The UPA government has described its plan to roll out direct-cash-transfer-based delivery of various subsidies and welfare programmes—of Rs 3.2 lakh crore a year, beginning 2013—as a game changer. Indeed, a cash transfer programme on such a massive scale has the potential to radically alter the dynamics of India’s current political economy, driven as it currently is by the entrenched vested interests which have taken deep roots over 20 years post the 1991 economic reforms. These vested interests are essentially feeding on the massive increase—over 25 times—in the centrally-sponsored welfare expenditure, which has increased from about R8,000 crore in 1994 to R2,37,000 crore in 2011!
Over the years, we have witnessed a substantial capture of such central funds by newly-empowered elites at the state and district levels to the exclusion of the majority of the very poor. The direct cash transfer programme, if implemented well, could prove to be the biggest assault on the cosy arrangement which enabled the local political and business elites to capture a big chunk of central funds. Indeed, if undertaken properly, it could prove to be the most critical structural reform ever undertaken in recent decades. And what’s more, it is on the expenditure side of the government balance sheet, a long overdue reform.
In terms of its radical potential, the cash transfer programme could have as much resonance as the abolition of privy purses by the then Prime Minister Indira Gandhi. The one big difference is Indira Gandhi had abolished the privy purses held by the royalty in her bid to chart a socialist path. In contrast, today, we have a post-economic reforms elite, enjoying a reinvented version of the privy purses, which need to be abolished as a necessary precondition to drive inclusive growth with fiscal discipline.
Make no mistake, there will be stiff resistance from those who are currently enjoying the benefits captured from the massive leakages in the welfare programmes that have proliferated over the past 15 years. There is no substantive audit of how R2,37,000 crore of centrally-sponsored funding is being delivered to the real beneficiaries. The radical project to direct these funds to the real targets—the very poor and needy—will not be an easy task. The UPA may have to fight attempts by its own allies to sabotage the direct cash transfer system as it is bound to hurt the privy purses of state, district and even panchayat level politicians. In the