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Second phase of cash transfers may cover jobs scheme- Surabhi Agarwal, Kirthi V Rao and Elizabeth Roche
-Live Mint

Attempt to broad-base direct benefits transfer plan may help shore up the Congress’s standing among rural population

The Congress-led United Progressive Alliance (UPA) government plans to include its flagship rural job guarantee programme in the second phase of its ambitious direct benefits transfer (DBT) plan, under which beneficiaries of social welfare programmes will receive money directly in their Aadhaar-linked bank accounts.

The attempt to broad-base the cash transfer plan before several state polls this year and the general election due in 2014 may help shore up the Congress party’s standing among the rural population— the vote bank that helped it win back-to-back terms in 2004 and 2009. It will also provide much-needed momentum to the programme.

Rural development minister Jairam Ramesh confirmed that beneficiaries of the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) will be covered in the second phase of DBT.

The cash transfer plan, billed as a potential game-changer, will leverage the post office network to deliver the jobs scheme’s payments directly to beneficiaries. More than half of the 86 million MGNREGS accounts that have been opened in the postal system will be upgraded to the Aadhaar-linked payment bridge required for cash transfers.

With the post office network becoming interoperable, these accounts will provide cash transfers the so-called last-mile connectivity that’s crucial in reaching the people at whom DBT is targeted. India Post has a network of 150,000 offices across the country, giving it an edge over the conventional banking system that’s still struggling to improve its rural reach.
 
Ramesh confirmed that post office accounts are set to become interoperable by June, which will make it possible to migrate the accounts to the Aadhaar-linked bank account platform required for cash transfers.
 
The jobs scheme will likely come on-board DBT after the postal system is networked.
 
MGNREGS, which comes under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) passed in 2005, was one of the factors credited with bringing the UPA back to power for a second time in 2009. The scheme assures at least one member of every rural household 100 days of work every year at government-mandated wages.

The government has budgeted a spending of `33,000 crore on the programme in the fiscal year that starts on 1 April.

Praveen Chakravarty, chief executive officer of Anand Rathi Financial Services Ltd, said the lack of banking facilities in rural areas and absence of interoperability in the postal system had in the past created hassles for workers who would lose an entire working day to withdraw money from far-off bank branches.

“So from the government’s point of view, this linkage will mean weeding out the fakes and the fraud from the system, and from the worker’s point of view, it means better and easy access to wages,” said Chakravarty, who has worked on several financial inclusion initiatives of the Unique Identification Authority of India (UIDAI) that’s overseeing the Aadhaar project.

When the post office network is enabled with the so-called core banking solution, or CBS, it will put post office accounts at par with bank accounts in terms of facilities such as the withdrawal of money, mobile banking, Net banking and so on, apart from making them accessible from anywhere in the country.

Also, linking the job guarantee scheme with Aadhaar is expected to weed out instances of misuse, including one individual benefiting several times from the scheme.

“I do not know how far it will benefit the Congress politically, but it will benefit the people economically,” said Sanjay Nirupam, a Congress member of Parliament in the Lok Sabha. “We have to ensure the money reaches the real and actual beneficiaries. Currently, reports show that around 20-25% money is leaked into some other hands and including the scheme in the DBT project will remove these anomalies.”

The inclusion of MGNREGS in DBT over the next three months would mean an addition of around 19.4 million people to the list of existing beneficiaries of the cash transfer plan. So far, 26 government welfare payments, mainly pensions and scholarships, have been delivered through DBT.

A senior government official, who is closely involved with the project, said the department of posts was “very actively pursuing” the goal of making its network interoperable to enable MGNREGS to be included in DBT.

“We are looking forward to the post offices joining the system as it would fill a major gap,” said the official, who spoke on condition of anonymity.

A senior official in the department of posts added that the first phase of the roll-out of CBS had been planned to ensure that the 51 districts under DBT are covered by June this year.

“We are enabling 100,000 post offices with Motorola hand-held devices and 30,000 with Netbooks so that the payment under the DBT can be delivered at the doorstep of the people by the postmaster,” said the official, who also requested anonymity.

The official added that software services firm Infosys Ltd had been awarded the project and all the post offices in the country were expected to be covered by June 2014.

Economist Reetika Khera said making postal accounts interoperable through CBS was an idea that should have been thought of two years ago.

“I was in Mandla recently where the administration, which has a CBS connected bank account, sent a cheque to the branch post office, which had to send the cheque back to the head post office for clearing. As a result of this back and forth, often, workers get their wages with a delay of 10 months,” she said.

But extending the Aadhaar-linked payments system to MGNREGA may not have a significant impact on perceived corruption in the programme, Khera said.

“Leakages in MGNREGA are due to (a) extortion by officials, (b) collusion between officials and beneficiaries and (c) collusion between officials and post office officials who operate labourers’ accounts. The latter is the only case where UID (unique identity under Aadhaar) can help—in these cases there is always a danger that people will start using the first two methods,” she said.
 
According to data from the ministry of rural development, around 86 million bank/post office accounts have been opened under MGNREGS and around 80% of payments are made through bank accounts.

However, according to a different set of statistics, the percentage of workers registered under the jobs scheme who have been issued Aadhaar numbers in the 46 districts where DBT is being rolled out is only 6.6%. A meeting is being held on 20 March in New Delhi to accelerate the implementation of DBT in these 46 districts.
 
Under the DBT project, the government envisages transferring welfare and subsidy payments directly to the accounts of beneficiaries linked to the unique identity numbers being issued under Aadhaar. The ostensible aim is to make sure that the benefits reach the poor for whom they are meant and to reduce corruption by cutting out middlemen.

Liz Mathew contributed to this story.