Direct Cash Transfer : The New Trend Leveraging Aadhaar for Electronic Transfer of funds

Switching over from subsidies on food , fuel, fertilizers etc to direct cash transfer seems to be the new trend of reaching out to the poor. Jharkhand has been selected as the first state to experiment with this idea of electronic cash transfer or direct cash transfer. The government would leverage Aadhaar (Unique Identity Number) for this purpose . The Prime Minister recently announced the setting up of the new mechanism.

Jharkhan has been selected as, it is also first state to adopt micropayments, using the Aadhaar linked bank accounts in 2011. This was used in paying NREGA, wages , scholarships, and old age pensions in some of the districts, Similar initiatives have been taken by other state as well. In Tripura’s Mandwi district, payment under Indira Gandhi National Old Age Pension (IGNOAP) is being done via Aadhaar enabled system.

A pilot project on Aadhaar based delivery of LPG cylinders (domestic) by three oil marketing companies Is being conducted in Mysore. A similar exercise for kerosene is being done n Alwar district of Rajasthan.

Institutional Mechanism; For cash transfers to be rolled out huge capacities would have to be built at all levels. A ministerial committee headed by the Prime minister and including the ministers of finance , information technology, health , besides Planning Commission and Unique Identification Authority of India (UIDAI) officials , has been set up to steer the programme and avoid delays in decision- making.

A national executive committee of secretaries will meet frequently to coordinate action and to ensure that timelines are kept. An implementation mission and committee will finalize details relating to the design and operation of the cash transfer system. There subcommittees on technology, financial inclusion and electronic benefits transfer (EBT) have also been proposed. While he subcommittee on technology will define the standards and architechcture required , the finance panel will look at the banking ecosystem. The EBI committee will look into audits of governments systems.

Benefits of using Aadhaar enabled system: Subsidy payments and benefits under different schemes amount to almost Rs.3 trillion , roughly 3.5% of the gross domestic product (GDP), according to government estimates . It has been often pointed out in the past that only a part of the subsidy and welfare scheme reaches the intended beneficiaries.

The Prime Minister recently issued a statement enumerating the benefits of using
Aadhaar-enable system for transfer of subsides, wages etc. He pointed out that using this system will improve targeting, reduce corruption, eliminate waste, control expenditure and facilitate reforms.

The Prime Minister has also been encouraging to increase the pace of enrollment of people on the Aadhaar system to speed up reforms. Till now, more than 20 crore Aadhaar numbers have been generated ad the total numbers have been generated and the total number of enrolments has crossed 22 crore. The target for Aadhaar is 60 crore, and the remaining half of the population is to be covered by National Population Registry.

The Government is expecting significant change in extending benefits to the targeted population once the entire population in registered .
Electronic Benefit Transfer (EBT) has already begun in many cases. The Government and RBI have issued Guidelines to Banks For implementation of EBT. Pilots are under implementation, including in AP, Chhattisgarh, Punjab, Rajasthan, Tamilnadu, West Bengal, Karnataka, Puducherry and Sikkim.

The pilot programs of Direct Cash transfer Via Aadhaar need to be spread out further to states not using this system currently as well as to many other government schemes.

Electronic Benefit Transfer (EBT)

EBT aims at making the process of transferring the benefits (Cash) of welfare schemes from government to beneficiary from a paper based, cash driven system to an electronic direct transfer system. The EBT began around three years ago , pilot projects were rolled out in a few states to route government social welfare payments through bank business correspondents to the beneficiary, electronically , via hand-held devices using biometric smart cards. EBT account is a type of no frills account where holders would only be able to make withdrawals . A ‘no-frills’ account is a basic banking account either with nil or very low minimum balance as well as charges that make such account accessible to vast sections of population.

Source: Chronicle