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Cash is not always the king


Operational hurdles may come in the way of effective implementation of the direct benefit transfer under the relief package for the poor

Milton Friedman must be a source of inspiration for Nirmala Sitharaman. Probably taking a cue from the term “helicopter money” coined by the American economist in the late sixties of the previous century, the Union finance minister has decided to hand out some amount of cash to certain vulnerable sections of the society to help them survive the coronavirus crisis.

While Friedman used the term helicopter money to illustrate the effects of monetary expansion, Sitharaman applied the concept, in her own way, while announcing the Rs 1.7-lakh-crore relief package under the Pradhan Mantri Garib Kalyan Yojana last week.

As part of the package, 20 crore women Jan Dhan account holders will get Rs 500 per month for the next three months. This apart, an ex-gratia of Rs 1000 for three crore poor senior citizens, poor widows and poor disabled will be given, while MNREGA wages have been hiked to Rs 202 a day from Rs 182, benefitting 13.62 crore families. The government will also front-load Rs 2,000 paid to farmers in the first week of April under the existing PM Kisan Yojana to benefit 8.7 crore farmers.

While the relief package incorporates many other measures, the steps mentioned above involve direct transfer of cash, the success of which crucially hinges on operational smoothness. Since the cash handouts will be made through Aadhar-linked bank accounts, the challenges of disbursement have to be addressed quickly to make the relief measures meaningful.

In an interview to Business Standard, Belgian-born Indian economist Jean Drèze succinctly explains the logistical and operational hurdles to direct cash transfer. He argues that poor people generally don’t have access to fancy payment systems like Paytm or even ATM cards. To withdraw cash from their bank accounts, they depend primarily on bank counters and their outposts, called business correspondents. But the business-correspondent system is a health hazard at this time, because it is based on fingerprint authentication. If business correspondents are out of work, there is going to be a big rush to the banks as soon as the lockdown is relaxed. The banks will be jammed, much as it happened after demonetisation.

“If the people are unable to withdraw money from their accounts, what is the use of cash transfers?” 

Drèze asks.
Drèze’s poser is definitely a matter of concern. According to available data, out of the 230,000 ATMs in the country, about 46,000 serve roughly 6.5 lakh villages. Of the one million business correspondents or Bank Mitras, only 30 per cent are reportedly functioning. The other challenges include inadequate cash in ATMs, operational efficiency of the Aadhar-based payment system (in sone zones the failure rate is as high as 45 per cent) and the low acceptance of digital payments in rural areas.

It has to be kept in mind that the direct benefit transfer (DBT) model depends on the JAM (Jan Dhan-Aadhar-Mobile) architecture to directly remit government-sanctioned welfare funds to beneficiary bank accounts. But the problem is that many, especially migrant workers, do not have Jan Dhan accounts. By a rough estimate, there are little over 30 crore Jan Dhan accounts, of which around 80 per cent are operative.

So how will relief funds reach those who do not have bank accounts? Moreover, what happens to the beneficiaries of the inoperative accounts? While the answers are anybody’s guess, it is apparent that simply loading bank accounts of poor people with cash will not alleviate their hardship in this trying time. It is like stocking up the armoury to fight the Covid-19 battle without commissioning the foot soldiers.

In the absence of any directions from the finance ministry, it will perhaps require coordinated efforts of the entire banking and payments ecosystem to reach out to the targeted beneficiaries for the transfer of relief funds.

As Drèze puts it: “The biggest gap in the finance minister’s relief package is support for emergency assistance to people at risk of hunger. Most of the measures she announced will take effect after the lockdown. By that time, millions of people will be starving unless they have access to emergency assistance.”

The fact is even if poor people can lay hands on the dole offered by the government, they are not going to chew on cash. They need to use the cash as a medium of exchange to buy food and provisions. With the supply chain of essential commodities in complete disarray at the moment, the moot point is how will the poor get access to their daily provisions.

Emergency aid in the form of feeding centres, distribution of dry food packets and take-home rations and emergency funds with gram panchayats could have been far more effective steps at this critical juncture.

Instead of putting cash in the accounts of the poor people. If Sitharaman could have arranged for airdropping food packets and emergency provisions in rural and remote areas, she would have perhaps done better justice to Friedman’s parable in this moment of crisis.

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