Evaluating direct cash transfers Part-I: Problems are for real but most beneficiaries prefer new system to old PDS

As per the evaluation done by JPAL, nearly 20 percent beneficiaries did not get any cash. When people do not get either subsidised food grains or cash to buy it with, even if it is just 1 percent failure, it is cruel

Seetha September 06, 2017 12:44:53 IST
Evaluating direct cash transfers Part-I: Problems are for real but most beneficiaries prefer new system to old PDS

Two years after the Narendra Modi government took an ambitious step in subsidy reform – pilot programmes to test out cash transfers in lieu of subsidised food grains from ration shops – an evaluation report shows that it faces significant implementation problems, improvements notwithstanding. Around 20 percent of beneficiaries report not receiving the cash they are entitled to, even as they can no longer get cheap food from ration shops.

The report also shows that it costs beneficiaries more time and money to travel to banks to withdraw money and to markets to buy wheat and rice. Also, grievance redressal mechanisms are inadequate.

Evaluating direct cash transfers PartI Problems are for real but most beneficiaries prefer new system to old PDS


Before the opponents of cash transfers rejoice at being vindicated, they should mull on this: 65 percent of beneficiaries still prefer cash transfer to in-kind benefits, up from 39 percent a year earlier.

The point being made is this: Despite the pain of slapdash implementation, people tend to prefer cash transfers, over in-kind transfers. And, so long as implementation is improved, this preference is likely to increase over time.

On 1 September 2015, the government kicked off a pilot programme in Chandigarh and Puducherry -- ration card holders would stop getting subsidised wheat and rice from fair price shops; instead they would get cash with which they could buy these from the market. The cash would be transferred directly into the bank accounts of the woman of the household. In January 2016, the programme was started in Dadra and Nagar Haveli.

The Abdul Latif Jameel Poverty Action Lab (J-PAL) South Asia was signed on to conduct a process monitoring study. The objective was to identify implementation gaps and provide feedback that could help decisions on scaling up the pilots. The study consisted of three rounds of surveys, conducted between January 2016 and March 2017, covering over 1,000 beneficiary households in each Union Territory.

The report of this study, which has been submitted to the government (read here), says that implementation quality “has improved over time but continues to remain a non-trivial challenge”.

First, the problems.

One, people not getting payments. In the first round conducted in March 2016, the survey found that only 47 percent of beneficiaries reported they had received cash. But this was based only on what the beneficiaries said. In the subsequent rounds, the surveyors verified their passbooks. At the end of the third round (October 2016 to January 2017), the percentage of those getting money increased to 78 percent. In Chandigarh, the percentage of those getting cash went up only marginally – from 73 percent to 78 percent. In Pondicherry, the improvement was significant – from 56 percent to 74 percent.

Of the 17 percent who were not getting cash in the first round, 53 percent had started getting it at the end of round three. However, 5 percent of those who were getting it at the start of the monitoring had stopped getting it later. Eleven percent of the beneficiaries said they received different amounts each month and 10 percent said they did not get payments every month on time.
But all this does not change the fact of nearly 20 percent beneficiaries reporting not getting money. This is not acceptable. When people do not get either subsidised food grains or cash to buy it with, even if it is just 1 percent failure, it is cruel.

Interestingly, in government records, only 1 percent of the payment transactions had failed. The report rules out chances of diversion, but points out that this may be because the money may be going into bank accounts that beneficiaries do not access or check.

This is a problem this writer also encountered while reporting on the pilot in Chandigarh and Pondicherry in 2016. The problem arises because the National Payment Corporation of India systems link the latest bank account seeded with Aadhaar to DBT payments. So people check the bank account which was initially receiving the cash and find the money has not been transmitted. Peeyush Kumar, joint secretary in the DBT Mission, admitted that little could be done to resolve this problem because of the design of the NPCI architecture, apart from ensuring that beneficiaries are informed about the change. The other option, he said, would be to shift to the Aadhaar Enabled Payment System, in which all bank accounts would be seeded with Aadhaar.

Two, beneficiaries were not being kept informed about transfers. Standard operating procedures of DBT required beneficiaries to be informed through SMS. However, in round three, though 65 percent of the beneficiaries said they had linked their mobile numbers with the scheme database, only 16 percent remembered getting an SMS in the previous month. Besides, 86 percent of the beneficiaries said the SMS was in English, when the SOP required it to be in the local language.

A related – and important – finding is that grievance redressal mechanisms are inadequate. At the end of round two, 25 percent beneficiaries had grievances with the system; this went up to 38 percent at the end of round three. Enquiries found that people did not know how to report their grievances. There were toll-free numbers but, at the end of round three, only one beneficiary in Chandigarh and two in Pondicherry had reported using it. No one in Dadra and Nagar Haveli had. This is not surprising. Toll-free helplines daunt even well-educated people; the recipients of cash transfers are from poor backgrounds with little education.

Three, beneficiaries found it takes more time to go to the bank and access the money than it used to take to go to the ration shop and get their fortnightly supplies. Using an ATM reduced the time to access money by 31 minutes. It also reduced the total time to take cash and buy grains from the market relative to the old public distribution system (PDS). However, 63 percent of beneficiaries do not have an ATM card for the bank where the money is being transmitted. The opportunity costs of accessing money through banks were also higher.

Four, beneficiaries also felt the money was inadequate by around 20 percent. In terms of money, it was found that beneficiaries calculated they needed Rs 889 per household more per month. The cash payout is calculated as 1.25 times the minimum support price minus the subsidised price paid at ration shops. The amount per person per month (under the National Food Security Act, the entitlement is for 5 kg per person in a household per month) varies in the three Union Territories because the cereal mix is different. However, prices for wheat and rice in the open market are higher because – and this is important – the quality is better.

So why not junk the cash transfer programme and return to the old PDS? The survey shows that despite all the problems, people may not want that. In the initial rounds, only 39 percent of the beneficiaries said they preferred cash transfers; by the third round this had gone up to 65 percent. Pondicherry reported the highest shift – from 32 percent to 77 percent.

Why would they do prefer a system where payments are erratic, the money isn’t sufficient and there’s no one to listen to their problems? The report says those who preferred DBT did so because they found it offered flexibility as well as convenience and choice in terms of quality of food – they could now buy better quality grains than what they got through the PDS or could spend on other food. “Over 95 percent of the beneficiaries report using cash to buy staple food grains and towards dietary diversity,” the report says, junking the myth that people will blow the money up on sin goods. Those who wanted to continue with the PDS did so because of the consistency in the monthly quantities, easier access and lesser out of pocket expenses on food.

The response varied depending on the experience with DBT and the older PDS. Those unhappy with the older system, who found the cash pay-out amount adequate and got it regularly preferred the new system to the old.

What does this mean for the future of the cash transfer pilots and for DBT in general? That will be dealt with in Part-II tomorrow.

Updated Date:

Subscribe to Moneycontrol Pro at ₹499 for the first year. Use code PRO499. Limited period offer. *T&C apply