Direct Benefit Transfer - G2C in India

India is among the top three global economies in the number of digital consumers. With 560 million internet subscriptions in 2018, up from 238.71 million in 2013, India is the second-largest internet subscriptions market in the world. [1]

The Government of India runs large-scale benefits and subsidy programs for its citizens.  To ensure accurate targeting of the beneficiaries, digital verification to eliminate duplicates, ghost recipients, and fraud. Direct Benefit Transfer (DBT) was started on 1st January 2013. DBT is utilized to eliminate losses and inefficiencies in the disbursement of benefits and subsidies across wages, food, fertilizer, cooking gas, power, and other areas. Direct Benefit Transfer is already showing the changing landscape of the government-to-citizen (G2C) payments system.

Requirements

• To further expand the reach of such digital payment programs, banking infrastructure needs to be enhanced by ensuring sufficient bank branches, banking correspondents, the post office, and Common Services Centres to make it easier for citizens to access payments to them.
• Rural customers typically maintain low bank balances, are geographically spread out, and have low transaction volumes. Given the low levels of women's digital engagement, easy access to banking infrastructure for cash in-cash out services remains a necessary condition to enable. However, the private banking correspondent business model has chronically suffered from low profitability and a high level of agent attrition on account of unattractive remuneration.  

There has been an attempt made by the National Council of Applied Economic Research (NCAER) in the past for DBT readiness of states/UTs to pursue G2C and government to bank/business solutions through the use of ICT for effecting cashless in-kind transfers. (DBT_Presentation_NCAER (dbtbharat.gov.in).

Pros

• DBT eliminates inordinate delays, multiple channels & paperwork involved in the existing system.  
• This is a better way to help the poor than providing them under-priced grain, fuel, and essential public services. A poor household with cash via DBT can access and choose a private-sector provider and not just be dependent on a monopolistic government provider.
• Targeting the poorest has the obvious advantage since the marginal value of money is highest since they have the least money.   
• The per-person costs of delivering transfers have fallen rapidly in many places due to advances in last-mile digital payment infrastructure.

Cons

• The DBT model has been seen as a substitute for state action. The state has to build implementation capacity and grievance redressal mechanisms as many beneficiaries are used to interacting with frontline workers or local government officials for scheme-related grievances. 
• While it may not be mandatory to link an Aadhaar Card with a bank account, for now, it appears that there is no escaping the process. Aadhaar seeding is necessitated for receiving Direct Benefit Transfers (DBT). This protocol followed by government officials has led to an increase in exclusion errors, denying genuine beneficiaries their entitlements.
• DBT system has no mechanism to strengthen transparency and accountability at the local level. Technical errors such as age, spelling, and a host of other data points plague the system. People with incorrect names, and mismatching dates of birth, end up unable to avail of any welfare scheme that they are otherwise eligible for.
• There has been an assumption that the economy will become burdened with these schemes leading to inflation and price distortion. Data again does not support this argument as it showed better economic participation and thus a net boost to the local economies where the schemes were implemented. DBT can be indexed to adjust with inflation.
• Complexity increases if Aadhaar is seeded in multiple bank accounts of beneficiaries. There are several cases like the money transferred to account holders died a few years back, and money could not get transferred due to the closure of accounts which are issues to be resolved with NPCI and banks. 

Conclusion

DBT is no magic bullet as the reduction of poverty in India requires much more than solutions such as direct cash transfers. DBT is techno-enabled, transformational effort to fix the delivery system that is broken with corruption. Several studies have investigated the returns to investing in payments infrastructure relating to DBT and found them to be ‘large and positive’. In the new development, e-RUPI is launched by GoI to bring the ease and simplicity of UPI to the social security platform of DBT. 

References:

1. Indian telecom services performance indicators, Telecom Regulatory Authority of India, as of December 2013, September 2018, and March 2018; Analysys Mason, as of January 09, 2019.

Universal Basic Income

Universal Basic Income is an idea whose time has come. Universal basic income will be a form of social security in which all Indian citizens below the poverty line regularly receive an unconditional sum of money from the government. The amount may be as little as Rs2000 - Rs3000 a year, but that's a lot of free money in the bottom rungs of the income pyramid. Poor families are always destabilized due to their lives irregular cash flows and looming expenses. This will act as small cushion for critical times.

Why the time is ripe politically ? Demonetization has also created a disaster effect on Indian economy and market. Hence, NDA government has changed the demonetization narrative from one of fighting black money to bring about pushing for a cashless economy. NDA had prominently highlighted the issue of black money and had promised to bring it back in Lok Sabha election campaign. Universal Basic Income into Jan Dhan Account will be seen as commitment to a political agenda and a smart way to fight poverty.

There are two major school of thoughts under Direct Cash Transfer (DCT) - CCT and UCT. A comprehensive review of the evidence around cash transfers, Berk Ozler of the World Bank suggests that an unconditional cash transfer (UCT) can provide a critical foundation, on which policymakers can layer carefully designed, targeted CCTs to encourage specific outcomes, such as education or health behaviors. Unconditional Cash Transfer (UCTs) consist of cash grants with means testing to ensure funds go to the intended recipients, but without extra requirements on recipient behavior. Universal Basic Income comes into category of Unconditional Cash Transfer. Those who are further interested in the subject, this video does an excellent job:

While the number of Jan Dhan bank accounts opened as per the latest estimates stands at 26.03 Crore, reaching the last-mile user remains a problem and large number of dormant accounts. Only 14.43 crores of them are aadhar seed hence a verification and duplication is tough to avoid. But universal basic income will help banks to reduce current number (23.85%) of zero balance accounts. A 2013 CGAP report actually points that electronic Payments and social cash transfers in India can improve the business case for banks and agents.

Concept of universal basic income is utilized in developed countries currently. The available routine, process-oriented jobs job of people may be automated in a few years’ time due to the digital revolution, artificial intelligence and robotics. Finland has begin paying basic income to unemployed citizens. A recent research paper suggest that even done for short–term unconditional cash transfers (UCT) will create longer-term impacts.

Cash transfers are an effective, low-cost social protection tool, but they don’t on their own move people out of poverty. The cash transfers should not be seen as a substitute for state actions. There is always investment required in improving infrastructure for health services, education, skill training, and other social programs. The policy question remains still to be answered as universal basic income may sound great but questions remain over whether India can afford it. How much money can be termed as a true “basic” income for household? Should it be truly be both unconditional and universal? Can the program be tailored for more gender sensitive in nature? The debate has just begun and can be read at Livemint & Global dialogue. More time will be needed for individuals to understand how universal basic income will affect institutions, and their relevancy to their daily lives.

Cash Transfer Scheme

Government is so agile to implement e-governance solutions for improving its tax collection system, but prefers neolithic methods for cash disbursal decisive and purposeful governance.  The government’s budget is a mess. Subsidies have been overdone and not properly targeted. In the current year, total subsidies will be over 2.8 trillion rupees. Instead of making the direct cash transfer, all of the welfare scheme has been turned into a giant procurement exercise. That is why, Reserve Bank of India governor Raghuram Rajan made a strong pitch for direct cash transfers to the poor, saying this would help reduce corruption by breaking the "cycle of dependence".

A cash transfer is a development project stripped of any active management costs, and its performance tracks the success or failure of the individual recipient. Cash Transfers are examples of certain transfer payments include welfare (financial aid), social security, and government making subsidies for certain businesses (firms)  into the bank accounts of beneficiaries, cutting out intermediaries. Cash Transfers: Sorting Through the Hype puts a balanced light on the whole exercise.

There are pros and cons attached with Cash transfers. The popular myth that “the poor people don't know what is good for them”. That, in my opinion, is derogatory. We should stop worrying that the poor are going to spend (or “waste”) their transfer income on alcohol and tobacco. They aren’t. They might buy some chocolate, though. A proper study can has been done : Do the Poor Waste Transfers on Booze and Cigarettes? No. The cash transfer is taking away discretion of government officials on taxpayers money spent in the name of welfare. Financial cost of social justice and and their concerns that the poor can't be taken without economic freedom. See more at Whose money is it anyway? to understand another side of the debate on welfare state and individual freedom.

There are two major school of thoughts under Direct Cash Transfer (DCT) - CCT and UCT.  Unconditional Cash Transfer (UCTs) consist of cash grants with means testing to ensure funds go to the intended recipients, but without extra requirements on recipient behavior. The downside of unconditional cash transfer (UCT) is in distributing money without increasing the productivity and skills of labour force in rural india. But we can see the partial benefit of Economic Freedom associated with the “distributor of welfare funds”  through cash transfer. The economic freedom to utilize funds in an unique and distinct way by each beneficiary is an important aspect of building better markets.

CCT always have strings attached of a certain criteria to be fulfilled.  The advocates of CCT pitch for skill transfer with money as sustainable economic growth cannot be created by simply distributing money or as some economists like to put it by “dropping money from a helicopter”. Both CCTs and UCTs require the beneficiaries to be linked to bank and can access financial services. But there are reports that the government’s much-hyped Direct Benefit Transfer programme has hit a roadblock. In the current situation, the current electronic system and incentives are structured, the agent has not been incentivized to offer financial services.

Only government can offer reach to the poor that is effective nature of state. while market will always go for person with better information and resources for efficiency. The social transfers together with the wages and pensions form the Government- to -person (G2P) payments. Could this ecosystem of government-to-person (G2P) payments enable or lead to financial inclusion? Even working one year  in the field of development, the blatant  truth is, I don't have solid clue of what the poor need. Sometimes its cash, sometimes skills. As per me,  DCT can serve both purpose as a seed capital in a business for enterprising individual or as a social safety net of whole family.