[Feature] Direct cash transfer and voting behavior

Thursday, February 21, 2013
[GFX © news.BDTV.in]
By Subodh Kumar

“No solution is without 10 problems in India. You can always find ten problems for one solution. The key to avoiding corruption at the beneficiary end is to give the beneficiary the choice of business correspondents- Jairam Ramesh, Union Minister for Rural Development.

Aap ka paisa, aapke haath (your money in your hands) is the slogan coined by UPA II to promote the “Direct Cash Transfer”(DCT) scheme which has been rolled out in phases, initially covering 20 districts (out of 51 announced earlier) from 1 January 2013 and the entire country (640 districts) by end 2013.

Congress-led United Progressive Alliance (UPA) government on January 8, finally bite the bullet and kicked off the direct cash transfer scheme.

It has been expected that there will no change in the schemes for the direct cash transfer; rather method of payment to beneficiaries would be changed.  

As a pilot project, the schemes like pension, scholarship and rural employment guarantee scheme 
beneficiaries having bank, Adhar cards will get direct cash transfer to their respective bank accounts.

The scheme has been severely criticised by various political parties including the opposition Bharatiya Janata Party (BJP), terming a scheme to lure voters and to get mileage in the 2014 general election.

The big question rises, is the scheme of direct cash transfer launched in hurry? Since, most of the villages even lack banks and beneficiaries have no bank account, how the cash to be transferred and in what time it is going to achieve the complete set up.

For the current fiscal year, the government to pay the subsidies of around 1.8 lack crore for food, fertizer and fuel subsidies. The number of subsidies beneficiaries may be high in number count.

In practically, it is very hard to have that much infrastructure and administration to cop up with the proper implementation of the cash direct transfer scheme.

The major drawback would be the implementation of the direct cash transfer in the mega schemes related to food, fertilizer and fuel.

It seems that UPA II wants to left no stone unturned in exerting effort towards implementing cash transfer scheme on a mass scale before 2014 general elections.

  • Brazil has the largest cash transfer scheme in the world and it has had a measure of success in fighting poverty. Its experience shows that cash transfers, when implemented properly, are at best a necessary condition for poverty alleviation. Supply side constraints have to be removed if the increased purchasing power is not to lead to unbridled inflation that will hurt the poor badly.

DCT is the silver bullet for poverty reduction?
If we discuss the current perception the question arises- can cash transfer scheme replaces public provision of basic goods and services and become a catch- all solution for poverty reduction? The answer is NO, if cash transfers have helped to reduce poverty, they have added to public provision, not replaced it.

For crucial items like food, direct provision protects poor consumers from rising prices and is part of a broader strategy to ensure domestic supply. Problems like targeting errors and diversion from deserving recipients are likely to be even more pronounced with cash transfers and cannot be eliminated through technological fixes like the UID.

Describing the direct cash transfer scheme as the “largest experiment” to reform a “broken down delivery system the Union Minister Jairam Ramesh has also said that it was no magic wand and more work was needed to make it successful on ground.

Earlier in the first week of January,2013 few social activists comprising M.S. Swaminathan, Aruna Roy, Amiya Kumar Bagchi with 205 others had drafted a ‘Letter to Editor’ to Economic and Political Weekly (a weekly magazine)supporting the DCT scheme but opposing government plan for accelerated mass conversion of welfare scheme to Unique Identification Authority (UID)- driven cash transfers.

Raising doubts to the Congress-led UPA government’s strategy and efficiency to implement the much hyped cash transfer scheme without surfacing any plan in public domain which confirm its fruitfulness, the intellectuals and activists in their letter say that the plan could cause havoc and massive social exclusion. 
In the letter published on January 5, they demanded the following:     

(1) No replacement of food with cash under the public distribution system (PDS).

(2) Immediate enactment of a comprehensive National Food Security Act (NFSA), including universal PDS.

(3) Cash transfers should not substitute for public services.

(4) Expand and improve appropriate cash transfers without waiting for UID.

(5) No UID enrolment without a legal framework.

(6) UID applications should be voluntary, not compulsory.

(7) UID should be kept out of the PDS, National Rural Employment Guarantee Act (NREGA) and other essential entitlement programmes for the time being as essential services are not a suitable field of experimentation.

Many of the people have been part of struggles to expand social security pensions and improve their delivery and they must be having serious reservations about the government’s rush to link these cash transfers to “Aashaar” because the linking of the schemes can cause huge disruption.

PDS system 
The introduction of cash transfers in lieu of food and other commodities supplied through PDS, for many reason, have been opposed by many people.

Subsidies food from the PDS is a source of food and economic security for millions of poor families for whom life is a tale of constant struggle. It may possible that further revamp and reform to the PDS may alter the perception but hardly there is an iota of truth that the system is worthy to fulfill the assurances of the incumbent government with the expectations of the people in the society.

However, 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.

Banking System
Sri Kshetra Dharmasthala Rural Development Project (SKDRDP) Executive Director Dr L H Manjunath says- Inclusive financial growth can be attained if the banks touch upon the bottom of the pyramid which consists of 75 per cent of the Indian population.

Banking displays a significant gender gap in the developing countries and there is a big difference between banking in the West (where is 89% of adults have accounts) and the developing world (41%). The difference is wider still when it comes to credit and debit cards.

How a system (PDS) can be a game changer despite of the fact that 51 per cent of the Indian population do not possess bank accounts and lack access to financial facilities and it shows potential for the banks in the rural market.

Evidently, 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.

Rural Markets
Markets in India are truly homogeneous in nature and 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 at middlemen.

Concern of special group
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.

PDS would be inflationary?
There are many talks about whether the scheme would spur inflation or not would eventually depend on the Government's overall “budgetary position”.

Few activists and intellectuals consider that inflation could easily erode the purchasing power of cash transfers. When the government refuses to index pensions or 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.

However, the consideration had shunned by T.C.A. Anant, Chief Statistician of India who said that the Union Government's flagship direct cash transfer (DCT) scheme is “not inflationary” and termed it “a step in the right direction” to reduce leakages in the subsidy system.

Indian Prime Minister Manmohan Singh with UPA president Sonia Gandhi, Union Finance Minister P.Chidambaram
and Ashok  Gehlot at the launch Aadhar Enabled Service Delivery in Jaipur in October last year [FILE PHOTO]   

Voting behavior
The scheme has been severely criticised by various political parties including the opposition Bharatiya Janata Party (BJP), terming a scheme to lure voters and to get mileage in the 2014 general election.

With this BJP has set the ball rolling for a hectic political debate whether voters will respond to targeted cash transfers and how far these transfers can foster support for incumbent government.

With designing political and legislative mechanism incumbent government can get political mileage by bringing cash transfer scheme into effect, says a study from the World Bank.

The Indian government’s ambitious direct cash transfer scheme using the UID or Aadhaar number as a base may provide rich benefits to the United Progressive Alliance (UPA) government in next general elections.

The report says, at present over 40 countries use conditional cash transfer (CCT) programs to provide money to poor families, mostly through women. However, several of these countries saw the incumbent who has started the CCT programs reaping political mileage in next election.

According to a policy research working paper prepared by the World Bank , there is a political economy aspect of such conditional cash transfers or CCT programs. “In theory, anti-poverty programs such as CCTs may play a role in influencing individual political participation—in the form of voting—and preferences, 
strengthening democratic representation but also producing electoral rewards. For instance, by partly changing the economic circumstances of households, transfer receipts could persuade participant households to exercise their right to vote,” the study ‘Conditional Cash Transfers, Political Participation, and Voting Behaviour’, says.

The much hyped CCT programs, started over 15 years ago in Latin America, are now used in over 40 countries across the world. Even though certain program characteristics vary from country to country, in general, standard CCTs provide money to poor families, through women, contingent upon investments in the human capital of their children, such as regular school attendance, basic preventive healthcare and better nutrition.

The finding focuses that a large number of CCTs have been subject to rigorous valuations, most of which show that they have fuelled the twin primary objectives of alleviating poverty in the short term and building the human capital of poor children.

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 in the media following presidential elections in Ecuador, Peru, Mexico and Brazil. In the specific 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 systematically increase its votes.

More recently, and perhaps 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. To further avoid political capture of the program, the law bans enrolling new beneficiaries three months before major elections.

The study points out that despite potential interactions between government policies and voter decision making, little evidence is available to assess whether conditional social transfers encourage people to vote and influence their political choices.

Rigorous evidence on the subject however, is starting to emerge. Using individual level self-reported data, Manacorda et al (2011) find that beneficiaries of PANES—a large and temporary unconditional Cash Transfer Program in Uruguay—express larger support for the incumbent that implemented the program.

The authors attribute that extra support to the inference of beneficiaries on the politicians’ redistributive preferences as well as from reciprocity. Similarly, evidence for Romania shows that incumbents gained political support through a program aimed at helping poor families purchase a computer, the World Bank study says.

The World Bank says it studied the effect of enrolment in FA, a Colombian CCT program, on the intent to vote, turn out and on electoral choice during the 2010 presidential election. “We provide evidence that relative to non-participants, FA beneficiaries of voting age are 1.6-2.5 percentage points more likely to register to vote.

A standard deviation increase in the proportion of FA beneficiaries, at each booth, results in a 1.6-1.8 percentage point increase in the probability of casting a ballot and a 1.5 percentage point increase in the probability of voting for the incumbent party under which the program was expanded.

This effect is stronger for women, who are the direct recipients of the cash transfer as established by the program rules. The elected candidate won in the run-off election with a large margin (69% of the votes), thus our results are unlikely to explain the final outcome.

However, they show that voters respond to targeted 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,” the study pointed out.

If we talk about India, the congress-led union government is facing criticism with several allegations over 2G telecom scam, Coalgate and many others. The UPA, under the leadership of Manmohan Singh was able to retain power at the Centre twice since 2004 and 2009.

With the country slated to go for next general election in 2014, the UPA is facing difficulties on several fronts. The country has witnesses its citizens’ rage following the New Delhi-gang rape case.

Manmohan led-UPA government also facing uphill on the diplomatic fronts with the present ceasefire continues from the Pakistan side and spar erupted between both countries over the barbaric mutilation of two Indian soldiers along the Line of Control (LoC).

Now, the situation opposite parties and several citizens are raising questions on the intention of the union government to roll out its ambitious direct cash transfer (DCT) scheme, using the UID or Aadhaar.

Opposing the move, Communist Party of India (Marxist) or CPI(M) has said that the Union Government's direct cash transfer scheme is “anti-poor” as it would actually cut subsidies due to the high inflation rate and not cover the rising prices of foodgrains.

India has been divided into two parts, one group consisting of the privileged class of people who have access to the best of the financial facilities and another India where the disadvantaged and vulnerable live.   

Surely it will be a litmus test for the UPA government to make the DCT scheme effectible so that it reaches to identified beneficiaries and can plug leakages in PDS, becoming a “game changer” for the Congress.
The above article was earlier published in the January issue of "All Rights" (a monthly magazine). Views expressed are author's own and does not necessarily reflect the view of news.BDTV.in 

 (*Subodh Kumar is the Executive Editor of news.BDTV.in. He can be reached at         subodh@bdtv.in) 
Next Post »