Memo to Sonia: Cash transfer may not get you a win in 2014

The Congress party has set great store by the direct cash transfers (DCT) scheme, which it has relabelled as direct benefits transfer (DBT), and which it further hopes will result in a direct votes transfer (DVT) scheme and a game-changer in the next elections.

The Rs 64,000-thousand-crore question is: Will it work? Will it deliver the benefits as envisaged? And, more importantly from the Congress party’s point of view, will it deliver the votes?

The short answers are: maybe not, maybe not, and a definite no to the above three questions, in that order.

[caption id=“attachment_827271” align=“alignright” width=“380”]  Memo to Sonia: get reforms going, get growth going. PTI[/caption]

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DCT’s rollout has been patchy so far and the linkage between bank accounts and Aadhaar number seeding is still not 100 percent even in the 43 districts that were the initial targets for small schemes such as scholarships, pensions, et al.

The chances of high success in the big-ticket game-changer schemes like MGNREGA, LPG subsidies and ultimately food and fertiliser subsidies are very limited till 2014. Voters may at best get a glimpse of the promise of the scheme, but any glitches may also get magnified . One could neutralise the other.

The chances of garnering votes is thus limited, since DCT needs at least three to four years to implement properly on a national scale - but this is precisely where the Congress seems to be in too much of a hurry, and hence not paying enough attention to detail.

These are the broad conclusions of a detailed research report on DCT by Espirito Santo Securities (ESS) which discussed the issue with policy-makers, economists, and did some pilot studies where the scheme is being implemented (especially East Godavari district in Andhra).

This is ESS’s conclusion based on early results for DCT even in the first 43 districts where bank penetration and Aadhaar enrolments were supposed to have been very good. The report says only Rs 22 crore has been disbursed using the Aadhaar payments bridge, while more than twice that amount (Rs 57 crore) was paid out using traditional methods. DCT was less than a third of the total amounts disbursed.

If this is the outcome in districts with the best bank-Aadhaar penetration and that too for schemes that anyway involve only cash - scholarships and pensions - and where there is little fraud, one wonders how it will work for the more massive MGNREGA and LPG subsidy schemes that are being targeted for rollout in 121 districts by 1 July and 1 October this year, respectively. The complete national rollout is scheduled for 1 April 2014 - a tell-tale indication of where the election time-table could lie as far as the Congress leadership is concerned.

The Espirito Santo research is certainly not negative on DCT - and nobody beyond Sonia Gandhi’s National Advisory Council (NAC) has serious doubts that it can only be an improvement over the way welfare schemes are implemented right now, with lots of leakages, ghost beneficiaries, and excessive corruption. Estimates of savings for the exchequer range from a minimum of Rs 33,000 crore (according to the PMO) to a wildly optimistic Rs 1,10,000 crore of savings, according to a study by the National Institute of Public Finance and Policy.

The upper-end expectations are clearly pie-in-the-sky given our record of poor implementation of almost any scheme.

In the case of DCT, in particular, the problems lie in the short-term political expectations embedded in the scheme, which raise concerns about whether they will be implemented well enough and with long-term benefits in mind. Just as MGNREGA and farm loan waivers were implemented without great thought being given to scheme design and reviews, DCT too falls into the same basic cracks.

MGNREGA is facing hurdles in its seventh year of implementation, and the outlays on the scheme have been cut from peak levels just before the 2009 elections due to supply side problems (supply side means providing work for those who demand it). The farm loan waivers scheme has been negatively commented upon by the Comptroller and Auditor General (CAG).

Will it be the same story with DCT in 2014? These are Espirito Santo’s conclusions:

#1: Full rollout before 2014 is “extremely unlikely.” The best guess is that “the bulk of the savings will come only after the complete roll-out which may take two to three years.”

#2: Most experts are cautiously positive on DCT, but they dispute the quantum of benefits the government is expecting from it, since few believe that corruption will be eliminated.

#3: ESS does not see “DCT as addressing the near-term fiscal problem. It has to be accompanied by further cuts to subsidies, among other things.”

Conclusion: DCT will not be a game-changer by 2014. ESS says: “We estimate that the impact of DCT will be substantial only post 2015-16, unless the scheme dies down due to lack of political will post the 2014 elections.”

The larger point is this, as _Firstpost_ pointed out earlier. Even in 2009, the Congress party only fooled itself when it thought MGNREGA was a game-changer, when the real thing that delivered it a convincing victory was fast-paced growth from 2003-2008. That, unfortunately, is not the case now.

Memo to Sonia: get reforms going, get growth going. DCT is a direct transfer of benefits to the next government in any case.