A “game changer for poor people”…?

In January, the Indian government began the ‘Direct Benefit Transfer’ program paying its citizens cash directly into their bank accounts for scholarships, old age pensions, and rural employment guarantees (100 days of employment doing unskilled manual labor for minimum wage) among others. The Indian Finance Minister P. Chidambaram called it a “game changer for poor people.”

India spends $58 billion of their $310 billion total budget on social welfare payments to the poor. However, an unknown percentage never reaches its intended targets. The fraud in the system is endemic and money is frequently stolen or withheld from the people who need it.

But will this system actually work?

Based on similar systems in Brazil, South Africa and Turkey among others, it has been a relative success in those countries. Nevertheless, India is a wholly different social experiment.

There are two main differences between the DBT in India and those countries. One, money is untethered to social empowerment goals. For example in Brazil, a certain percentage of one’s children must be enrolled in schools and receiving regular medical vaccinations to collect government money. The second reason is that India has 1.2 billion people, and the numbers of people targeted in this endeavor are enormous.

90 million families will receive direct cash payments.

A quick primer, the Indian government has a host of social empowerment programs, called ‘schemes’ for India’s populous. They are sponsored either by the State or Central governments. The full listing can be found here.

However, back to the current idea, predicated on two huge logistical challenges: a bank account and an ‘Aadhaar.’

Aadhaar‘ is the nationwide (volunteer) unique identification number. It is similar to the US social security number, but with notable expansion.

Under the Aadhaar system, every Indian who opts in receives a unique 12-digit identification number, along with iris and fingerprints scan, which are loaded into a national database. Aadhaar numbers include a basic demographic profile and biometric information, but will not categorize any individual by caste, creed, religion or geography.

Civil liberties issues aside, does this sound like something more akin to a 007 James Bond movie, than rural India?

Recipients of the funding will go to a banking center, present their fingertips to a scanning machine and then enter in their 12-digit code. It sounds amazing in theory.

As of late May 2013, 300 million Indians are in the Aadhaar system.

Now, about that bank account.

Oops. It turns out, not surprisingly, India lags in that area. Only 40% of Indians have a bank account and the vast majority of villages, have no formal bank at all — only 36,000 out of 600,000 villages have a bank building.

The question begs, how will this actually work?

The government’s ambitious plan is to create one million bank jobs and set up ‘micro ATM’ centers all throughout the nation.

The over-arching goal is eliminating waste and corruption in this system. I understand that, and see it as a worthy attempt to clean up the process, however it remains to be seen whether this will just open up a host of new technological problems as well.

For example, who will teach illiterate folks how to open bank accounts? Who will explain why they need to get an Aadhaar and help them do so? Is the government going to train people to do this?

Another problem that arises is identification of the ‘poor,’ according to the metrics that would then allow someone to qualify as ‘below the poverty line.’

This is the huge liability in the system. If the government cannot identify who is deserving of said monies, the DBT program will not help as many as it could. Literally millions of individuals could be outside of it. The danger inherent is that money directly goes to some poor, while multitudes of other impoverished families are not deemed ‘poor enough’ to receive it.

The entire system for quantifying who is below the poverty line needs re-evaluation. India’s government decides who are poorer than others, based on criteria more than ten years old.

This system has the potential to revolutionize rural Indian poverty.

However, only time will tell if the notoriously slow Indian bureaucracy takes full advantage of both new technologies to help its citizenry.

For more information about the Aadhaar system visit this. Or go here.

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