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Friday, 05 July 2013 00:23
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Absence of incentives for banks is a big flaw

 

Though the government has begun phase II of the direct benefit transfer (DBT) scheme in 78 districts, it appears clear the game-changer scheme is facing all manner of problems. Perhaps why, even in the 18 districts where LPG pilot project on DBT were run, just 10 lakh of the 75 lakh target households have managed to get DBT transfers in the first month. While the smooth transfer of funds suggests the Aadhaar platform is working, the larger problem remains of the system not being geared up to deal with DBT. Indeed, as a review meeting in the Planning Commission last month showed, there are very basic design flaws in the system which, if not fixed, will pretty much trip up phase II of DBT as well.

The most basic one, of software not talking to one another, was obvious from the fact that none of the four ministries participating in the programme had a common DBT App—all had their own software developed for their schemes. An even more serious problem is that of post office and bank accounts not being opened for the beneficiaries. In even places like Delhi, government-owned banks like PNB and SBI are unwilling to open “no frills” accounts to transfer one-time payments. According to the banks, they simply haven't received instructions/guidelines on opening such accounts. Even if such guidelines were to be issued, the larger issue is of whether banks have any incentive to open such accounts. Which is why, when the scheme was designed, banks and post offices needed to be given a generous incentive to open/maintain such accounts. Given the huge level of waste in most schemes—40-50% by most accounts—a 1-2% commission to banks would have created enough traction for banks to want to open such accounts. Given that the government spends about R2 lakh crore on welfare payments each year, a 2% commission to banks would have added R4,000 crore to non-interest income, an amount which is significant by most standards. In the case of person-to-person cash transfers, for instance, the model developed ensures enough money for banking correspondents to want to remain engaged with the programme.

There are, of course, a host of other problems like the Registrar General of India's old enrolments not being accepted by the newer version of the UIDAI software. The lack of digital signatures of state level functionaries to authorise the transfers was found to be another major bottleneck, as was the lack of ownership of the project. Many of these are natural problems that occur for a project of such massive proportions and are not cause for undue alarm or pessimism. But now that the problem has been identified, it needs to be addressed. Unless DBT makes commercial sense for all the stakeholders, it is not going to take off.

 
 

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