gave its judgement that such an announcement could have been avoided and rightfully asked Congress to defer its implementation in the districts of Gujarat and Himachal Pradesh till the assembly elections are over.

Read on to find out what government plans to effectuate with its flagship model.

                             

                            The scheme was initially announced when Pranab Mukherjee presented this years Union Home budget.Now the government has come with more details.It has planned to start with 51 districts across 16 states including 2 in Himachal Pradesh and 4 in Gujarat.Under the scheme, the money meant for a number of beneficiaries under the welfare schemes such as scholarships,healthcare,pension schemes is to be transferred directly into the bank accounts of those beneficiaries.The prime goal is to eradicate the middle men involved in such cash transfers thereby ensuring that the money actually reaches to the people who need it.The concern was highlighted in a number of anti-corruption movements - of Rs.100 allotted for the welfare of the poor only about Rs 6 -10 actually reach the beneficiary.So why not have a scheme wherein such malpractices can be avoided, is probably the thought behind this scheme.Based on the success of this pilot exercise, the government also has plans to extend this facility to a number of subsidized items as food, fuel,fertilizers.

                      

                        Now the question is whether there is an extensive banking infrastructure in India especially in rural areas to facilitate such transfers.Cash transfers in cities,towns may be manageable but cash transfers to rural parts may be a challenge in itself,considering that most of the welfare schemes are for the people living in such areas.There are about 5-6 million villages in India and only about 30000 rural banks to serve them.Owing to the profitability, a large number of banks have even been closed down.The existing Rural banking is simply not good enough for successful implementation of such a scheme.Another major challenge is that the only those with a Unique ID (UID) number and a bank account will be eligible for the cash transfers.The government has to first ensure that a larger chunk of the population is covered under the Aadhar Card scheme.Owing to negligence and a host of other factors, still many people are not covered under the UID scheme.Another challenge is that the money transferred should be used for consumption purposes only.It can horribly go wrong for the government if people start redirecting this money for other purposes.If this is not checked, it can result in a very high rate of inflation.How to address this problem is still an open question.

                       The scheme has received mixed response from the people.According to a survey conducted , only about 10-15 % people prefer cash transfers to their bank accounts.They believe its better to have goods and  other facilities available at subsidized rates rather than cash.I can see why, barring the above mentioned challenges, people are simply not sure on how much time it can take for cash to be available in their accounts,if ever.I do not want to be in a situation where I buy LPG cylinders at Rs 850 only to be refunded the subsidized amount 1 year later.Thus, government has to win over the the confidence of the consumer and successful pilot projects can go a long way in instilling that confidence.

                      

                       Every new policy reform has its own set of challenges which must be addressed for it to be successful.My personal opinion is definitely in favor of such a scheme if it can be implemented prudently.On one side it can turn out to be a major boon for people of India while on the other it can turn out to be a disaster.Hope the former prevails.

Cheers!!!

Images courtesy Google images.