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. 

Why Government Schemes Fail? - 2

India's new prime minister, Narendra Modi's slogan "minimum government, maximum governance" is a serious goal. Its implementation on the grass root level will be tried and tested, and that is where most of the government’s schemes fail. There are myriad of difficulties faced by the government in properly designing and implementing of the public policy. Continuing from the previous article: 'Why Government Schemes Fail?', I will examine same question from another angles.

Design: Let us start with the design of the government schemes. What works well in the coastal belt of Kerala is unlikely to work in the Terai region of Uttar Pradesh, or for that matter, hilly lands of Garhwal. Hence, one size fits all schemes must be carefully reviewed. There is a strong tendency for planners to go in for prestige and grand projects. Through this they can leave monuments to their activity, even if defunct. The visibility is major emphasis than actual proposed work. It helps every level of government machinery to justify their budget and performance.

Most of the schemes even if redesigned are just shadows of past failed schemes. Reforms exclusively based on experience of the past suffer from another infirmity as it fails to factor in the innovations and transformations of the relevant sector. Any government scheme should be designed as a business model with incentives built for each stakeholder. Illegality in transaction slowly crumbles the scheme merely from the fact that the policy was not right from the beginning.

Involvement and Access: More democracy is required in making designs for the schemes! Currently, the only option left with people is of protest on bad implementation of schemes. There must be welcome and feel comfortable atmosphere for non-IAS experts with domain expertise to operate in regulatory bodies and government-run organisations. Advisers from the NGO sector like CRHP, Pradan had helped in shaping better schemes in the past.

Our huge ignorance to understand the functioning of the government and the local institutions is barrier to good governance. There is need for proper channel so that people can mobilize for effective political action to prevent mismanagement of resources by government. A small time broker and politician help poor to navigate a system that gives them so little access. Hence, the complex web of subsidy, entitlements and schemes in a very well intention-ed and well designed scheme hit the rock solid wall of the gargantuan system.

Political Interference: Government ministers announces huge scheme without having a concrete plan. It ends up similar to attempting to build a house without a blueprint. Political parties whenever come to power in central/state governments try to adopt developmental plans to suit their manifestos. This jeopardizes the future trajectory and intensity of implementation of schemes. The politically motivated decisions of fund allocation led by the relationship of the incumbent State and Central governments hinder welfare schemes and huge investments. Most of the time old developmental projects are either ignored or rejected in favour of new political discourse. There is always misalignment between financing of scheme, condition of economy and political campaign promises. This can go hugely wrong and ours current government current fight to hold Fiscal Deficit is one such glaring example. When a subsidy scheme becomes a non-viable financially, no matter how well-meaning, it must be restructured or abolished to extinction.

Planning and Coordination: Planning is done in ad-hoc manner and is generally a mere collection of schemes. This is an under-discussed problem of coordination between the intra- and inter- government departments. The right word is Convergence. Each scheme is being implemented by the respective department in isolation. Hence, it is imperative to make directed and organized efforts for converging such schemes. Convergence improves the deliver-ability of the benefits and services, it also gives better value to the public money. The Perpetuating Problem of Coordination will explain intrinsic details of the issue. The lack of reliable data for planning also causes failure of policies. With many of our allocations in schemes based on unreliable secondary data. There is dire need for collecting relevant data pertinent to all sectors, updating it periodically and planning and allocating financial and human resources based on this data. A new type of public good, Open data banks must be promoted among public, among companies and other non-government entities. With the availability of massive, publicly-held data sets in machine-readable “liquid” form can unlock the potential to spur innovation in all sectors.

Regulating and Implementation: How do you prevent abuse? The old mindset in which the command and control instinct dominated with emphasis to restrict, stifle, manipulate, control and micro-manage with new rule curb both private and public sector.A rule of thumb for efficiency standards is that they should be 'tough' but not panic inducing'. Time and space is needed to react with new initiatives.  There is heavy scrutiny of projects in implementation when problem arises due to poor design. The problem of implementation without clearly defined or sometimes ill-defined rules creates a lot of room for manipulation and hence make it inconsistent and unfair.

If you want to understand how the government functions, you must understand movement of files. All decisions in the government are taken on files through office orders. If projects/ schemes are not moving on file, then all public policy is waste. No person in bureaucracy want to take a decision without any political support and risk career damage. It eventually led to stalled projects and failure of the scheme.

Budgeting and Auditing: Why Development is considered in Terms of Expenditure Done? I am still looking for answers. Nobody is looking for the quality in government and this task has been left to the social audit. The delay in releasing funds and issuing UC (Utilization certificate) deter all the stakeholders involved in the scheme. There is always difference between fund requirement and allotment in budget. Even unimaginative funds required are just 10% increment of previous year budget. Take any scheme in government, the usual discussion in meetings revolves around Target Chase. There is a new idea floating to move away from the usual bureaucratic jargon of “targeting numbers” to “targeting names".

90 per cent of the government is now covered by the CAG, but much of this has been done through executive orders, not an amendment in our act. All PPPs, Panchayati raj institutions and NGOs getting government funding under need to be brought under the ambit of CAG. Due to no expertise on this topic, I will refrain from putting more words on the blogpost.

We are seeing that NRHM, NREGA & NRLM are delivering better result than government departments. Mission mode is working relatively well in the new order of scheme design. Accountability mechanisms and examples of government schemes that worked are quite low in our country. We need solid discussion on reports to understanding of the policies, scope, mechanisms, drivers and benefits of various schemes across different states and sectors. Everything has an expiry date, no matter how good their past performances. There is logic for having a provision to discard schemes once their utility is over. All programmes need strong monitoring, which is absent most of the times. A separate blog post is entirely needed to showcase the problem of monitoring and evaluation. That is a another story for another time.

Another Poverty Line

“By means of deep meditation and magical power it may be possible to sleep on fire, but it is impossible to sleep with an empty stomach in a situation of poverty.” - Thiruvalluvar (50 B.C.)

New poverty line has been redrawn by Rangarajan Committee. It is Rs 32 for rural India and Rs 47 for urban India. The earlier poverty line figure was Rs 27 for rural India and Rs 33 for Urban India.  Columnist T N Ninan has given us glimpse on the approach taken for defining poverty line - "The Rangarajan committee, set up two years ago to take a fresh look at poverty issues, has according to a newspaper report recommended a radically new way of deciding who is officially poor. New in India, that is, because the approach that the committee has reportedly recommended is already in practice in the US and Europe: poverty is defined, not as an absolute level of income, but relative to the average levels of income. The US says all those whose income is 40 per cent or less than the average (median, not mean) are poor; Europe is more generous, and puts the cut-off at 60 per cent of the median income."

The findings of the Rangarajan panel report on poverty estimates states that three out of 10 people in India are poor. 30% are poor but who are they? They are not uniform and homogeneous group as projected by media. Even those who are just above poverty line may fall below this due to vulnerable situations. I assume that new holy trilogy of social security {National Pension System (NPS), National Rural Livelihoods Mission (NRLM) and Food Security Bill} can provide safety net to many. Proper estimation, identification and targeting of poor for schemes are the real challenges in getting schemes implemented properly in our country

 Commenting on the poverty line will be like muddling on the pile of deadwood. I came to conclusion now that everyone believes what they want to. So depending on one's ideology, poverty in India has reduced or increased. Statistics can only be a tool for managers or policymakers. Perceptions, Meaning and Utility are the reality checks used by consumers and voters. Even in ours democracy, extreme poverty is not much relevant to the median voter belonging to middle class now. That is the state of affairs.

The cascading effect of increase in prices of petroleum products on inflation and a high fiscal deficit is a matter of serious concern. Upcoming budget must have tough measures to deal with forecasting of poor monsoon and high prices of petroleum due to Iraq war. I hope to see end of Subsidy Raj in Modi led central government and there are talks of abolishing planning commission. To what extent the government will be able to undertake reforms will depend on how far the NDA is willing to go.

Xavier University

Odisha Chief Minister Naveen Patnaik has inaugurated the Xavier University on the outskirts of the Capital city of Bhubaneswar. Report by Odisha Diary bureau can be read in the weblink here. Congratulations to my Alma Mater for inauguration of "The Xavier University, Bhubaneswar" !