Some days, one wonders if this government has a political ‘death wish’. These are days when it regularly hikes petrol and diesel prices, doubles the price of natural gas (applicable in April 2014), allows FDI in multi-brand retail, and is unable to curb the free fall of the rupee. But on other days, one feels that it has a strategy to win the 2014 elections. This happens when it claims that the cash transfer scheme will be up and running by April 2014, and pushes through the food security ordinance.

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As we stumble through these political and economic twists and turns, most of us forget a crucial fact. The UPA-II is convinced that it can win in 2014 (elections may be held earlier) only if it replicates what it did to triumph in 2009. No one expected the UPA, especially the Congress, to win more seats in 2009, compared to 2004. But it did. So, the measures the UPA-I took in 2008, in the run-up to the 2009 national elections, is what UPA-II hopes to do in 2013, albeit in a slightly different manner.

Two foundations of UPA-I’s victory in 2009 were the minimum employment guarantee scheme and the farm loan waiver. The first put cash in the hands of the poor families and the second helped the poor and marginal farmers to escape the debt burden. The two distinct planks of UPA-II’s electoral strategy for 2014 are cash transfers scheme (dubbed direct benefit transfer or DBT) and food security. The first can shore up the poor man’s cash kitty, and the second will save them from hunger pangs.

If past events provide any hints, it seems that UPA-II has a reasonable chance to scrape through despite the mounting charges of corruption, inefficiencies, policy confusion and inability to govern the nation. However, for the voters, especially in the rural constituencies, this may be the opportune time to rethink who they will support in the forthcoming elections. The reason: the ambitious farm loans waiver scheme turned out to be a flop, and the same may happen to the grand cash transfers plan.

A look at the two indicates that there are similarities in the manner in which they were pushed through, and the way in which they were implemented or are likely to be put into practice. The loans waiver did not help many of the poor farmers. Similarly, the replacement of a few subsidies and welfare schemes with cash transfers may not benefit all the targeted recipients. In the former, there were leakages, inefficiencies and corruption. The same can happen in cash transfers. Here’s why.

Race against time
The Rs 60,000-crore farm loans waiver and relief was announced in the 2008 budget by the then FM, P Chidambaram. The scheme entailed that the debt would be completely waived off for small and marginal farmers, who had taken loans between March 1997 and March 2007, which had become overdue by December 31, 2007, and which remained unpaid until February 29, 2008. Others would get a relief of 25% of the loan amount in case they paid off the remaining 75%.

On May 28, 2008, the details of the scheme were circulated to the lending agencies, which had to finalise the list of beneficiaries by June 30, 2008. Some clarifications were issued on June 18, 2008. According to a comptroller and auditor general (CAG) report in 2013, this was too short a time; it was “ambitious” on part of the government to expect the list to be ready within less than a month as the waiver and relief were expected to target 43 million farmers across the country.

More importantly, apart from the tens of thousands of the branches of scheduled commercial banks, the lenders of agriculture loans included tens of thousands of the branches of agriculture cooperative societies, district cooperative banks and regional rural banks. Many of these branches were in remote and inaccessible areas. Several banks told CAG that the time allowed for the implementation of the scheme “was a major constraint which resulted in some irregularities”.

The problem with cash transfers is the same; its success depends on the unique identification (UID) given to all the 1.2 billion citizens. As of now just over 370 million Aadhaar numbers have been issued, up from 280 million in December 2012. This implies that the unique identification authority of India (UIDAI) needs to issue another 830 million within a span of nine or ten months. This seems impossible, when only 370 million Aadhaars were issued in the past three-and-a-half years.

In addition, the implementation of cash transfers requires bank accounts to be opened for hundreds of millions of beneficiaries, even more than was the case with the loan waiver. According to the RBI, 40-45% of the Indians have bank accounts; less than a third of the 7,00,000 villages have banking connectivity. The UIDAI has decided to use ‘mini ATMs’ in rural areas to help the beneficiaries. It has estimated that 1 million such ATMs, which are portable and hand-held devices like credit card readers, will be required to ensure all-India coverage.

List of the beneficiaries
Given the rush to implement the farm loan waiver and relief, it was obvious that many of the eligible farmers did not find their names on the list of beneficiaries. The CAG report concluded that this was indeed the case as lakhs of poor farmers were denied the waiver; in many instances, even those who should have got the 25% relief on their debt could not get it. The problem, according to CAG, was that the government had no mechanism to provide greater focus in high-debt states.

Critics have predicted that ‘exclusion’ of beneficiaries is more likely in the case of cash transfers because of problems associated with UID. In several pilots on cash transfers across the country, this has happened because of several reasons such as lack of Aadhaar cards, lack of a bank account, or exclusion of the names from rolls of the specific welfare programme. Unless all the three elements of the process are complete, the beneficiaries are likely to suffer. This entails a huge bureaucratic effort.

A recent article in the Economic Times suggested that the government did not have an updated data to identify the poor, or those households below the poverty line (BPL). The current data is based on Census 2001, and the ground realities have changed since then. The new BPL census data collection started in mid 2000s, but was subsequently turned into a socio-economic and caste census. This is still under way, and is likely to be completed soon. If this process is delayed, several millions of poor will be affected; according to some experts, less than 40% of the poor households currently hold a BPL card.

No end to corruption
CAG found huge corruption in the farm loan waiver and relief, both at the level of beneficiaries and the lending institutions. For example, the waiver was meant only for agriculture loans, but the final beneficiaries included those farmers who had either taken “personal loans, loans for vehicles, loans for business, loans for shops or purchases of land, advances against pledges or hypothecation of agriculture produce other than standing crops, or agriculture finances (extended) to corporate firms, partnership firms, and societies other than cooperative credit institutions”.

Similarly, CAG found that a portion of banks’ loans to microfinance institutions (MFIs) were waived off, although this should not have been allowed. However, the banks clarified that these loans were extended under a partnership model, under which the MFIs acted as mere service providers for the poor borrowers. The MFIs, in these cases, aggregated the loan proposals for several farmers, ensured that the documentation was complete, disbursed the loans to the individuals, and checked the end utilisation of the loans. Thus, the money went directly to the farmers.

The CAG report concluded that “these loans could not be considered as direct lending to farmers since a lump-sum credit arrangement facility was given to the MFI, against which the MFI actually disbursed the loan to borrowers identified by it. The MFI was also the keeper of all documentation”. The government stood on shifting sand as it maintained that loans to MFIs were not eligible for the waiver, but added that the specific loans “given under the model were direct lending to borrowers and eligible”.

UID and cash transfers cannot, and will not, eliminate corruption and leakages. If thousands of banking correspondents are appointed to operate the bank accounts of the beneficiaries, they may demand their pound of flesh from the poor households. Local leaders and powerful individuals may end up controlling the cash flows, and pocket a portion of them. Ineligible individuals, even if they have UIDs, may get cash transfers, as has happened in pilot projects. The male members may deny access to the cash to their women folk.

Forget the main objective
Theoretically, the main intention of the farm loan waiver was to “de-clog the lines of credit… and enable the (indebted) farmers to avail fresh loans” to boost production and improve their lives. However, since the government was more obsessed about the number of farmers who got the relief, it did not force the lending agencies to pursue the larger objectives. In the end, the lenders were only bothered about reaching their quantitative targets.

Another reason why the debt-free farmers could not avail of fresh loans was because the lending institutions did not issue them proper certificates about the waiver of their earlier and unpaid debt. Even the banks did not have records to prove the extent of fresh lending to the earlier indebted farmers. All that the government claimed was that the percentage of small and marginal farmers’ loan accounts had increased from 54% in 2008-09 to 61% in 2010-11, and the overall agriculture credit went up from Rs 3.02 lakh crore to Rs 4.60 lakh crore in the same period.

The main intention of cash transfers is to eliminate the human interfaces in the process of providing subsidy and welfare schemes. However, UID, which is integral to cash transfers, replaces one set of human interface with another one. Instead of central bureaucrats, bankers become crucial. Instead of local officials, banking correspondents become important. Most importantly, powerful local leaders can join hands with local officials to decide who is eligible or not eligible for cash transfers.