Leakages In Welfare Plans

Source: The Hitavada      Date: 29 Aug 2017 12:39:30

By RAMESH KANITKAR

If the Government wishes to move towards the goal of providing UBI or an Indian version of it, it must first lay down a robust infrastructure on which this new social security system of future can stand on without dangling. Incrementalism, not sudden disruption, must be Government’s mantra. It is important to tread with caution and learn lessons from hubris of the past.

LAST year, India’s Chief Economic Adviser Arvind Subramanian announced that Economic Survey 2016-17 would include a chapter on Universal Basic Income (UBI). One expected that suggestions in the said chapter will set the cat among the pigeons. It did anything but that. From reading of the survey, it became clear that Subramanian didn’t think the time was ripe for implementation, only deliberation. He is right. Despite the Herculean success of Jan Dhan-Aadhaar-Mobile penetration (JAM) trinity, millions of poor remain outside of the system that will form the backbone of a UBI system.


If the Government wishes to move towards the goal of providing UBI or an Indian version of it, it must first lay down a robust infrastructure on which this new social security system of future can stand without dangling. Incrementalism, not sudden disruption, must be Government’s mantra. It is important to tread with caution and learn lessons from hubris of the past.


In 2008, one year prior to general elections, the Congress Government decided to extend Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) -- a programme in pilot testing stage -- all over India without much preparation and without any regard for economic, social, geographical differences between various regions in the country. By the time, the country realised that one size fits all schemes don’t work very well, the scheme had served its purpose -- getting Congress re-elected and that too handsomely.


If UBI is to succeed, the schemes that it will replace (there is no other way) need to eventually convert from kind to cash transfers. Every year, the Central Government allocates almost Rs. 8 lakh crore on various welfare schemes. If 30 crore poorest individuals (as household heads) are selected and each given Rs. 2,000 per month, it will cost around Rs 7.2 lakh crore. Currently, food subsidy is the biggest component in welfare mix costing the exchequer slightly over Rs. 1 lakh crore.

Most of this sum is channelled to beneficiaries via the Public Distribution System (PDS) in the form of kind-transfers. Transforming it into cash-transfer which can directly be deposited in a beneficiary’s account will prove a fillip in moving towards some form of UBI. How can this be done? Avoiding haste is the key. Equally important is learning from past mistakes. As the MGNREGS example shows, this shouldn’t be implemented in one-go. Nor is it wise to treat all States equally (because they aren’t) and prescribe a uniform timeline for all.

A working paper (‘Indian food and welfare schemes: Scope for digitisation towards cash transfers’) imbibes these lessons. Authored by Infosys chair professor for agriculture Ashok Gulati in collaboration with senior visiting fellow, Indian Council for Research on International Economic Relations, Siraj Hussain, senior consultant Shweta Saini, research assistant Sameedh Sharma and Joachim von Braun, it makes a case for rolling out of direct benefits transfer (DBE) for food subsidy in a phased manner. These few baby steps towards cash transfer of food subsidy directly into bank accounts of beneficiaries can translate into a big leap towards UBI.


PDS is now a part of National Food Security Act (NFSA) along with Indira Gandhi Matrutva Sahyog Yojana, and mid-day meal scheme. NFSA is aimed at delivering close to 62 million metric tonnes (MMT) of grains to over 80 crore people out of which 10 crore are classified as priority beneficiaries who receive 5 kilograms (kg) of food grain per month (per person) and the rest 70 crores get on household basis, receiving 35 kg per family per month. For both rice and wheat is priced at Rs. 3 and Rs. 2 per kg. As one would expect with any Government programme of such Himalayan magnitude, there were scores of avenues for leakages and corruption. Rates of grain leakage from the PDS stood at 54 per cent in 2004-05 and 40 per cent of the bottom 40 per cent of the country’s population was excluded from the PDS in 2011-12.

There were crores of bogus ration cards. Fake beneficiaries were eating away the money intended for poorest of poor and channelling subsidised wheat and rice from ration shops and selling at high prices distorting the markets. The Narendra Modi Government directed the States to revamp their PDS in two ways: Either credit PDS subsidy directly into bank account of beneficiaries or implement Aadhaar-enabled PDS where ration is provided after beneficiaries authenticate their credentials by fingerprints (10 States have already implemented it).


As a result, 2.33 crore bogus ration cards have been deleted from the system since 2014 (over 6 crore since 2006) translating into Rs. 14,000 crore of savings under PDS alone.


The twin reforms initiated by the National Democratic Alliance (NDA) stood on the ones introduced by the previous United Progressive Alliance (UPA) Government. As the working paper mentions the UPA directed the States to start digitisation of ration cards, seed them with Aadhaar cards and allocate foodgrains online. It was followed by nine-point action plan aimed at plugging leakages by reforming how fair price shops operate, making beneficiaries lists public and so on. However, the costs of providing welfare are still too high and fiscally unsustainable. A Planning Commission report from 2003 “found that to deliver one Rupee of an income transfer to a BPL family, the Government had to spend Rs. 3.65.” Even after so many reforms, the cost may not have come down much. The paper mentions a study by Himanshu and Sen which calculated leakage in PDS to be around 54.8 per cent in 2004-5. A recent study by Gulati and Saini found leakage to be around 47 per cent in 2011-12.


Even if we assume that it has fallen by half, it is still huge. DBE is our best bet to ensure that the public monies reach the intended beneficiaries. The Government has flushed enough of public money down the drain by spending it in injudicious manner. It can’t afford to keep doing so. The PM believes that every paisa that doesn’t go to the poor it is intended for, makes the job of poverty alleviation in the country that much harder. Well, what better way than DBE-Food (and later UBI) to make sure that 100 out 100 paisa reach the poor.