What is direct cash transfer scheme?

In a landmark step, Prime Minister Manmohan Singh announced the much-awaited direct cash transfer scheme wherein the subsidy amount will go directly into the bank accounts of the beneficiaries.

The government will implement the scheme for cash transfer to the beneficiary's account in 51 districts from January 1, 2013.

About direct cash transfer scheme:It is a poverty reduction measure in which government subsidies and other benefits are given directly to the poor in cash rather than in the form of subsidies.

What are its benefits?: It can help the government reach out to identified beneficiaries and can plug leakages. Currently, ration shop owners divert subsidised PDS grains or kerosene to open market and make fast buck. Such Leakages could stop. The scheme will also enhance efficiency of welfare schemes.

How is it implemented?:The money is directly transferred into bank accounts of beneficiaries. LPG and kerosene subsidies, pension payments, scholarships and employment guarantee scheme payments as well as benefits under other government welfare programmes will be made directly to beneficiaries. The money can then be used to buy services from the market. For eg. if subsidy on LPG or kerosene is abolished and the government still wants to give the subsidy to the poor, the subsidy portion will be transferred as cash into the banks of the intended beneficiaries.

What are the scheme's disadvantages?:It is feared that the money may not be used for the intended purpose and men may squander it.

Has it already been implemented in India?Electronic Benefit Transfer (EBT) has already begun on a pilot basis in Andhra Pradesh, Chhattisgarh, Punjab, Rajasthan, Tamil Nadu, West Bengal, Karnataka, Pondicherry and Sikkim. The government claims the results are encouraging.

Are there any other drawbacks?Yes, because only Aadhar card holders will get cash transfer. As of today, only 21 crore of the 120 crore people have Aadhar cards. Two other drawbacks are that most BPL families don't have bank accounts and several villages don't have any bank branches. These factors can limit the reach of cash transfer.

What about elsewhere in the world?Many Latin American countries have conditional cash transfer schemes in which money is transferred to poor families through women. The money is given, subject to them ensuring that their children attend school regularly, take preventive healthcare measures and provide better nutrition to their children. The Indian scheme is unconditional.

What are the scheme's political implications? While many studies have assessed positive impacts of such schemes, few have looked at their political benefits. A World Bank study recently reported there is a direct link between cash transfers and voting behaviour. It was found beneficiaries express a stronger preference for the ruling party that implements and expands cash transfers.

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