Cash transfer test runs

The government is set to step up its push for cash transfer of subsidies and adopt it as a policy doctrine in the run-up to elections, with two pilot projects validating the assumption that it would lead to significant savings for the government while enhancing benefits for users.
A pilot project for cooking gas in Mysore run by state-run oil companies saw the number of connections dropping 40% from 35,000 to around 20,000.
A similar experiment for kerosene in Rajasthan’s Alwar district resulted in consumption sliding by 80% from 80 kilolitres a month to around 14 kilolitres.
The preliminary findings of the twin tests come at a time of intense debate within the government over pruning the subsidy bill and ensuring better delivery. A strong school in the government seems to be leaning towards cash transfers as the way out to deal with an unwieldy subsidy bill estimated at Rs 2.5 lakh crore.
The votaries of cash transfers have argued that it would help government save money without hurting the real beneficiaries. “A part of the reason is that people had more than one connection, while there may have been some bogus ones as well,” said an official, a finding which goes well with the argument that a shift to cash transfers will be politically safe.
In the kerosene pilot project, registered users were provided cash equivalent of the market price for their entitlement from ration shops. With kerosene selling in the open market at Rs 45 a litre, Rs 135 is transferred to the bank accounts of beneficiaries who are entitled to 3 litres a month. Next in the pipeline is a similar scheme for food subsidies with the Centre initiating talks with 11 states to launch pilot projects covering 50 districts.

In a significant move to make cash transfers a reform motif and a pro-poor vote hook, Prime Minister Manmohan Singh and Congress chief Sonia Gandhi will hand out Aadhar numbers in the Rajasthan’s Dudu village on Saturday.
Dudu will be the stage for launching a scheme that integrates benefits like rural employment guarantee, pensions and state scholarships for the socially disadvantaged. Through this the government hopes to earn goodwill ahead of the 2014 parliamentary election.
Bolstered by cash transfer pilot projects for public distribution system, fertilizer and cooking gas showing positive results, the government is hoping to press ahead with a phased rollout that will see Aadhar’s unique identity numbers playing a key role in linking beneficiaries and bank accounts. Aadhar numbers are intended to ensure correct identification of beneficiaries and reduce duplication of records and leakages that mar delivery of subsidies like fertilizer, oil and food, that together account for around Rs 2.5 lakh crore.
Political gains that the UPA is eyeing factor in transferring cash to bank accounts of crores of beneficiaries, which an estimate suggests, can add up to around 10% of the population, even if a full rollout is not possible by the time polls are due.
Officials said targeting subsidies like cooking gas, now pegged at six a year, could see some 14 crore connections being “rationalized” to around 10 crore. This, in itself, would be a large saving as connections are relinquished while some consumers opt out of the subsidy regime.
The central list of PDS users in the below poverty line category adds up to 6.3 crore, and the number is expected to be revised when the Food Security Act is legislated. Similarly, the Centre supports around 80 lakh scholarships for dalit, tribal and backward castes, who will be covered by Aadhar-linked accounts.