Direct Benefit Transfer Scheme in IndiaAbstract---Poverty and corruption are the two major problems which plague India in the recent times. According to the World Bank, India is home to 20% of the world’s poor population. To counter both the poverty and the huge leakages, the Indian government has been pushing for Direct Benefit Transfer Scheme for the past few years. This program has attracted attention from all over the world and can been termed as a milestone for India to become a super power. In this study we analyze the application of the scheme to India and compare it with similar attempts in the past. Its Cost Benefit analysis has been done and its benefits and challenges have been discussed. At the end, suggestions have been given for its better implementation. Key Words: Direct Cash Transfer, Subsidy Transfer, Cost Benefit Analysis, IRR 1. INTRODUCTION A nation needs to continually reinvent itself as it moves up the growth curve. Every doubling of GDP puts the nation at the cusp of transformation for the next doubling. A growth rate of 7% implies doubling of GDP every 10 years [Ministry of Finance, 2012]; essentially, the nation has to reinvent itself almost every decade. In the last twenty years, India has undergone a transformation of its economic and regulatory structures. Policy reforms in this period have led to the increasing maturity of our markets, as well as healthy regulation. The emphasis on delicensing, entrepreneurship, the use of technology, and de-centralisation of governance to the State and Local levels have in particular, shifted India from a restrictive, limited access society to a more empowered, open access economy. Despite these efforts, access to finance has remained scarce for the poorest residents in the country. The Government operates a number of social safety net schemes, disbursing money to the poorest and vulnerable sections of society. However, last-mile payment issues are observed in a number of schemes – MGNREGS wages, NSAP pensions, JSY payments, IAY payments, scholarships, etc. The frontline development workers such as school teachers, Anganwadi workers, ASHA workers, etc. often do not receive their salaries on time. This drives the poor to borrow from money-lenders to tide over short term consumption needs. Even though mobile phones are ubiquitous, access to finance continues to remain elusive and an aspiration. A great amount of productivity and efficiency can be unlocked by ensuring that beneficiaries receive their Electronic Benefit Transfer (EBT) payments on time, in any account at a bank or post office of their choice, and at their own convenience. Government will also derive comfort with the 1 assurance that funds are accessed by the intended beneficiaries, and not by rent seeking middlemen. At the same time, the Government is working towards Direct Transfer of Subsidy (DTS) payments in the case of fertilizer, kerosene, and LPG in order to address incentive distortions that arise with subsidized pricing. The Task Force on DTS has recommended that when these products are purchased with cash, they will be sold at market price, with a reimbursement of the subsidy into accounts of consumers at banks and post offices. In case the products are purchased electronically (through micro-ATMs, debit card, Kisan Credit Card, etc.), only the subsidized price may be paid, and the Government can reimburse the subsidy to the retailers electronically. These EBT and DTS payments add up to Rs.3 lakh crore today, or roughly 3.5% of GDP. Remittances are estimated to be an additional Rs.1 lakh crore [Ministry of Finance, 2012]. A platform approach to payments is therefore necessary to address the delivery of last mile payments to every part of the country. The Government of India is issuing Aadhaar numbers to all residents of India (975 million enrolments have been completed). The Government has already notified Aadhaar as a valid KYC document for opening bank accounts and buying financial products. The Aadhaar number, due to its uniqueness property, serves as a natural financial address for sending payments to accounts of beneficiaries at banks and post offices through the Aadhaar Payments Bridge (APB). The Aadhaar authentication system allows the identity of a resident to be authenticated in real-time in a trusted manner during last-mile payments transactions using Micro-ATMs. Today, the banking infrastructure in the country consists of 80,000 bank branches, 1,50,000 post offices, 88,000 ATMs, and 500,000 POS machines. Of these, the rural banking infrastructure only consists of about 30,000 bank branches and 1,20,000 post offices . In comparison, there are more than 10 lakh telecom retailers that operate throughout the country. The RBI has defined the Business Correspondent model of branch-less banking, which holds the key to smooth delivery of EBT and DTS payments, while simultaneously achieving financial inclusion. In order to cover 2.25 lakh Gram Panchayats containing 6 lakh villages, and to serve the urban poor, this Task Force envisions the creation of an interoperable network of 10 lakh Business Correspondent agents using the combined infrastructure of India Post and banks. In order to make Government payments viable at the last mile, and recognizing the fact that many of these accounts will offer little or no float, this Task Force suggests that the Government bear a last-mile transaction processing fee of 3.14% with a cap of Rs.20 per transaction. For interoperable transactions, 31% of the fee can be paid to the issuing bank, 64% to the acquiring bank, and 5% to the switch. This fee is benchmarked against other offerings with similar characteristics: India Post charges a 5% fee for money orders, while mobile operators started with a 16% agent commission for top-up ten years back, which has now stabilized at 3.5% on average [Ministry of Finance, 2012]. 2 The Indian economy predominantly operates on cash today. Cash is expensive for everyone, due to the costs of cash management, cash handling, storage, security, wear and tear, fake currency notes, etc. Electronic payments are the first step on the ladder of financial inclusion. Electronic payments are also essential for friction-less and efficient functioning of the economy, and essential in nurturing high growth sectors such as e-commerce and m-commerce. In the past, Various Governments throughout the world have introduced similar social security and welfare schemes. These schemes can be categorized into two categories: Direct Cash Transfers Conditional Cash Transfers. In Direct Cash Transfers, money is either delivered directly to the beneficiary or transferred into his or her bank account. This money carries no further conditions once the beneficiaries are identified, and they are free to spend as they choose. Technological advances and improved telecommunications access over the last decade have made it possible to provide electronic transfer of funds into the accounts of beneficiaries. Social security pensions are an example of this model. In Conditional Cash Transfers, cash transfers are made conditional on the achievement of certain social or development objectives, they are called Conditional Cash Transfers. In the last decade, such conditional cash transfers have been implemented extensively across some South American and some African nations. In India, this approach has been adopted in the Janani Suraksha Yojana. In these programs, beneficiaries must fulfill certain conditions to receive the cash from the Government. Since independence, Governments in India have been strongly committed to addressing the issues of poverty and deprivation. Accordingly, Central and State Governments have devoted a major share of their budgets to put in place broad-ranging social safety nets and livelihood assistance programs. With large amounts being spent on subsidies, the Government is examining ways to ensure that this spending is carried out in ways that maximize positive outcomes, and lead to significant poverty reductions. With these objectives in mind the government has come up with Direct Cash transfer Scheme where the subsidies that are being provided by the State now can be more efficiently provided to the intended beneficiaries directly. It complements public provisioning by the State, rather than supplanting it. It also enables the State to reach out to the deserving intended beneficiary more effectively. 2. PREVIOUS ATTEMPTS Cash Transfer schemes originated in middle-income Latin American countries that had good infrastructure and supply systems. They were positioned as formal, publicly provided safety net programmes that essentially supplied cash to the needy and helped them tide over the period of economic crisis. The earliest of such programmes, Progresa, was initiated in 1997 in Mexico with a new approach integrating interventions in health, education and nutrition [D.P.Coady, 3 2000]. It was based on the understanding that these important dimensions were direct correlates of human welfare. Other countries that initiated CCT programmes include Chile, Colombia, Ecuador, Jamaica, South Africa and Turkey. In Asia, Bangladesh had a Female Stipend Programme as early as 1982 followed by a Food for Education Programme in 1993 [The Indian Economist RSS, accessed on 8th Apr.2013] [Web: <http://www.kpmg.com/in/en/issuesandinsights/articlespublications/kbuzz/pages/gov.aspx>, accessed on 8 Apr. 2013]. Food grants were later converted to cash grants in 2002. Indonesia launched a pilot CCT programme called Programme Keluarga Harapan (PKH) in 2007 [The Indian Economist RSS, accessed on 8th Apr.2013] [Web: <http://www.kpmg.com/in/en/issuesandinsights/articlespublications/kbuzz/pages/gov.aspx>, accessed on 8 Apr. 2013]. Its beneficiaries are very poor households that have pregnant women and/or zero to 15-years-old children. The PKH requires them to access education and health services to be eligible for the cash transfer. Design Indonesia Elements Size & Cost of program : US$ frequency of 2.3 bn (Around 25% of amount saved from transfer subsidy reduction) Iran Mexico Reform Act – At least 50% of savings from subsidy removal used to compensate households for price increase Energy compensation card issued. • Payments in two installments • Disbursed directly or through community leaders • Post offices used for delivering transfers • Rapid program Monitoring, appraisal in ‘05 Evaluation & ’08 & Govt. Communi• Illegal diversion of funds cation reported • Amt. of transfer depended on status of recipient household. Transfer made every two months. 18.4% c. of energy expenditure added in 2007 • Initially transfers via cash but through debit cards since 2003 • Transfers made to female heads of households Delivery Mechanisms • Absence of any dedicated • • • • Transfers directly into specially created bank accounts Upgradation & expansion of banking infrastructure No formal model introduced as such But proactive problem redressal by the government • Regular Q&A by • • Independent Impact Evaluation Protocol Rapid assessments key stages at Regular Q & A 4 IIT Delhi The largest and the most successful conditional cash transfer program is the Bolsa Família Program (BFP) in Brazil that covered close to 100 percent of Brazil's poor in 2007 [Lindert. and Break the inter-generational transmission of poverty by conditioning these transfers on beneficiary compliance with human capital requirements e.Sources complaint govt. Bénédicte de la Brière. Throughout the world there is a feeling that the under privileged have right to Social assistance and the society owes them a “historical debt” for their exploitation for centuries. of Mexico (2010). Cash assistance was seen as an incentive to help counter these demand-side constraints and promote school attendance. Anja. H. health and social assistance. (2008). L. Bénédicte de la Brière. by providing a minimum level of income for extremely poor families.g. pre-natal and post-natal tests. Jaireet Johal.” Since even universal availability of health and education services does not mean universal access by the poor – due to direct and indirect opportunity costs of taking up these services – CCTs are seen as a way to remove such barriers to access by providing cash linked to education and health service use [Lindert. Jason. While the cash transfers provide minimum incomes and a way for society to pay its “historical debt to the poor. Anja. school attendance. The entire system is managed through efficient targeting. Hastuti et al. Some of the key features of the implementation of Bolsa Familia Programme are: 5 . Under the programme. poor children cannot always attend due to direct and indirect (opportunity) costs.” the conditionalities are widely viewed as tools to help encourage the poor to take up these “rights. Fernald et al. May 2007]. May 2007]. Widjaja (2009). the government transfers cash straight to a family subject to conditions such as school attendance. ASEAN Report publication govt. controlled registration unit media • PR campaign (2005) Bacon & Kojima Guillaume et al (2011). nutritional monitoring. In some ways. Like other conditional cash transfers (CCTs). (2006). CCTs serve as a social policy instrument that seeks to integrate these “rights” to education. World Bank (2010) Reference: Mr. Jason. Cameron & Shah (2011). H. disbursement and regular monitoring of the disbursed funds. by Angelucci et al. Nino Zarazua (2010). the BFP seeks to help Reduce current poverty and inequality. The basic premise for linking school attendance to cash assistance was based on demand-side constraints: even if schools are available. (2006). MBA. L. pre-natal visits. Bozorgmehr (2012) (2006). Govt. vaccines. VI. crediting beneficiaries’ electronic benefit cards (EBCs) on a monthly basis through its extensive banking network. The institutions involved and their responsibilities are as follows: I. The Ministry of Social Development (MDS) is the program’s policy and supervision agency. Coverage of beneficiaries As of June 2006. the program covered 11. III. The Ministries of Health and Education are responsible for establishing technical and operational guidelines regarding school attendance and health. Jason. Bénédicte de la Brière. L. B. The Caixa consolidates and manages the national registry database for social programs. V. and the Office of the Public Prosecutor (MP) – are responsible for formal oversight and controls of the BFP.1 million families (approximately 46 million people). 6 . Municipalities carry out many aspects of program implementation. monitoring health and education conditionalities and consolidating associated information. The Caixa Econômica Federal has been contracted as the program’s operating agent. II. Bénédicte de la Brière. They are responsible for maintaining a local coordinator for the program (local program point-of-contact). H. which represents 100% of the poor and 25% of the Brazilian population [Lindert. Anja. May 2007] The organizational structure for the implementation is highly decentralized. L. State Governments provide technical support and training to municipalities (particularly for smaller municipalities). assigns registered individuals the unique Social Identification Number (NIS). H.A. The program is managed by Ministry of Social Development and is managed by municipalities at the ground level. the Cadastro Único. IV. the Federal Audits Court (TCU). Overview of Institutional Roles [Lindert. and makes payments directly. Three controls agencies – the General Controllers Office (CGU). registering potential beneficiaries in the Cadastro Único. Jason. May 2007]. Anja. which enables them to identify inconsistencies or gaps in the information registered. including: 7 . It is also possible to do searches by name. Targeting and the Cadastro Único Registry System Fig. which compares self-reported incomes to the official eligibility thresholds. and (b) They establish minimum institutional standards for program operation at the municipal level.worldbank. prioritizing families and assigning benefits according to income and family composition.org/INTLACREGTOPLABSOCPRO/Resources/BRBolsaFamiliaDiscussionPaper. I. MDS then runs additional consistency checks to verify information and finalize the beneficiary list.All these agencies have signed formalized agreements for the smooth functioning of the programme and to overcome the challenges due to decentralization. NIS or address and other basic variables.1 Image Source: http://siteresources. Application of eligibility criteria to family data is carried out automatically by the Cadastro Único software.pdf The municipalities have access to a data program. through the Caixa Econômica Federal. The Payment System Payments via the Banking System The BFP program makes payments via the banking system. By simply clicking on a button in the software for either “personal inconsistencies” or “household inconsistencies” the program will automatically run cross-checks and list all inconsistencies encountered. These agreements follow a standard “template” and serve two key functions in establishing the overall framework for decentralized implementation: (a) They clarify roles and responsibilities for implementation of the program. which credits benefit payments to beneficiaries’ electronic benefit cards (EBCs) on a monthly basis. The use of the banking system has several potential benefits. D. C. In total. L. and is linked with close to 9.000 lottery points and over 2. and (d) Presumably linking poor BFP beneficiaries to the banking system (which has development benefits and helps promote identity and self-esteem. fewer staff needed). L. (c) Reducing the scope for clientelism. As such. Withdrawal of Monthly Benefits Withdrawal of benefits can be done at Caixa agencies.(a) Supporting transparency. II. Bénédicte de la Brière. The Caixa operates over 2. H. Health Conditionalities 8 . May 2007]. Anja.000 points where program benefits may be withdrawn. Anja. Conditionalities Menu of Bolsa Família Conditionalities Health Conditionalities Education Conditionalities Children Women (pregnant or lactating) For all children ages 0-7 years old: Vaccine schedules Regular health check-ups and growth monitoring of children Pre-natal checkups Post-natal checkups Participate in educational health and nutrition seminars offered by local health teams Enroll all children ages 6-15 in school Guarantee at least 85% minimum daily school attendance each month for all school-aged children (Parents) If child misses school. Education The evidence from impact evaluations shows that the BFP is having an impact in increasing enrollment among the poor. Impact on Daily Attendance: Regular attendance in school is an important input to learning and school attainment. as reported by the beneficiaries themselves). so as to ensure easy access to the funds. This broad network is supposed to guarantee its presence in all Brazilian municipalities. or at other participating locations. Jason.000 agencies nationwide. inform the school of the reason Inform the local BFP coordinator if the child moves schools I. the BFP includes conditions that require that beneficiary children attend a minimum of 85% of the time [Lindert. E. Bénédicte de la Brière. May 2007]. there are over 32.000 banking correspondents [Lindert. II. Jason. even in smaller communities. since public authorities (federal or local) are not involved in handing out benefits directly to beneficiaries. H. (b) Promoting efficiency by taking advantage of Brazil’s extensive banking infrastructure and systems (no lines. vaccination. This special module (Mapa Diário de Acompanhamento) also contains information on the BFP beneficiary’s names. and (b) pre and post-natal checkups for pregnant women III. and regular health checkups and growth monitoring for children ages 0-7 years old. Monitoring of Compliance with Conditionalities a. The cards furthermore contain a schedule of future health visits/required actions for the family member in question. each targeted family member of the BFP (children under 7. For all points of service. These cards also provide basic information for the families. This information is recorded by the health agents for their record which facilitates the monitoring process. and address. health service providers record data on health visits. their social identification number. Each municipality is responsible for ensuring that the consolidated information is entered into the SISVAN data system and transmitted to the Ministry of Health (Ministério da Saúde. The health card contains basic information on beneficiaries’ health condition and history.” a database system designed to monitor the health and nutrition situation of the general Brazilian population. elderly over 60) is provided with a health card. Health Conditionalities To facilitate the monitoring process for beneficiaries as well as for local health providers. growth monitoring and other BFP conditionalities into a special module of one of six main national health information systems “SISVAN.worldbank.2 Image Source: http://siteresources.pdf b.These conditionalities include: (a) completion of vaccines according to the recommended schedule. such as useful information and help for parents concerning the development and needs of their children. Monitoring of Compliance with Education Conditionalities Fig. nutritional status. pregnant and lactating women.org/INTLACREGTOPLABSOCPRO/Resources/BRBolsaFamiliaDiscussionPaper. MS) 9 . It can be an effective strategy to channelize subsidies to beneficiaries. especially in multiple price markets with pervasive incentive distortions. Anja. then suspension.worldbank. the focus is very much on helping families comply with the conditionalities and not on uncovering non-compliance in order to penalize them.3 Image Source: http://siteresources. Direct Benefit Transfer Scheme: Objectives It should be noted that direct subsidy transfer is not a standalone solution for subsidy delivery. It is not a substitute for other regular government welfare services. May 2007]. 3. but just one among several strategies that may be employed to deliver welfare services. L. Bénédicte de la Brière. by June 30 for the period between December 1st and May 31st. and it is desirable to provide choice to beneficiaries. 10 . The subsidy framework can also address wrongful inclusion errors (by weeding out the duplicates and fakes) while it would indirectly address wrongful exclusion errors. Consequences for Non-Compliance The consequences for non-compliance with conditionalities are gradual. H.twice a year. and by December 31 for the period between June 1st and November 30 of each year [Lindert.pdf IV.” followed by blockage. Jason. INDIAN SCENARIO A. Fig. and ultimately cancellation of benefits As stated in the law and as repeatedly asserted by officials at the central and local levels. beginning with a “warning.org/INTLACREGTOPLABSOCPRO/Resources/BRBolsaFamiliaDiscussionPaper. but a complementary piece. it has to address existing challenges with targeting. Any effective subsidy regime has to incorporate the following elements: [Ministry Of Finance. A unified payment 11 .Various social divides exist in India today. provide a robust electronic process for identification of beneficiaries. without distorting markets in unacceptable ways. Infrastructure Requirements The above objectives can be achieved only when a well-established infrastructure is in hand of the government.Direct subsidy transfers should also be carefully tested to ensure that they bring about real choice and empowerment for beneficiaries. Need for unified payment architecture: . provide a quick and convenient method to report grievances. address leakages and diversion through transparency and use of technology. and electronic transfer of funds into their bank accounts. In doing so. empower beneficiaries with choice in accessing subsidies. The major components of the implementation plan are the following: [Ministry of Finance. A move towards direct transfer of subsidies will require re-engineering the subsidy administration process. 2012] Government e-Payments Gateway (GePG) Electronic Opening of Accounts Aadhaar Payments Bridge (APB) Branch-less Banking with Micro-ATMs Electronic Payments Remittances Mobile Banking Role of India Post Some of these are explained in detail here: I. June 2011] Empowerment and choice for beneficiaries Transparency in subsidy administration and information visibility One price for subsidized goods Efficiency in production Convenient and effective grievance redressal Support all types of direct subsidy transfer models Fully electronic service delivery An incentive-compatible solution across stakeholders B. which have led to a variety of different payment systems. The importance of Electronic Payments: a. iii. there is no traceability and accountability for cash transactions. and interest foregone in case the funds were parked in the bank till the time of use. and Rs. and offers convenient channels of access to all residents of India. architecture cuts across these social divides. currency chest management.Various Government Schemes insist that their appointed banks open new accounts for the customer. Electronic Opening and Linking of Aadhaar-Enabled Accounts: a. cash management. Studies have estimated that the cost of cash to the economy is 5-7% of GDP. Physical presentation of Aadhaar letter to a BC sub-agent operating a microATM iii.Banks and post offices may consider linking existing customer accounts to Aadhaar as follows: i. Cash is expensive for all stakeholders in the ecosystem.5 crore on currency chest operations. Linking existing accounts with Aadhaar: .II. RBI’s annual report (2010-11) shows that it spent Rs. and linking if the authentication is successful. Electronic Payments and E-commerce: 12 . schemes.The RBI bears costs include printing currency. and black money. ii. a less-cash approach needs to be followed rather than going for a cash-less approach. the cost of which is eventually borne by the Government. each of which has its own method of access. This can be enabled on all channels such as the branch. International data (BIS) on banknotes and coins in circulation as a percentage of GDP shows India in 4th place. and wear and tear. storage. Physical presentation of Aadhaar letter at a bank branch or post office ii. corruption.376 crore on security printing. which leads to problems of bribery. 45. Funneling various Government payments to one account: . 2. Cost of cash for banks: . More so. Cost of cash for individuals: . So it is important to have one account for all govt. III. Cost of cash for the Reserve Bank of India: . security. micro-ATM. and maintain a separate account for the purpose of disbursement. Initially. Sending Aadhaar number collected from the customer along with the KYC data as part of an electronic authentication request to UIDAI.The Indian economy predominantly operates on cash today. b. Debit Cards. and mobile. Cost of cash: . internet. This leads to considerable duplication of work. b. POS.Banks bear the cost of cash logistics. risk of theft. Indians are amongst the biggest users of cash worldwide. storage and security. and the opportunity cost of idle cash in branches and ATMs.transportation cost to an ATM or a branch outlet. and this can be reduced by a third through the use of retail electronic payments. Beneficiaries also find it confusing to use different accounts for different Schemes. Various costs associated with cash are: i. ATM. 21% with a total of 980 million wireless subscribers in India as of June 2015. IV. There has been a dramatic rise in mobile phone penetration over the last few years. if the beneficiary pays electronically (for example. only the subsidized price may be charged. Economic Survey 15-16. Mobile Banking: Fig: Mobile Penetration in Indian States.In the case of DTS payments (Fertilizer.). etc. by using a micro-ATM. a. and Kerosene).79% and rural tele-density at 33. debit card. it is recommended to sell goods at market prices. However. 13 . Kisan Credit Card. the mobile phone has become the first connected computing device that is accessible to most residents in this country. TRAI reported an urban tele-density of 66. and reimburse the subsidy into the bank accounts of beneficiaries. LPG. and the subsidy can be reconciled electronically by the next working day – the subsidy will be credited into the retailer’s account. With such a large number of connections. A simplified common template for the KYC requirements for the Mobile and Aadhaar linked Accounts which is acceptable to all service providers. Recommendations from the Report of the Inter-Ministerial Group: i. 75 crore savings accounts.Post Office personnel are in a much better position to identify and reach especially the poor households. nearly half of the total disbursement under MGNREGA is being routed through Post Offices. This combined with the fact that in many small villages Post Office is the only government agency. as they generally belong to the local communities.The Postal personnel for rural Post Offices are largely drawn from the local communities and therefore enjoy trust of the people. iii. Core Banking project will facilitate Anytime – Anywhere banking for POSB customers. Interoperable repositories at the national level for hosting and managing mobile and Aadhaar-linked accounts that may be created and managed by independent third party service providers / organizations on behalf of the participating Banks. Post Offices are distributing pensions under Indira Gandhi Old Age/Widow/Disabled pension schemes through a combination of its savings and remittance products. An interoperable central payments switch that will facilitate real-time transaction routing across Banks.81%) are in the rural areas. Such environmental conditions allow Post Offices to be a trustworthy channel to deliver various aspects of social security programmes. Similarly. and v. Post Offices are fairly evenly distributed throughout the country and are under a centralized command. The characteristics of the India Post that can help in the Direct Transfer Scheme are discussed below: a. iv. d. Department of Posts is planning through its IT project to modernize its postal operations.54. Post Office Savings Bank: . including the POSB operations. Structural strengths of the Postal network: . undertaking these operations will perform them on behalf of all Banks.182 (89. The Post Offices are currently engaged in wage disbursal to MGNREGA workers. As of now.V. and the account number.39. c. Experience of delivering 14 .The Post Office Savings Bank (POSB) is one of the oldest and largest banking institutions in the country. Computerization and Networking of Post Offices b. This network has been leveraged by the post office to make payments of social benefit schemes at the last mile. Business Correspondents (BCs) or the sub-agents of BCs. POSB operates around 23. it has traditionally enjoyed the trust and confidence of local people and is highly accessible to all the sections of the society. Post offices and identification of social security programme beneficiaries: . Cash-in / cash-out operations at the front end involving deposits and withdrawals into Mobile and Aadhaar linked Accounts.979 Post Offices of which 1. The payments are made through Post Office Savings Bank accounts or through the traditional remittance services. Role of India Post: India has the largest postal network in the world with 1. mobile number. An Account Mapper that provides linkages between Aadhaar Number. ii. In addition to maintaining the subsidy accounts. CSMS would maintain the subsidy accounts of all beneficiaries. 165. Such studies have revealed that average number of transactions is higher in the case of MGNREGS accounts when compared to ordinary post office savings bank accounts. An Expert Group constituted by the Ministry of Finance has pegged this cost to be Rs. The workers are then intimated about receipt of their wages who attend the post office to withdraw the amount of their wages from their accounts. Solution Architecture and Implementation Procedure: Now we present the solutions that have been proposed to fulfill the objectives of direct cash/ subsidy transfer schemes: I. The CSMS automates all business processes related to direct subsidy transfer.Such wages are disbursed by opening savings bank accounts in the names of MGNREGS beneficiaries at post offices.The costs incurred by India Post while opening and maintaining MGNREGS accounts have been estimated internally and also through the Administrative Staff College of India. and all policies related to subsidy management. Disbursement of MGNREGS wages through Post Offices: . 15 . Issues relating to costs: . and service providers to effectively monitor the scheme. and ensure the desired quality of service. and that is why the cost to operate such accounts for India Post is higher than that for ordinary post office savings bank accounts. to be implemented by the Ministry/Agency driving the subsidy scheme.MGNREGA wages and social security pension schemes in various states suggests that Post Offices can provide effective and cheaper mechanisms to deliver social protection programmes according to the needs of the social protection recipients.59 per account per annum. C. The State Government agency responsible for MGNREGS works submits wage list and the consolidated amount of wages to its concerned post office where the wages are credited in the workers accounts as per the list. Core Subsidy Management System(CSMS): [Ministry Of Finance. it would need to be integrated with a number of other external systems of other Government Departments. e. June 2011] The direct transfer of subsidies consists of a Core Subsidy Management System (CSMS). partners. The Aadhaar authentication service which would be available online real-time.5 Image Source: http://finmin.4 Image Source: http://finmin. which will provide a Yes/No response in real-time when the beneficiary’s Aadhaar number. Beneficiary and family identification module(Aadhaar integration) : Robust identification of the beneficiary is of utmost importance in the direct transfer of subsidies. demographic data.nic.pdf 16 . biometric data and/or other information are sent for verification. since funds will go to the beneficiary’s designated Aadhaar Enabled Bank Account (AEBA). UIDAI provides an Aadhaar authentication service.in/reports/Interim_report_Task_Force_DTS.pdf The basic modules of CSMS include: a. Fig.nic. and would provide a robust and secure way to link a beneficiary’s Aadhaar to his/her subsidy account and to his/her payment instrument can be used for a one-time KYC.in/reports/Interim_report_Task_Force_DTS.Fig. the backend infrastructure set up should be built for real time payment to the beneficiaries. Government subsidy schemes should budget for a suitable commission to be paid to banks for setting up and operating the payments infrastructure (Figure 7). once the infrastructure is up and running. f.b. h. 17 . and outreach module Logistics module MIS Module Module to integrate with other subsidy management systems Role of banks and payments at the last mile: Access to electronic payments at the last mile is an integral part of the solution for direct transfer of both. the payment may be sent to any payment instrument that is linked to Aadhaar –bank accounts and any other payment instrument approved in the future. and subsequently taper off to cover only marginal costs.pdf d. i. This has been recognized by Government of India. A payments bridge (Figure 8) can then be setup to route subsidy payments of Government of India to beneficiaries simply by providing the Aadhaar number and the payment. cash and non-cash subsidies. g. Given that the subsidy payments will be based on the beneficiary’s Aadhaar Number. Product movement and stock tracking module(ERP systems integration) c. e. education. II. and a number of actions have been initiated to facilitate financial inclusion and Electronic Benefit Transfers (EBTs). The commission schedule may be higher initially to cover fixed costs. Finally. Transparency module Contact Centre module Training. Payments should be designed to be real-time.in/reports/Interim_report_Task_Force_DTS.nic.6 Image Source: http://finmin. Direct subsidy transfer module(Integration with nodal bank and payments gateway) Fig. and linked to their assigned Aadhaar number.pdf Fig. Aadhaar letter and Aadhaar authentication for Know Your Customer (KYC) requirements. 2012] [Ministry Of Finance. There are three major roles of Aadhaar in the DBT scheme: a. Role of Aadhaar: [Ministry of Finance. The following progress has been made in acceptance of Aadhaar as KYC for financial products: i.7 Image Source: http://finmin.8 Image Source: http://finmin. The Insurance Regulatory and Development Authority (IRDA) has notified Aadhaar as a valid KYC document to insurance companies 18 .nic. Addition of Aadhaar to the list of officially valid documents by Ministry of Finance ii. When a resident enrolls for the Aadhaar number.in/reports/Interim_report_Task_Force_DTS.Fig. RBI included Aadhaar as a valid PoI (Proof of Identities) and PoA (Proof of Address) document for opening bank accounts iii.in/reports/Interim_report_Task_Force_DTS. the individual’s basic demographic information and biometric details are stored in a central database.pdf III. The database can then be contacted by agencies and service providers anywhere in India to confirm that the person is who they say they are.nic. June 2011] The Aadhaar number can play an important role in addressing existing challenges within India’s subsidy delivery infrastructure. along with other attributes (including biometrics) is submitted to UIDAI’s Central Identities Data Repository (CIDR) for verification. Also Internal Rate of Return (IRR) is calculated for the expected cash inflows and cash outflows. Cost-Benefit analysis for the proposed DBT scheme in India is done. c. decision or government policy.P.2011] [Rufus E. the implementation should be done in the following phases: First Phase: To have centralized software for Product/service transfer in place. Enables real-time authentication of identity at the time of subsidy delivery. Aadhaar number as a financial address for receiving and sending funds: The beneficiary may link their Aadhaar number to their account at any bank. the CIDR verifies whether the data submitted matches the data available in CIDR and responds with a yes or a no. Second Phase: Depending on the availability of other modules in the ecosystem.iv. sometimes called benefit–cost analysis (BCA). University Of Cambridge] A. ii. ECONOMIC ANALYSIS: Under this. Cost Benefit Analysis: Definition: Cost benefit analysis (CBA). and change this at any point in time. No personal identity information is returned as part of the response. based on the quality of service they receive. [Methodological Guide To Social Cost-Benefit Analysis. The process of implementation of a new subsidy regime has to be done in stages/phases so that the stack-holders can become familiar with it and so that their feedback is taken into account. An option is to conduct Aadhaar number seeding and authentication in the next phase. is a systematic process for calculating and comparing benefits and costs of a project. CBA has two purposes: 19 . Aadhaar authentication for authorizing electronic transactions: Aadhaar authentication is the process wherein Aadhaar number. Final Phase: Final integration could be the banking payment systems as it may take a while for the payment systems to gear up for direct transfer of subsidy.. So. Ensures one beneficiary has one number across subsidy programs. Apr. iii. The Securities and Exchanges Board of India (SEBI) has notified Aadhaar as a valid KYC document b. 4. The unique identification number stored within the centralized Aadhaar database offers potentially substantial benefits in subsidy delivery: i. their integration in the CSMS can commence as the next phase. Enables delivery of welfare benefits and subsidies through direct transfers into Aadhaar enabled Bank Accounts (AEBA) using the Aadhaar Payments Bridge. The costs and benefit of a decision should be calculated on the basis of real market 20 . Step 5: Evaluation of implementation of the selected alternative and to assess the success of implementation. b. It is determined if the problem is relevant for the State to address. e.e. To determine if it is a sound investment/decision (justification/feasibility). Apr. the Assessment of alternatives. Apr. Assessment of alternatives: [Methodological Guide To Social Cost-Benefit Analysis. Step 3: Identification of realistic alternative solutions to the problem. Principle: Cost-Benefit analysis evaluates costs C and benefits B for the project under consideration and proceeds with it if and only if. benefits match or exceed the costs. So here main focus would be on the fourth step i. It involves comparing the total expected cost of each option against the total expected benefits. Step 2: Determination of the public initiative goals. Apr. To provide a basis for comparing projects. c. ? ≥1 Usual Metric for Costs and Benefits: MONEY I. benefit and stakeholders that incur/receive them. The technique of cost-benefit analysis is in particular useful when making the fourth step of impact assessment as it allows the determination. Step 1: Identification of public policy problem. Step 4: Analysis of alternatives: In this step.2011] ?≥? ? i. II. to see whether the benefits outweigh the costs. assumptions and period of assessment.2011] It includes the following steps. Setting the scope. and by how much. That is: [Methodological Guide To Social Cost-Benefit Analysis. a. we evaluate the costs and benefits of each alternative when implemented. b.2011] a.e. Estimation of costs and benefit in monetary terms: The estimation of costs and benefits in monetary terms is the most difficult stage of the analysis. evaluation and comparison of the costs and benefit of different alternatives and the identification of the optimum solution to the problem. Steps of Cost Benefit Analysis: [Methodological Guide To Social Cost-Benefit Analysis. Identification and estimation of costs. d. saved lives. The economic value of such goods can be estimated using indirect value determination approaches – for instance. by revealing relative preferences of individuals with respect to them. We can use already available data related to costs and benefits from research papers and government documents. For instance. knowing about the deterioration of environmental quality an individual can agree to a monetary compensation of a certain amount. improvement or deterioration of environmental quality). nature preservation. 2012]. For instance. one can do a full scale cost benefit analysis. making a comparison with other similar goods with the market value. Where a good is not sold in the market the market price does not exist. when fully implemented [Ministry of Finance.000 crore.prices. in order to identify what impact on the welfare of the whole society (in the opinion of society members themselves) was made by the change (e. On the other hand. there is no market price for clean air. we can do preliminary analysis of the proposed scheme. The smallest amount an individual would agree to accept for negative consequences is his willingness to accept compensation. However. a consumer wishing to live in a cleaner environment may be willing to pay a certain amount of money for that. offsets the damage caused to his welfare. Cost Benefit Applied to Direct Benefits Transfer Scheme: From the above obtained know-how about Cost Benefit Analysis.g. situations are frequent when the market prices cannot be used for public intervention assessment. etc. The largest amount of money he would agree to pay expresses his willingness to pay and shows how an individual estimates the improvement of environmental quality compared to other goods and services he would acquire for the same amount. Once data is available in detail. in practice. The aggregated willingness to pay or accept compensation reflects the estimation of the change in welfare in terms of money. i. It shows how an individual estimates the deterioration of quality in the context of other goods that can be acquired for money. Estimation of Costs to government: Estimates of volume of last-mile Government payments: -Assuming that Government pays a transaction fee for all last-mile payments to banks at the rate of 3. 21 . the total transaction fee could be approximately Rs. It is assumed that consumers can estimate the significance of non-market goods for their welfare. Willingness to pay for non-market goods or accept a compensation for negative consequences differs between individuals.14% with a cap of Rs. it is necessary to aggregate the willingness to pay for non-market goods or accept compensation for incurred damage of all the individuals affected by the change.5.20 per transaction into Aadhaar-enabled accounts. in his opinion. Therefore. which. 250 / transaction) 250 23. As per this analysis.000 average transaction amount) 1.00 1. 2012].200 / transaction) 200 20.40 648 Fertilizer Subsidy (10. the network operator. The transaction fee is shared by three stakeholders: the issuing bank.98.500 / transaction) 500 13.67 13 MGNREGS (Rs.20 per transaction is recommended.000 9. The transaction cost is estimated at 3.000 14.000 60.000 165.00 220 Social Security & Welfare – Ministry of Women & Child 1.The cost of last-mile Government payments through BC sub-agents is estimated.000 0.in/reports/Report_Task_Force_Aadhaar_PaymentInfra. 22 . A cap of Rs.1.000 84.00 360 Food Subsidy (Rs.500.000 60.00 408 293.200 LPG subsidy (Rs.Assumptions Transaction fee as a percentage 3.500 / transaction) 500 7.00 640 NSAP pensions (Rs.3.000 9.000 32.000 18.000 413.14% Cap on transaction fee 20. the issuer should retain roughly 1/3 of the transaction fee.00 722 Kerosene subsidy (Rs. Source: http://finmin. which also includes technology cost at the last-mile [Ministry of Finance.000 32.000 20. and the acquiring bank. and pass on roughly 2/3 of the fee to the acquirer.000 26.1.000 54. 179.750 / transaction) 750 7.00 628 62.14% per transaction for an average transaction amount of Rs.000 9.00 Scheme Amount 2010-11 per Txn (Rs.40 5.crore) (crore) (Rs.crore) Civil service pensions (Rs.000 10.00 126 ICDS (Rs.000 per person / month) 3.000 / transaction) TOTAL Table 1. The analysis below estimates the total cost per account (issuing cost + acquiring cost) at Rs.332 Development (Rs.15000 / installment) 15.nic.750 / transaction) 750 24.8 crore farmer Hoseholds with Transactions Txn fee 3 transactions / farmer household) Rural Housing (Rs.33 187 NRHM (Rs.pdf Estimates of cost of last-mile Government payments: .200 / transaction) 200 4.00 180 SSA (Rs. 50 105.000 Account opening form printing Issuer Per account 1.200.500 Average annual cost per account Issuer 18.0 105. Source: http://finmin.000 Expense 945.500 Magstripe card (life of 3 years) Issuer Per account 10.050.0 0.nic.Assumptions No of BC sub-agents 150 No of accounts per BC sub-agent 700 Total number of accounts 105.0 105.0 105.17 Transaction cost Cost borne by Unit of Cost per No of Total Measurement Unit Units Annual Expense CBS cost Issuer Per account annually 39.000 Welcome pack / Financial literacy Issuer Per account 10.000 No of transactions per account per month 1 Average transaction amount One time account opening expenses 500 Cost borne by Unit of Cost per No of units Total Unit 9.000 device depreciated over 3 years) Acquirer Per MicroATM 667.000 23 .600 180.in/reports/Report_Task_Force_Aadhaar_PaymentInfra.000 1.000 Vendor cost per enrolment Issuer Measurement Per account Digitization of data and upload to CBS Issuer Per account 9.000 Card distribution Issuer Per account 10.6 105.000 157.000 1.050.722.000 315.20 Table 2.000 Network charge APB Network Per transaction 0.0 Cost of connectivity Acquirer / month Per MicroATM Acquirer / month Per transaction Cost of printing receipts 100.000 945.20.000 1.55 AEPS Network Per transaction 0.050.000 4.000 Card personalization Issuer Per account 5.pdf MicroATM (Rs.0 105.000 Total expense spread over 3 years Issuer 5.0 105.25 150 150 150 1.0 105.200.000 525. 0 administration overhead per MicroATM per month 150 150 900. 2012].Cost of FI switch Acquirer Per MicroATM / month 500.0 Total 1.000 Acquirer / month Per MicroATM 1.000 2.15 Network cost per transaction Network 121. Source: http://finmin.400.0 150 1.5 paise per transaction [Ministry of Finance.800.75 Total cost per transaction 15.74% Table 3.in/reports/Report_Task_Force_Aadhaar_PaymentInfra.85 Acquirer cost per transaction Acquirer 10.000 144.000.0 150 150 5.8 158.65% Acquirer's share of the transaction fee Acquirer 64.nic.600 BC network administration cost (Salaries of supervisors.) Acquirer BC sub-agent salary Acquirer Agent salary Cash management insurance Cost of cash management Training cost annually 1.700.000 12.pdf Cost estimates for Micro-ATM switching: .000 Acquirer / month Per agent 150 150. 24 .0 Total Annual Expense for Acquirer Acquirer Average annual cost per account Acquirer Total annual Issuer cost per account Issuer Account opening + recurring CBS costs Total annual Acquirer cost per account Acquirer BC network + MicroATM costs Issuer cost per transaction Issuer 4.17 121.500.000.14 % 30.8 1 APB + AEPS 0.000.789.000 Acquirer per month 3.A transaction analysis of the NPCI Aadhaar Enabled Payments System switch yields an average price of 19.0 Per MicroATM 80. office etc.71 Transaction fee as a share of withdrawal Issuer's share of the transaction fee Issuer 3.62% Network's share of the transaction fee Network 4. 31 0.95 6.04 0.94 Total 0 0 0.FY 2012.00 1.195 Table 4.58 0.nic.005 12.02 0.00 12 13 15 16 17 Cost of using Existing NFS switch + upgrades Item wise Cost 6.crore) Sl No Items CAPEX CAPEX Proposed Proposed Proposed Proposed Proposed Proposed in FY in FY CAPEX CAPEX CAPEX CAPEX CAPEX CAPEX 2010-11 2011.46 Business Model from April 2011 201011 (PoC) 2016-17 2017-18 Volume: 0 96 150 Aadhaar Enabled Payment System Aadhaar Authentication Volume: MicroAT M Switching Total Volume 3.16 0.00 25 .00 1.in/reports/Report_Task_Force_Aadhaar_PaymentInfra.FY 2013-14 FY 2014.95 6.crore) Total Total Total Total Total Total Proposed Incurred Incurred Incurred Incurred Incurred Incurred to be in FY in FY in FY in FY in FY in FY Incurred 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 in FY 2016-17 Proposed to be Incurred in FY 2017-18 DIRECT Total Capital & Operating Expenditure 3.00 Volume & Revenue Projections (All numbers in crore) 20112012-13 2013-14 2014-15 2015-16 12 (PILO T 0 3 12 24 48 Stage) Total 64.FY 2016.FY 2015.DIRECT TOTAL Expenditure for Aadhaar Enabled Payment System (Rs.16 0.97 7.15 Stage) charge 333.32 0 0 3.16 150.pdf DIRECT Capital Expenditure for Aadhaar Enabled Payment System (Rs.63 0.43 15.07 6.005 0.00 1.08 96.11 15.29 0.00 1.32 2016-17 2017-18 Average 0.10 Business Model from April 2011 201011 (PoC) Cost per Free of transaction charge Volume & Revenue Projections (All numbers in crore) 20112012-13 2013-14 2014-15 2015-16 12 (PILO T Free of 2.FY 2017-18 1 Capital Expenditure 1. Source: http://finmin.02 24.04 48.00 1.08 0. DIRECT Capital Expenditure for Aadhaar Payment Bridge System and Automated Clearing House (Rs.pdf Cost estimates for Aadhaar Payments Bridge: .crore) OPEX OPEX Proposed Proposed Proposed Proposed Proposed Proposed Incurred Incurred OPEX to OPEX to OPEX to OPEX to OPEX to OPEX to in FY in FY be be be be be be 2010-11 2011-12 Incurred Incurred Incurred Incurred Incurred Incurred in FY in FY in FY in FY in FY in FY 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 0.00 39.01 0.72 3.40 4.21 UIDAI NPCI Network connectivity Bank certification 0.00 2.06 0.25 3.2 Setting up basic 0.08 UIDAI authentication software 4 UIDAI-NPCI 0.18 0.00 11.46 24.in/reports/Report_Task_Force_Aadhaar_PaymentInfra.25 1.35 3.10 switch Total Capital Expenditure 1. marketing.60 3.00 1.35 3.00 0.60 11.00 ments to go from 20 TPS to 150 TPS 7 Upgrade to new 10.60 1.10 0.25 3.00 22.04 0.00 0.50 Cost (NPCINet) 6 Future enhance2.26 Item wise Cost 0.A transaction analysis of the NPCI Aadhaar Payments Bridge solution yields an average price of 54.00 2. 2012].08 0.2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 Total 12 26 .43 4.00 0.00 0.00 0.25 4.nic.10 1.25 3.97 8.00 0.00 10.50 0. Source: http://finmin.9 paise per transaction [Ministry of Finance.00 0.10 0.97 Table 6.60 3.00 2.10 0.) Total Operating Expenditure 1.35 3.00 2.10 0.25 3.60 3.00 20.85 0. Source: http://finmin.10 0.12 0.37 3.50 0.25 4.23 AEPS 3 Development of 0.50 0.00 1.in/reports/Report_Task_Force_Aadhaar_PaymentInfra.00 Table 5.97 0. etc.pdf Sl No Items 1 2 3 DIRECT Operating Expenditure for Aadhaar Enabled Payment System (Rs.nic.10 0.00 switch for high transaction volumes 8 AMC for AEPS 0.10 0.02 Network connectivity (2 DCs) 5 Bank Network 0.50 0.25 Other operational 1.00 costs (staff.00 2. crore) Capex incurred Capex Proposed / committed Sl No Items 2010-11 2011.15 0.23 0.50 3. 36 2016-17 2017-18 0.00 21.00 1.80 Total 2015-16 2016-17 2017-18 14.04 2.50 15.00 2.40 18.36 14.00 2.00 0.77 DIRECT Operating Expenditure for Aadhaar Payment Bridge System and Automated Clearing House (Rs.00 0.73 Total Capital & Operating Expenditure Business Model from April 2011 Volume: Aadhaar Transaction Processing Total Volume Business Model from April 2011 Cost per transaction Volume Projections (All numbers in crore) 2010-11 2011-12 2012-13 2013-14 2014-15 (POC & PILOT 0 0Stage) 0.00 0.28 0.00 0.00 12.00 0.75 1.30 0.17 23.50 2.549 27 .40 18.36 0.17 5.03 2.50 0.36 0.64 1.1 Capital Expenditure Cost of deploying APBS application 2 Capital Expenditure Cost of deploying ACH solution 3 Hardware & Software Upgrade 4 AMC for ACH Total Capital Expenditure 0.50 0.00 12.00 3.50 15.00 3.13 1.00 0.60 72.88 5.20 10.2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 Total 1 Direct Operating 0.36 7. crore) Cost Incurred Cost Proposed / Committed Particulars 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 Total DIRECT 0. crore) Opex Incurred Opex Proposed Sl No Items 2010-11 2011.13 1.75 3.00 0.14 3.00 21.25 4.75 0.26 Cost per transaction Projections (All amounts in Rs.47 0.35 1.00 2.00 0.39 0.00 0.13 3.75 3.43 2.00 2.50 2.29 0.00 0.93 0.00 14.00 0.00 0.50 2.00 0.14 0.) 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 (POC & PILOT Stage) 11.35 3.35 1.14 0.96 12 Costs (Inclusive of Data Centre / Bandwidth Cost and Other costs) Total Operating Expenditure 0.80 0.16 5.00 0.20 10.00 0.00 0.36 7.00 0.35 1.96 DIRECT TOTAL Expenditure for Aadhaar Payment Bridge System and Automated Clearing House (Rs.00 0.60 72.13 1.50 2.92 4.00 0.16 1.57 0.00 0.34 Average 0.35 0.36 12.67 39. 5332 Crore.96 B.03 6.427 10226 201920 3.00 0.5%.nic.2019.78 3.80 0.20 10. Source: http://finmin.90 12.50 40 6.nic.00 30 4.067 0. and with varying benefits as shown in the Cash flow Diagram below.00 50 7.00 1.688 7834 201819 3.80 14.30 0.17 0.15 20 3.00 0.45 2.35 0.e.202012 13 14 15 16 17 18 19 20 21 Benefit/Cost 0 0.566 11150 0 87 214 419 821 1609 3154 3863 3786 3710 0 32 80 161 321 643 1286 1607 1607 1607 0 18 47 95 195 397 810 1032 1053 1074 0 356 908 1853 3780 7719 15772 20155 20622 21107 Table 8.Particulars APBS Volume (in crores) Year 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 Assumptions Account Linked Aadhaars Transactions per month Interbank transactions 15 % of Total Aadhaar issued 2 times in a month 10% of total monthly tranx Aadhaar No Volumes 1 0. annual cost of the project is constant and equal to Rs. 2012] 201112 0 0 201213 61 158 201314 155 412 201415 317 861 201516 646 1797 201617 1.2017. Nov.2016.2012. Internal Rate of Return: Here with the assumption that cost per year i. the calculated IRR of the project comes out to be 19.20 15.00 21.2014.in/reports/Report_Task_Force_Aadhaar_PaymentInfra.60 Total Per Year Table 7. Source: http://planningcommission.pdf ii.40 18. Scheme|Year MGNRES PDS Fertiliser Subsidy LPG Subsidy Other schemes Total Estimation of Benefits: All figures in Rs. Benefit to Cost Ratio: The Benefit to Cost ratio is found by dividing Total Benefits from Table 8 with Total Costs found from Table 1 for each year.2018.60 9.2015.2013.00 1.00 1. 28 .96 3.50 60 9.50 18.87 3. Crores [National Institute of Public Finance and Policy.318 3752 201718 2. Scheme|Year 2011.in/reports/genrep/rep_uid_cba_paper.00 0.71 1.496 10680 202021 3.36 7.pdf iii. Thus. 2012 . The government would have to ensure the availability of direct cash to the beneficiaries by negotiations with banks.5%. In any public project. which is much higher than the present interest rates as well as inflation rate. it can be seen that the expected costs outweigh the expected benefits in the period.2016 and the situation reverses thereafter. and the Incremental Rate of Return (IRR) of the project is 19. For example. D. 29 . As the expected benefit to cost ratio surpasses 1 after 2016. it is viable for the government to undertake this project and improve the subsidy regime and fund channelisation in India. Observations: As is clear from the results.C. the complex technical background would take both time and a large sum of money to set up. Conclusions: The above observation is not at all surprising in public projects. Same is the case with this kind of project which has to be implemented on such a large scale. assuming that the Direct Benefit transfer scheme starts in the session 2011-12 in India. money has to be invested initially and only when the project is fully functional are the profits realised. This violation of the One Product One Price principle 30 . restarting and modifying a program that the UPA government had begun and then suspended.5. II. This constraint has been significantly eased by the Pradhan Mantri Jan Dhan Yojana. Commercial establishments are ineligible for the subsidy and must pay market prices plus central and state taxes of about 30 per cent on average. Currently over 151 million beneficiaries receive LPG subsidies via DBT. DBT India 2016. The current government launched the Pahal scheme in late 2014 and early 2015. and R29.000 crore have been transferred to beneficiaries to date. II. B. at an astonishing rate of over 4 million cards per week. The current government has built on the previous government’s support for the Aadhaar program: 210 million Aadhaar cards were created in 2015. III. Households could buy LPG cylinders at subsidised prices (~Rs 430). JAM . basic savings account penetration in most states is still relatively low.JAM Fig: Increase in Jandhan and Aadhar numbers.DBT in LPG Pahal scheme directly transfers LPG subsidies into customers’ bank accounts. under whose auspices nearly 120 million accounts were created in the last year alone— at a blistering. the unbanked rather than unidentified may serve as the bottleneck. I. Despite Jan Dhan’s 2 record-breaking feats. Thus. Progress in factors I. 975 million individuals now hold an Aadhaar card – over 75 percent of the population and nearly 95 per cent of the adult population Every beneficiary needs a bank account. A. record-setting pace of over 3 lakh accounts per day. JAM in LPG has succeeded in reducing leakages rather than excluding the poor. IV. as Figure 9 illustrates.III. Because March is the end of the fiscal year. distributors have strong incentives to invoice unconsumed subsidised cylinders to households and resell them in in the black market. so reducing the household cap will be unlikely to hurt the poor. there is a well-known ‘March problem’ in LPG. with DBT in place. Sales of subsidised domestic cylinders fell by 24 per cent when the scheme was introduced and spiked when the scheme was suspended by the UPA. Pahal had a similar impact: a 27 per cent reduction in sale of subsidised cylinders. Now. Households buy at market prices (currently ~Rs 670). we estimate that the potential annual fiscal savings of Pahal will be Rs 12700 crore in a subsequent FY. Another reform that could further reduce LPG leakages with limited genuine exclusion is lowering the household cap from 12 to 10. the government identifies beneficiaries by linking households’ LPG customer numbers with Aadhaar numbers to eliminate ‘ghost’ and duplicate households from beneficiary rolls . Moreover. V. Table 4 shows that even the richest households— the top 10 per cent—typically do not consume more than 10 cylinders per year. Based on prices and subsidy levels in 201415. and have the subsidy credited into their bank account within 3 days. provides strong incentives for distributors to create ‘ghost’ household accounts and sell subsidised LPG to businesses in the black market. 31 . meaning more people can demand a cut to secure the release of funds. making 32 . Float: idle funds accrue interest costs for the central government since this is borrowed money. The old MGNREGS system (and the current system for most schemes) has 4 major problems: 1. disbursals were based on forecasted expenditure. Leakages: funds had to pass through multiple layers. Accounting happens ex-post and in aggregate. The new system keeps funds in a central pool and only disburses expenditure in real-time. Outside of MGNREGS. 2. Source: Economic Survey 15-16. II. the estimated stock of unspent balances in government accounts is at least Rs 1 lakh crore and leads to an annual cost of Rs 8500 crore. III. and funds sat idle in local government accounts till expenditures were incurred—though MGNREGS has reformed its system.Fig: Consumption of Cylinder per month. I. C. reducing float by 26 per cent. MNREGA and DBTS In the old system. with idle funds in some accounts and shortages in others. Based on these considerations. Policy makers should decide where next to JAM based on these considerations: • Size of leakages: JAM significantly reduced leakages in LPG and MGNREGS with limited exclusion of the poor. subsidies are transferred to beneficiaries in cash. Resource-intensity: scheme managers spend valuable time haggling with officials at higher administrative units. • Central government control: when introducing JAM. beneficiaries certify their identity using Aadhaar and then physically take the subsidised goods like today. usually do not return. The returns from pursuing JAM in other areas depends on the size of leakages in those sectors. We consider two JAM options: DBT and BAPU— Biometrically Authenticated Physical Uptake. once disbursed. The Table below shows that this combination is met for fertiliser and within-government fund transfers. and political challenges in bringing the supply chain interest groups like Fair Price Shops on board with DBT. when designing DBT schemes in other areas. What Next for DBT? I. DBT in LPG has generally been a big success. 33 . Misallocation: funds. Several features of LPG made it conducive to the application of JAM. so forecast errors lead to misallocation of fiscal resources. 3. Similarly. even if a neighbouring panchayat has available but unused funds. 6. caution should be exercised in drawing lessons from the LPG case. businesses must haggle with programme managers and face arbitrary requirements to receive payments. With DBT. The new system reduced leakages by 14 per cent and fund disbursal by 38 per cent even though a household survey showed no change in the amount of work done in MGNREGA. With BAPU. This leads to scheme shortages for beneficiaries in some panchayats. II. Subsidies with higher leakages have larger returns from introducing JAM. and policymakers in other areas are understandably keen to emulate its success. Table 5 presents a framework to help policymakers decide whether—and how—to pursue JAM in various policy areas. 4. both internally and for vendors. However. policymakers will confront administrative challenges in coordinating central and state government departments. who often demand arbitrary documentation to release funds.monitoring difficult. The reform has eased the burdens in doing business with the government. the policy areas that appear most conducive to JAM are those where the central government has significant control and where leakages— and hence fiscal savings due to JAM—are high. Table: Spread of JAM across Indian Economy [Economic Survey 15-16] 34 . Beneficiaries verify their identities through scanning their thumbprint on a POS machine while buying the subsidised product—say kerosene at the PDS shop. IV. It can be done to reduce leakages in the meantime. Despite financial inclusion scores being low. while banking correspondent networks develop and mobile banking spreads. 35 .JAM preparedness index – Rural III. This is being successfully attempt by Krishna district in Andhra Pradesh. with significant leakage reductions. if Fair Price Shops are equipped with POS machines. One possibility would be what we call BAPU—Biometrically Authenticated Physical Uptake. beneficiaries can simply authenticate their identities while taking their rations as under the current system. BAPU preparedness is much better than for Rural DBT preparedness. Hence. The banks are supposed to use the Aadhaar to fulfill their KYC (Know Your Customer) norms. and through the fact that others will have the cash to buy food which would keep the food prices high. II.run banks have refused to bear any liability for transactions done with any customers authenticated through the UID mechanism. CHALLENGES A. June 2011]. or in a post office. Even if it is made sure that cash transfers will work in a way that meets these difficulties. IV. the government will have to provide some incentives and assurances to these banks so that the direct cash transfer process is not disrupted for long and can start on time [Direct Cash Transfer: Part 2. there is a serious “last-mile” problem of getting money from banks. Bankers will have to face problems arising out of fake accounts and cope with gigantic numbers of cases of nonpayment or short payment to villager through ATM and they will have to sacrifice their core banking activities related to lending and ensuring of quality lending to stop rise in bad assets. In rural India. The Indian Economist RSS accessed on 8 Apr. In the case of kerosene and LPG for instance. VI. An article headed “Cash Transfers face Identity Crisis” was published in the Times of India. According to it. 2013]. The Indian Economist RSS accessed on 8 Apr. there may still be a serious problem of transition. VII. including distributional issues. as well as the adequacy of the amounts of cash transferred [Direct Cash Transfer: Part 2. however. the poor who fail to open an account adequately fast. 7. complex.I. Challenges for electronic payments: Various challenges are there that are deterrents to the use of electronic payments: [Ministry of Finance. it could be a challenge. IT intensive projects often requires specialized skills and manpower. The transition problem need not be impossible to handle. 2012] 36 . and any delay in the period of transition may plunge some people into extreme hardship. the subsidised food disappears. several State. Technical Execution and monitoring of such large. bearing in mind that many of the poorer Indians lead a life of hand-to-mouth existence. a difficult job on part of the policy makers Operational problems may also arise with respect to banking and online connectivity. If. Hence they are not willing to bear any liability for any fraudulent transactions that may occur against accounts created using Aadhaar. for one reason or another will lose doubly through not having the cash yet. Correct identification of the beneficiaries is also an important piece that needs to be fixed [Ministry Of Finance. So. to receive the cash transferred. especially if there is a time lag in opening an account in a bank. But they have expressed concern that the details in Aadhaar are verified by third party non-government operators and agencies to whom UIDAI has outsourced work. meanwhile. All this is in addition to the long-run problems of the modality of cash transfer. 2013]. III. but attention will have to be paid to that. where the methodology will need to change from giving the subsidy to the supplier to giving it to the user. into household’s hands: only 27 per cent of villages have a bank within 5 km 3 . V. Arbitrage opportunities may otherwise spring up. Fungibility: Cash is fully fungible. 2010] II. Once received. it can be used to make any other payment. Dr. V. Stephen and M. it is possible only in few scenarios till now. there is all possibility of subsidy meant of poor misused for giving bribe to voters of ruling party. I.a. d. But real 37 . 2013]. Eminent economist and Nobel Prize winner Amartya Sen. As long as GOI do not finalize the list of BPL. June 2011]. b. sounded a note of caution in cash transfer of food subsidies. c. Sen said the transition delays in cash transfer could cause extreme hardship to people. Transaction cost: Typically. beneficiary of the scheme is used to be decided by agents and political workers of the ruling party so will be case for giving DCT scheme. which may be exploited by anti-social elements at the expense of the common man [Ministry Of Finance. only 58% know about the level of benefits While only about 8% know details of the eligibility criteria and the process of application. H. III. Puja. eligibility criteria and sanctioning authority. either the consumer or the merchant bears the cost of an electronic payment which is explicitly charged to someone in the value chain. saying direct access to food often helps reaching nutrition to children and girls. Consumer acceptance of retail electronic payments is challenging. Government will be under pressure to enhance quantum of subsidy year after and the political parties may use the same to enrich their vote bank at the time of election. Social Statistics show that: [D. Qualitative work also indicates high awareness of the scheme but not of the application process including required documents. Non-repudiation: . As in MNREGA scheme. But in case of Electronic payments.In case of cash transactions. the settlement is instantaneous. VI. B. The Indian Economist RSS accessed on 8 Apr. is difficult. IV. The policy makers will have to ensure that the subsidized goods are sold at the same price everywhere across the country. many of whom lead a hand-tomouth existence [The Hindu. 35% of the beneficiaries know virtually no details of the scheme. Identification of families which are Below Poverty Line (BPL) and which are supposed to be the real beneficiary of Direct Cash Transfer (DCT) scheme of the government. 2013]. even among several Sarpanches (village government heads) interviewed. Political workers of the party in the village will play the pivotal role in sending and recommending the name of beneficiaries of cash subsidy as also in opening of no-frill accounts in banks [Direct Cash Transfer: Part 2. There is no foolproof method in vague which can guarantee extending of cash subsidy to real poor. accessed on 8 Apr. Rinku. But when the subsidy is given as cash directly it may benefit adults and boys more due to biased social priorities in Indian society. 2012]. The Indian Economist RSS accessed on 8 Apr.Information collected when issuing Aadhaar may be misused if safeguards to maintain privacy are inadequate.VII. Pensioners might have to pay bribes at the time of joining or during the year to receive the pension. ‘ghost’ beneficiaries and people with multiple cards will choose to opt out of the Aadhaar system. Statistics and Multiple Scaffolding. Rinku. VIII. This is the weakest and the most muddled link because of the possibility of corruption and cash misallocation [Ministry of Finance. the authority is required to maintain details of every request for authentication and the response provided. e. II. c. Last Mile. but still might not be receiving their pension in full. Also. Data that has been recorded over a long duration of time may be misused for activities such as profiling an individual’s behaviour. It cannot address problems of MNREGA like incorrect measurement of work and payment [Direct Cash Transfer: Part 2. H. [Direct Cash Transfer: Part 2. poverty will end only by enhancing the capacity of poor to produce more and more to contribute to real GDP [Direct Cash Transfer: Part 2. or even in part. India does not have a specific law governing issues related to privacy. key schemes such as PDS suffer from large inclusion and exclusion errors. but may not be eligible. IX. The success of Aadhaar in weeding out ‘ghost’ beneficiaries depends on mandatory enrollment. Aadhaar cannot address errors in targeting of BPL families. the cash transfers go to the bank. 38 . The Indian Economist RSS accessed on 8 Apr. 2010] a. Pensioners might be enrolled. Economical In case of benefit transfers like that of pensions: [D. Authentication data provides insights into usage patterns of an Aadhaar number holder. If enrollment is not mandatory. However. Enrolled pensioners might not be missing. or have moved or died) there is the risk that fraudulent pension recipients are receiving the pension in their stead. In such a scenario. Furthermore. GOI has seen a lot of controversy on usage and accessibility of Aadhaar Cards and hence success of DCT scheme will remain a remote possibility and at best remain confined in few districts. I. or that someone else is cashing in one of the money orders. Though the Supreme Court has included privacy as part of the Right to Life. both authentication systems (identity card based and Aadhaar based) must co-exist.Finally. Duplicate records in the administrative database of pensioners lead to the possibility that a pensioner is overpaid. b. 2013] C. If enrolled pensioners are not receiving payments because they are ‘missing’ (either do not exist. d. Safeguard for Maintaining Privacy. Puja. given scheme guidelines. The last mile between the bank and the customer is designed to work through a business correspondent (BC). 2013]. The Indian Economist RSS accessed on 8 Apr. 2013]. selection of which will depend on whims of politicians ruling this country. Stephen and M. They may also purchase some perishables (e. For example some fixed set of beneficiaries can be paid on 1st others on 2nd. vaccines. II. This roll-out of payments over time presumably will have the benefit of reducing lines at the withdrawal points and smoothing out impacts on local economies.g. In less well developed marketing systems and areas with little competition. by providing a minimum level of income for extremely poor families. 3rd and so on till 10th. This is because no-frills accounts in these areas do not fit in with their business model [Ministry of Finance. and (b) breaks the inter-generational transmission of poverty by conditioning these transfers on beneficiary compliance with human capital requirements e. Beneficiaries commonly do their monthly purchases upon receiving benefits. The Education and health services are not universally available and thus 39 . As it is evident from the example of Brazil. and studying the various aspects of its implementation in India. 2012]. the woman is considered as the legally responsible beneficiary and is given all the payments. staggered disbursements could be a useful way to guard against price spikes or supply bottlenecks in local stores. meat. then the women and children will be worse than before due to unavailability of nutrition. school attendance. India can also implement a similar model so as to improve the HDI index and to eradicate the poverty from its root. Most of the cash transfer schemes implemented around the world are conditional and involve conditionalities imposed on the beneficiaries to follow. we propose the following suggestions to improve the Indian model: I. Amartya Sen has rightly pointed out that if the scheme is implemented in its current format. Hence.III. 8. in India too. what India lacks as comparison to the other countries is the lack of strong supply side. Most important of all. the payments are utilized in a more efficient manner for the benefit of whole family. SUGGESTIONS After reviewing various Cash Transfer schemes implemented throughout the world. where. fruits and vegetables).g. grocers could potentially face supply bottlenecks if swamped with a sudden increase in demand if all beneficiaries received payments the same day. III. In small communities with relatively large numbers of beneficiaries. on similar grounds.. Benefits should be credited on a rolling basis on a pre-specified day each month. pre-natal visits. Banks have been reluctant to come to rural areas. But some developments have to be made in the system prior to addition of conditionalities. milk. They should be paid out over a span of some days in each month like from 1st to 10th of each month. Conditionality carries the following befits: (a) reduces current poverty and inequality. by law. the payments should be made to the women to empower them socially in the otherwise oppressive scenario. and middle-mile factors and leakages are high. The example of MGNREGS highlights that delivering within-government transfers via JAM can help other centrally sponsored schemes reduce idle funds. Fertiliser and within-government transfers stand out as good candidates. because of the differential tax treatment of “commercial” and “domestic” LPG. Hence the government should make these basic services universally available so that later conditions can be imposed in the direct cash transfer scheme. n. In that sense. should be highly publicized by the government. The central element in the success of Cash transfer scheme is to ensure that beneficiaries about the scheme. Coady. Nov. 2000. and LPG leakages have reduced by about 24 per cent with limited exclusion of genuine beneficiaries. Meanwhile. [3] "Direct Cash Transfer Scheme. the JAM agenda is currently jammed by the last-mile challenge of getting money from banks into beneficiaries’ hands. IV. especially in rural India. In the meantime models like BAPU offer the prospect of lower leakages without the risk of exclusion errors. CONCLUSION I. The centre can invest in last-mile financial inclusion via further improving BC networks and promoting the spread of mobile money. 9. 40 ." The Indian Economist RSS. lower corruption and improve the ease of doing business with government III. IV. LPG subsidies almost entirely benefit the well-off. In other words. This will not necessarily be inequitable because.p. radio. and therefore merit serious consideration.P. its aspects and methods to receive funds etc. The use of Aadhaar has made black marketing harder. diversion of LPG from domestic to commercial sources continues. However. REFERENCES [1] Economic Survey -Volume I. “The Application Of Social Cost-Benefit Analysis To The Evaluation Of Progresa”.Spreading Jam across India's Economy [2] D.d. Diversion could be further reduced by equalising taxes across end-uses. Despite huge improvements in financial inclusion due to Jan Dhan. The Pahal scheme has been a big success. the centre should prioritise areas where it has the highest control over the first. the JAM preparedness indicators suggest that there is still some way to go before bank-beneficiary linkages are strong enough to pursue DBT without committing exclusion errors. Regulations governing the remuneration of BCs may need to be reviewed to ensure that commission rates are sufficient to encourage BCs to remain active..putting the conditions based on these factors will be unfair. N.A Game Changer? PART 1. II. The particulars of the schemes. the One Product One Price principle is still being violated. billboards and in newspapers. The recent licensing of banks will help. on television. " Direct Cash Subsidy and Its Impact in the Indian Context. n.p. N.. 2011. H. 8 Apr. 8 Apr." UPA's Direct Cash Transfer Scheme Faces Many Challenges. 2012. “Small but effective: India’s Targeted Unconditional Cash Transfers”. “Cost-Benefit Analysis in a Nutshell”. Nov.d. “Report of the Task Force on an Aadhaar-Enabled Unified Payment Infrastructure”.p. Rachel.d. [6] Ministry of Finance. 2012. N. 8 Apr. <http://theindianeconomist. <http://www. 8 Apr. Puja. but Are Not a Magic Bullet" The Hindu. Apr. 8 Apr. Rinku. 2013. Bernd and S.p.aspx>. [11] D. [14] "UPA's Talk Show.ece>. LPG and Fertilizers”. L. University Of Cambridge. ASARC Working Paper 2010. Web. 9.p.d.com/in/en/issuesandinsights/articlespublications/kbuzz/pages/gov. May 2007...com/opinion/interview/cash-transfers-can-help-makeindia-less-unequal-but-are-not-a-magic-bullet/article4291270. Jason and Bénédicte de la Brière..Web. 41 .in/story/direct-cash-transfer-faces-many-implementation[15] Ministry of Finance. <http://businesstoday. Web. 2013.intoday. N. [12] "Cash Transfers Can Help Make India Less Unequal. [5] Lindert. n. <http://www. Web.com/direct-cash-transfer-part-2/>. 2013. “Interim Report of The Task Force on Direct Transfer of Subsidies on Kerosene.P.d.thehindu. H.com/direct-cash-transfer-scheme-a-gamechanger-part-1/>. n. Stephen and M. National Institute of Public Finance and Policy. World Bank. “Social Cash Transfers in Low-Income African Countries: Conditional or Unconditional?”. [9] “A cost-benefit analysis of Aadhaar”. [4] "Direct Cash Subsidy and Its Impact in the Indian Context . [13] S. n. <http://theindianeconomist. 2013. feb." The Indian Economist RSS. [8] Rufus E. [10] "Direct Cash Transfer: Part 2. [7] “Methodological Guide To Social Cost-Benefit Analysis”. Social Protection Discussion Paper. Anja. Web. “The Nuts and Bolts of Brazil’s Bolsa Família Program: Implementing Conditional Cash Transfers in a Decentralized Context”. N. June 2011. 2013. 26.kpmg. Development Policy Review 2006.
Report "Direct Benefit Transfer Scheme in India.pdf"