The leakages in government welfare programs for the economically deprived are mainly two-fold - targeting of beneficiaries and pilferage in the actual delivery of benefits. The former gets manifested in the form of ineligible, duplicated and even fictitious beneficiaries, and the latter in the form of beneficiaries getting less than their actual benefits.
Administering the delivery of welfare benefits in a massive and complex country like India poses enormous challenges. Policy makers designing programs for the entire country are faced with conflicting choices and a difficult trade-off between ensuring efficiency in delivery and minimizing corruption. In an effort to eliminate leakages and target the delivery, they design programs with multiple layers of monitoring mechanisms, uniform standards for beneficiary selection and strict guidelines outlining the process of delivering benefits to the consumers. Unfortunately, the result is a tangle of bureaucracy that ironically enough increases inefficiency and spawns both rent-seeking and wastage, broadly in the form of the aforementioned leakages.
Designing a program that avoids getting entrapped in the bureaucratic tangle of norms, components and guidelines, while preserving the basic administrative requirements to effectively monitor and ensure that the program meets its objectives, is one hell of a challenge. Simplistic prescriptions like people's participation and local decision-making, while easy to preach are very difficult to implement.
A paradigm shift in the delivery of welfare benefits can be achieved with a combination of unique identity and bank account for each citizen, and delivery of welfare benefits in the form of cash transfers. Fortunately, recent developments make it possible to implement all three policy alternatives and realize the expectedte benefits in effectively targetting social welfare programs.
The government have already initiated a high-profile Unique Indentification (UID) project to allot a unique number to all citizens over five years. The equally ambitious Total Financial Inclusion (TFI) project seeks to provide access to formal credit mechanisms by giving them a bank account to everyone below poverty line. The missing piece is conditional cash transfer (CCT) programs that directly transfers cash to the recipients, conditional to their achieving certain health, educational land nutritional outcomes.
CCT schemes are based on the premiss that each family knows what is best for them, what are their needs and wants and how the money can be most effectively spent. They are already the most discussed idea in development policy making, rising to prominence with its considerable successes in Brazil and Mexico during the last decade. Nancy Birdsall of the Center for Global Development has described CCTs as the "closest you can come to a magic bullet in development" and they are gaining widespread acceptance as the most effective poverty-fighting strategy.
A UID number is the most fool-proof method of ensuring targeting of beneficiaries and would also save the massive transaction and administration costs associated with the process of selecting beneficiaries. The various welfare benefits - from CCT programs, pensions, NREGS wages, interest and other subsidies, loans etc - can be directly transferred into the respective accounts of beneficiaries and thereby eliminate pilferage of benefits.
This "magic bullet" triptych of UID-TFI-CCT would considerably enhance the ability of governments to assist specific categories of economically and socially deprived citizens with customized welfare programs. A whole series of assistance measures, hitherto thought difficult or even impossible to administer, can be delivered easily and effectively. Instead of messing with prices through the plethora of market distorting price controls (for food, fertilizers, seeds, kerosene, petrol and diesel), it becomes possible to deliver subsidies as direct cash transfers to respective individual accounts. Similarly, tax credits can be provided to specific categories of people.
This triptych also enables the economically deprived people to more easily access the wider market and private businesses to penetrate the massive market at "the bottom of the pyramid". It increases the efficiency and reduces the costs for private businesses to deliver certain services, especially to economically deprived people who were most likely to have been denied access to this market.
The UID number, with related bio-metric identification mechanism, will ensure that only the intended beneficiary avails of the benefits. With time and the network effect arising from the expansion in the use of UID database for delivery of different welfare and other (even private) services, it also becomes possible to means test and screen beneficaries for their eligibility to access various benefits.
The TFI bank account will ensure that payments are delivered directly to the individual, cutting through the different layers of bureaucracy, without pilferage at any level.
CCT programs, by directly transferring money, will ensure that the commonplace wastages associated with government procurements and service delivery are avoided or atleast minimized. More importantly, direct transfers through CCT programs involving cash or vouchers (for say education, housing, health care, food grains, employment training etc) minimize market distortions arising from practices like dual pricing, with its resultant corruption and emergence of parallel markets.
Taken together, TFI and CCT enables the government to deliver a wider range of welfare assistance - interest subsidies, matching contributions, tax credits, lump sum transfers, externality credits etc - in addition to the regular types of subsidies. It also helps the use of technologies like mobile phones and internet to be more widely used to target and deliver assistance to the target beneficiaries.
This tryptich will radically enhance the effectiveness of delivery of the myriad government programs like delivery of pensions, self-employment benefits, PDS, education loans, health insurance, farm subsidies, and so on. They deliver much greater bang for the development buck by lowering transaction costs, ensuring better tragetting, removing ineligible beneficairies, and minimizing the costs arising from market distortions due to direct government interventions that tinkers with prices.
With such policies it becomes possible to deliver subsidies without tinkering with the price signals and distorting incentives. The government can deliver subsidies directly into the TFI bank accounts of the beneficiaries after validating their UID numbers. The subsidy can be for a fixed quantity of the product or service at a pre-defined flat rate on its price. The beneficiary will purchase the product or service from the market by paying the regular market price. This subsidy can be redeemed either by presenting vouchers or consumption bills. In order to account for inflation, the subsidy rates can be benchmarked to the Consumer Price Index (CPI) or some other price index.
While the PDS will continue to deliver foodgrains, fuels like kerosene and LPG can be delivered using vouchers. These vouchers can be used to purchase kerosene and LPG from the retail market, then produced at the Fair Price Shops (FPS) and redeemed after UID validation of the smart card. The subsidy can be transferred directly to the UID-linked bank account.
This approach can address the problems posed by free-power to farmers. A fixed amount of electricity can be given to farmers at subsidized rates by transferring the subsidy into their bank accounts after validating their UID numbers and their consumption bills. This arrangement give the flexibility to target the amount of subsidies for specifically the harvest period and deny the same for off-seasonal activities. The same approach can be adopted to deliver subsidies for water and various agricultural and industrial equipments and inputs. Fertilizer subsidies too can be delivered through this arrangement.
Update 1
Interesting figures from here. Responding to a Parliamentary Question in December 2009, the Minister of State for Consumer Affairs, Food and Public Distribution revealed that 2006, 5,300,000 bogus ration cards had been identified in West Bengal, 1,046,000 in Andhra Pradesh. Orissa was amongst the lowest at 250,000. A recent UN Population Agency (UNPA) found that a mere 8% of beneficiaries under the Janani Suraksha Yojna (JSY) - a program that entitles pregnant women with a cash transfer (at the time of delivery) if they undergo an institutional delivery - in Bihar received their money when discharged while Orissa topped the list at 20%.
Update 2 (26/6/2010)
The penetration levels and access to finance across the country are quite meager - six out of 10 Indians do not have access to a bank account; home mortgage as a proportion to GDP stands at barely 7%; and insurance penetration is under 4%.
No comments:
Post a Comment