Expert Zone

Straight from the Specialists

The burden of India’s cash transfer scheme


(The views expressed in this column are the author’s own and do not represent those of Reuters)

The government’s cash transfer scheme (CTS) has been accepted by economists as the most  efficient method of delivering subsidies to the poor. This became possible with the identification of the poor after the introduction of “Aadhaar” or unique identity scheme. The scheme is going to be implemented from the beginning of 2013.

The Congress party is excited because the scheme can prove to be an excellent vote magnate magnet. Cash in hand is a good enough incentive even if it is in replacement of invisible subsidies. UPA-II came to power mainly on the basis of a loan waiver to farmers which cost the government 600 billion rupees. Possibly, CTS would not need any additional outlays and may actually reduce the burden on the exchequer. The opposition Bharatiya Janata Party has been quick to understand the scheme’s political appeal and is protesting its introduction for one reason or the other.

A pilot project for CTS was started a year back in Kotkasim block in Rajasthan that has 25,000 households. Preliminary results indicate that the scheme was a flop. It was intended primarily to replace the state subsidy of 14 rupees per litre on kerosene. With the withdrawal of the subsidy, prices increased while the cash transfer got delayed or did not take place at all. The government did not have in place an efficient system to replace subsidy by cash delivery. That is likely to happen when the scheme is extended to 51 districts from January 1.

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