Withdrawal of cash pilot scheme in Jharkhand: More pilots needed with focus on convenience of beneficiaries

The news last week that Jharkhand had discontinued a direct benefit transfer (DBT) pilot in the public distribution system ten months after it was launched is a blow to the current government’s ambitious subsidy reform programme. But it also shows that while the government was willing to take bold steps in this direction, it has been less able to fix the nuts and bolts that would make the transition to the new system relatively painless for the beneficiaries. A backlash was inevitable.

A quick recap. The government initiated three cash in lieu of subsidised foodgrains pilots in the Union Territories (UT) of Chandigarh and Puducherry in 2015 and in Dadra and Nagar Haveli in January 2016. In these pilots, supplies through ration shops were discontinued and ration card owners were given the cash equivalent of the subsidy in their bank accounts. They could then buy foodgrains from the open market. These three programmes have moved beyond the pilot stage and are now established policy in these UTs.

The pilot in the Nagri block of Ranchi district in Jharkhand is not a cash-in-lieu-of-food programme. It was modelled on the PAHAL scheme in cooking gas: The economic cost (the cost which the government incurs in reaching subsidised foodgrains to the consumer) of rice would be deposited in the bank account of beneficiaries. They would use this money to buy their monthly supplies at full cost from the ration shops. The money would be deposited the following month only if beneficiaries had used the money to buy rations from the fair price shops.

The advantage this had over the UT model was that it did not put the ration shop owners out of business, which can prove counter-productive. In Chandigarh, this writer found ration shop owners fanning resentment against the cash transfer programme. The resentment stemmed from the teething troubles that the programme was undergoing, most of them relating to banking and money transfer.

Unfortunately, though the Jharkhand pilot was launched two years after the Chandigarh and Puducherry pilots, the problems beneficiaries faced were much the same:

• Money not being deposited in accounts on time

• Money getting deposited in a different account: This happens when beneficiaries open a new bank account, which gets compulsorily linked with Aadhaar. Under the cash remittance system of the Public Finance Management System-National Payments Corporation of India, the money automatically gets deposited in the latest account to be seeded with Aadhaar. The beneficiary, however, checks the account that is registered with the civil supplies department. This problem has been continuing since 2015 and why a solution has not been found for it is inexplicable.

• People not getting intimated about money being deposited through SMS: As a result, beneficiaries often had to make multiple trips to banks to check on and withdraw money. Even in large urban areas like Chandigarh and Puducherry this was quite inconvenient for daily wagers and small service providers who had to keep taking time out from work. In rural parts of states like Jharkhand, this became a bigger pain point.

The Jharkhand government had worked out a system where some ration shops were linked to banking correspondents but that was not helping. In addition, banks were found to be adjusting the money beneficiaries got with any outstanding loan they had, leaving them without money to buy rice from the ration shops.

Interestingly, a process monitoring study of the UT pilots commissioned by the government had pointed out last year that despite significant improvement, they were dogged by `non-trivial’ implementation challenges. But, importantly, it had also pointed out that with smoother implementation, people tended to prefer cash over in-kind benefits. Read about the findings of the study here and here . So if these issues had been addressed before the Jharkhand pilot was launched, perhaps it could have continued.

The study was a concurrent one – it was being done as the programme rolled out. The final report came after three initial reports which had been submitted to the government at regular intervals. The fact that in spite of this, the money transfer problems were not addressed exposes a fundamental weakness in the subsidy reform strategy of the government – it is more about savings that will accrue to government coffers than about painless transition for beneficiaries. How much of the savings is the result of genuine beneficiaries getting excluded for no fault of their own is not known.

Does this mean a quiet burial of any cash transfer programme substituting in-kind transfer? With elections around the corner, this, unfortunately, could well be the case. There is, however, a ray of hope from Maharashtra. Initial reports say the state government is toying with a choice-based pilot – people in a few chosen pockets will be able to choose between switching to cash transfer and continuing with the old system. This is a better solution which advocates of cash transfers like Karthik Muralidharan of the University of California, San Diego, and Renana Jhabvala of SEWA Bharat (which has implemented two cash transfer pilots in Delhi and Indore district of Madhya Pradesh) have been suggesting. In fact, in Dadra and Nagar Haveli, the cash transfer pilot is confined to the urban areas where the banking infrastructure is better. One can only hope that Maharashtra doesn’t chicken out because of the negative publicity that the Jharkhand pilot has received.

While the central government accepted the withdrawal request of the Jharkhand government, it has not agreed to a similar request from Puducherry. People there are unhappy with the programme because they find the cash amount is less than the market price of rice. This points to another issue that any cash transfer programme must address – the indexation of the cash amount with market prices/inflation.

Opponents of the cash transfer programme will press for it being junked irrevocably. That, however, may not be a good idea. The old, flawed, leaky public distribution system has had several decades and continues to fail. DBT or cash transfer has got less than five years. More pilots are needed, with the focus more on the convenience of beneficiaries than on cost saving for the government. If beneficiaries voluntarily adopt it, the savings will come and perhaps in greater numbers.

Hopefully, whichever government comes to power in 2019 will take this approach.

(The writer is a senior journalist and author. She tweets at @soorpanakha)