If Centre’s objective is more transparency and fewer leakages in reaching out the benefits to the poor, planning should start from grass-root level and not otherwise
“The twin pillars for the success of the system of Direct Cash Transfers that we have envisioned are the Aadhaar platform and financial inclusion. If either of these pillars is weak, it would endanger the success of the initiative”—Dr Manmohan Singh on 19 December 2012
Aap ka paisa, aapke haath (your money in your hands) is the slogan coined by UPA II to promote the “Direct Cash Transfer” scheme which would be rolled out in phases, initially covering 43 districts (out of 51 announced earlier) from 1 January 2013 and the entire country (640 districts) by end 2013. Looks like the guidance given to Team UPA II is that whatever is to be done, should be done during 2013 and nothing should be left post-December 2013 as 2014 is going to be an uncertain year (read Lok Sabha Election year, if you believe in transparency).
In the second week of December, Jagdish Bhavsar, convener of BJP’s media cell had this to say about the party’s campaign strategy: “We have approached the election from three directions—through direct contact with people, through social media and for the first time ever a 3D campaign, and 30 vikas raths (chariots of progress) touring the state, telling people about the development activities of the Gujarat government.”
The above strategy did succeed is history. In this brief statement, there is a valuable lesson for anyone who is part of a project s/he is contemplating to launch. That lesson is about the backward and forward linkages necessary for any project to take off. The point is, any event management man, if consulted, would have briefed the UPA II about the essential linkages to be taken care of, before venturing into a project like this involving the present and future of millions of people and thousands of crores of taxpayer’s money. Such a consultation would have saved the embarrassment for the prime minister who generally reserves informed sermons for international conferences or closed-door conferences of elite economists or bureaucrats/bankers in making the following observation at a review meeting of progress made in the preparations for launching “Direct Cash/Benefit Transfer” programme:
“The twin pillars for the success of the system of Direct Cash Transfers that we have envisioned are the Aadhaar platform and financial inclusion. If either of these pillars is weak, it would endanger the success of the initiative.”
Anyone familiar with the happenings on the Aadhaar platform and those who have been following the chase after “Financial Inclusion” since 1970s (Lead Bank Scheme era) till date, will have the same apprehensions briefly coming out in the PM’s observation. Let us have a click on the keywords ‘AADHAAR’ and “Financial Inclusion” contained in the PM’s observation which could turn prophetic during the coming year.
In addition to its normal share of constraints including inadequate funding and non-availability of in-house expertise and resultant dependence on external agencies including banks and government departments, the lack of experience betrayed by Nandan Nilekani in dealing with the invisible hands of government has been making the progress of the UID Project relatively slow. First came the proposal for a drastic cut in budgetary allocations for the UID (from Rs7,500 crore to Rs4,000 crore, which meant only 10 crore UIDs will be possible initially against 60 crore planned) and now even the safety parameters assumed for producing UIDs are losing credibility. The problems in universal applicability of biometrics and the need for adequate funds for implementing the project to cover the 114 crore population cannot be assumed to have surfaced midway. As problem after problem surfaced, the common man knew for certain that the project was bound to take much more time than originally envisaged, even to cover the already ‘identified’ citizens. Even the government was not sure, as is evident from the fact that initially the project was not allowed to access the infrastructure and methodology in use by the census organisation for decades and fast-tract the process.
As late as in January 2012 a controversy between the ministry of home affairs (with the present FM as home minister then) and UIDAI boss Nandan Nilekani, surfaced as a letter from P Chidambaram to the prime minister about the methodology for identification of prospective Aadhaar card-holders. This was yet another case of conspicuous absence of leadership at the top in governance, costing the nation heavily in terms of resources. The much publicized and costly UID project which was entrusted to a successful entrepreneur from the private sector and mandated to be a panacea for all problems of poverty and deprivation the country is facing, has encountered serious problems even from the conceptual stage.
The hurry with which AADHAAR is being linked to the present Direct Cash (Benefit) Transfer Scheme is unwarranted. The pilot run has not reported impressive success. The fate of January 2013 launch of the Cash Transfer Scheme in select districts may give some indication as to the further efforts needed to make the project work effectively. Even a ‘satisfactory’ run of the project in these districts which have better linkages and literacy levels may not be indicative of the same performance in the remaining geographical area, if the scheme is pushed through within a year as is proposed now. The UID project may come through successfully in states like Kerala where the literacy rate is high and total financial inclusion is a reality. But that doesn’t help achieve the objective of the project, namely, “giving every Indian resident a unique ID number”. What is surprising is how Mr Nilekani agreed to start off the project with so many ifs and buts.
The government spokespersons while making statements about the Direct Cash Transfer, are giving an impression that this initiative is aimed at financial inclusion. Making the ‘beneficiaries’ borrow from banks/moneylenders against “subsidy/benefits receivable” or routing benefits through electronic media (ATMs, etc) cannot absolve banks from the responsibility of working towards financial inclusion. Financial inclusion is about bringing over 40% of India’s 25 crore households which still do not have any dealings with banks under the banking net.
Increasing the outreach of banks to cover the rural borrower with low credit needs has been one objective the nation has been pursuing religiously since 1950s (when State Bank of India was established), till date (now SBI has come out with the facility to open an account with Re1!). But the reality of financial inclusion is eluding. The banking system has done a commendable job in this direction through the network of rural branches, rural financial institutions (RFIs) including cooperatives, regional rural banks (RRBs) and rural branches of commercial banks. The focus shifted midway, somewhere during 1990s to urban and metropolitan lending.
Rise in rural deposits and burgeoning urban credit created imbalances and certain bypass routes were allowed for banks to achieve their priority lending targets. Banks started searching for other intermediaries like microfinance institutions (MFIs) for providing credit to small borrowers. MFIs, in some cases, borrowed from banks at low rates and disbursed credit to the ultimate borrower at up to three times or more the borrowing rates, in the same area where bank branches functioned. So long as banks source rural deposits, they should also shoulder the responsibility of providing credit in rural areas at reasonable interest rates.
In the effort to improve financial inclusion the existing infrastructure outside the commercial banks also should be put into use. Cooperatives have played a significant role not only in providing agricultural and rural credit, but in ensuring other linkages like inputs for farming and marketing avenues for products. As they were mainly operating in rural and semi-urban areas, it took longer time for this sector to access modern skills and technology. NABARD was established in 1982 with the specific mandate of supporting cooperatives and rural sector in general. Initial enthusiasm of NABARD faded away in the absence of legislative and administrative support from central and state governments and the institution had to satisfy itself by continuing to be an appendage of RBI doing some ‘safe’ business through established and credit-worthy cooperative banks and commercial banks.
Legislative support in adequate measure for revitalizing the cooperatives which comprises state and district central cooperative banks and more importantly about a lakh primary agricultural credit societies (PACSs) is not forthcoming from central and state governments. At a time when the government and the regulatory and supervisory institutions are struggling to make a breakthrough in financial inclusion and improvement in productivity, if appropriately utilized, the already available infrastructure and membership of cooperatives will make their work much simpler.
Out of one lakh PACSs only one-fifth situated in the four southern states and West Bengal are doing well. The remaining societies will need financial and managerial support for rehabilitation. Still, if a political will can be evolved, reviving the cooperatives with technological, financial and administrative support will give a boost to the efforts for financial inclusion.
Change of course
If there is a will, there is a way. Reportedly, the government has handed over the electoral rolls in respective areas to the public sector banks operating in the districts selected for launch of Cash Transfer from 1 January 2013 with instructions to ensure that every household in these districts must have at least one bank account. Bank employees may not risk their jobs by not adhering to the ‘instructions’ from North Block. We can only wonder why electoral rolls and not AADHAAR numbers were being used. Someone says, when everything is with Elections 2014 in view, why not start with electoral rolls in the first place!
Even at this late hour, a change of course is possible. If Centre’s objective is more transparency and fewer leakages in reaching out the benefits to the poor, planning should start from grass-root level. The local bodies, revenue officials from the villages upwards, branches/offices of banks, cooperatives, NBFCs, social organisations operating in the respective areas should be taken on board while identifying the beneficiaries and disbursal of benefits. This programme is different from providing telephone/mobile connections or reaching out with medicine for polio. Banking is a two-way relationship with several changing dimensions. ATMs and hand-machines with banking correspondents cannot substitute for personal relationship a banker cultivates with his clientele over time.
Let us wish some miracle happens and the UPA II changes its approach in 2013 so that scraping through the year becomes easier for it and the country and when UPA III emerges in 2014 in some other combination the struggle to survive will be smoother!
(MG Warrier is a freelancer based in Thiruvananthapuram.)