Opinion
Explanatory note: why we oppose the rush to cash transfers and UID
Dec 31, 2012 12:55 AM

We support cash transfers such as old age pensions, widow pensions, maternity entitlements and scholarships. In fact, many of us have been part of struggles to expand social security pensions and improve their delivery. We also support appropriate, people-friendly uses of modern technology for this purpose.

However, we have serious reservations about the government’s rush to link these cash transfers to “Aadhaar,” the unique identity (UID) number. This is because the linking of these schemes can cause huge disruption — think of an old man who is currently getting his pension from the local post office, but will now have to run around getting his “UID-enabled” bank account activated and then may find his pension held up by fingerprint problems, connectivity issues, power failures, truant “business correspondents,” and the rest.

We are also firmly opposed to the introduction of cash transfers in lieu of food and other commodities supplied through the Public Distribution System, for many reasons. One, subsidised food from the Public Distribution System (PDS) is a source of food and economic security for millions of poor families. In 2009-10, implicit transfers from the PDS wiped out about one-fifth of the “poverty gap” at the national level, and close to one-half of it in States like Tamil Nadu and Chhattisgarh. Recent experience also shows that it is possible to further revamp and reform the PDS without delay.

Two, the banking system in rural areas is not ready to handle large volumes of small transfers. Banks are often far and overcrowded. The alleged solution, banking correspondents, is fraught with problems. Post offices could possibly be converted into useful payment agencies, but this will take time.

Three, rural markets are often poorly developed. Dismantling the PDS would disrupt the flow of food across the country and put many people at the mercy of local traders and middlemen.

Four, there are concerns of special groups such as single women, disabled persons and the elderly who cannot easily move around to withdraw their cash and buy food from distant markets.

Last but not least, inflation could easily erode the purchasing power of cash transfers. When the government refuses to index pensions or Mahatma Gandhi National Rural Employment Guarantee Act (NREGA) wages, how can it be trusted to index cash transfers to the price level? Even if some indexation does happen, small delays or gaps in price information could cause significant hardship for poor people.

The Kotkasim fiasco is a telling example of the potentially disruptive effects of inappropriate cash transfer schemes. The experiment was launched with much fanfare and immediately projected as a “stunning success” based on the fact that kerosene subsidy expenditure had declined by 80 per cent, but in fact, the main reason for this decline was the collapse of the entire kerosene distribution system.

An impression has been created that the government is all set to launch UID-enabled cash transfers on a mass scale before the 2014 elections. This is very misleading, and looks like an attempt to make people rush to UID enrolment centres.

This announcement also diverts attention from the government’s failure to enact a National Food Security Act. The food security bill, very weak in the first place, has been languishing with a Standing Committee for a whole year. Meanwhile, food stocks are accumulating on an unprecedented scale. The need of the hour is a comprehensive National Food Security Act, not a potentially disruptive rush for UID-driven cash transfers.

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