Direct Benefit Transfer Scheme in India PDF

Direct Benefit Transfer Scheme in India
Abstract---Poverty and corruption are the two major problems which plague India in the
recent times. According to the World Bank, India is home to 20% of the worlds poor
population. To counter both the poverty and the huge leakages, the Indian government has
been pushing for Direct Benefit Transfer Scheme for the past few years. This program has
attracted attention from all over the world and can been termed as a milestone for India to
become a super power. In this study we analyze the application of the scheme to India and
compare it with similar attempts in the past. Its Cost Benefit analysis has been done and its
benefits and challenges have been discussed. At the end, suggestions have been given for its
better implementation.
Key Words: Direct Cash Transfer, Subsidy Transfer, Cost Benefit Analysis, IRR
1. INTRODUCTION
A nation needs to continually reinvent itself as it moves up the growth curve. Every doubling of
GDP puts the nation at the cusp of transformation for the next doubling. A growth rate of 7%
implies doubling of GDP every 10 years [Ministry of Finance, 2012]; essentially, the nation has
to reinvent itself almost every decade. In the last twenty years, India has undergone a
transformation of its economic and regulatory structures. Policy reforms in this period have led
to the increasing maturity of our markets, as well as healthy regulation. The emphasis on
delicensing, entrepreneurship, the use of technology, and de-centralisation of governance to the
State and Local levels have in particular, shifted India from a restrictive, limited access society to
a more empowered, open access economy.
Despite these efforts, access to finance has remained scarce for the poorest residents in the
country. The Government operates a number of social safety net schemes, disbursing money to
the poorest and vulnerable sections of society. However, last-mile payment issues are observed
in a number of schemes MGNREGS wages, NSAP pensions, JSY payments, IAY payments,
scholarships, etc. The frontline development workers such as school teachers, Anganwadi
workers, ASHA workers, etc. often do not receive their salaries on time. This drives the poor to
borrow from money-lenders to tide over short term consumption needs. Even though mobile
phones are ubiquitous, access to finance continues to remain elusive and an aspiration. A great
amount of productivity and efficiency can be unlocked by ensuring that beneficiaries receive
their Electronic Benefit Transfer (EBT) payments on time, in any account at a bank or post office
of their choice, and at their own convenience. Government will also derive comfort with the
1
assurance that funds are accessed by the intended beneficiaries, and not by rent seeking middlemen.
At the same time, the Government is working towards Direct Transfer of Subsidy (DTS)
payments in the case of fertilizer, kerosene, and LPG in order to address incentive distortions
that arise with subsidized pricing. The Task Force on DTS has recommended that when these
products are purchased with cash, they will be sold at market price, with a reimbursement of the
subsidy into accounts of consumers at banks and post offices. In case the products are purchased
electronically (through micro-ATMs, debit card, Kisan Credit Card, etc.), only the subsidized
price may be paid, and the Government can reimburse the subsidy to the retailers electronically.
These EBT and DTS payments add up to Rs.3 lakh crore today, or roughly 3.5% of GDP.
Remittances are estimated to be an additional Rs.1 lakh crore [Ministry of Finance, 2012]. A
platform approach to payments is therefore necessary to address the delivery of last mile
payments to every part of the country. The Government of India is issuing Aadhaar numbers to
all residents of India (975 million enrolments have been completed). The Government has
already notified Aadhaar as a valid KYC document for opening bank accounts and buying
financial products. The Aadhaar number, due to its uniqueness property, serves as a natural
financial address for sending payments to accounts of beneficiaries at banks and post offices
through the Aadhaar Payments Bridge (APB). The Aadhaar authentication system allows the
identity of a resident to be authenticated in real-time in a trusted manner during last-mile
payments transactions using Micro-ATMs.
Today, the banking infrastructure in the country consists of 80,000 bank branches, 1,50,000 post
offices, 88,000 ATMs, and 500,000 POS machines. Of these, the rural banking infrastructure
only consists of about 30,000 bank branches and 1,20,000 post offices . In comparison, there are
more than 10 lakh telecom retailers that operate throughout the country. The RBI has defined the
Business Correspondent model of branch-less banking, which holds the key to smooth delivery
of EBT and DTS payments, while simultaneously achieving financial inclusion. In order to cover
2.25 lakh Gram Panchayats containing 6 lakh villages, and to serve the urban poor, this Task
Force envisions the creation of an interoperable network of 10 lakh Business Correspondent
agents using the combined infrastructure of India Post and banks. In order to make Government
payments viable at the last mile, and recognizing the fact that many of these accounts will offer
little or no float, this Task Force suggests that the Government bear a last-mile transaction
processing fee of 3.14% with a cap of Rs.20 per transaction. For interoperable transactions, 31%
of the fee can be paid to the issuing bank, 64% to the acquiring bank, and 5% to the switch. This
fee is benchmarked against other offerings with similar characteristics: India Post charges a 5%
fee for money orders, while mobile operators started with a 16% agent commission for top-up
ten years back, which has now stabilized at 3.5% on average [Ministry of Finance, 2012].
The Indian economy predominantly operates on cash today. Cash is expensive for everyone, due
to the costs of cash management, cash handling, storage, security, wear and tear, fake currency
notes, etc. Electronic payments are the first step on the ladder of financial inclusion. Electronic
payments are also essential for friction-less and efficient functioning of the economy, and
essential in nurturing high growth sectors such as e-commerce and m-commerce.
In the past, Various Governments throughout the world have introduced similar social security
and welfare schemes. These schemes can be categorized into two categories:
Direct Cash Transfers
Conditional Cash Transfers.
In Direct Cash Transfers, money is either delivered directly to the beneficiary or transferred into
his or her bank account. This money carries no further conditions once the beneficiaries are
identified, and they are free to spend as they choose. Technological advances and improved
telecommunications access over the last decade have made it possible to provide electronic
transfer of funds into the accounts of beneficiaries. Social security pensions are an example of
this model.
In Conditional Cash Transfers, cash transfers are made conditional on the achievement of certain
social or development objectives, they are called Conditional Cash Transfers. In the last decade,
such conditional cash transfers have been implemented extensively across some South American
and some African nations. In India, this approach has been adopted in the Janani Suraksha
Yojana. In these programs, beneficiaries must fulfill certain conditions to receive the cash from
the Government.
Since independence, Governments in India have been strongly committed to addressing the
issues of poverty and deprivation. Accordingly, Central and State Governments have devoted a
major share of their budgets to put in place broad-ranging social safety nets and livelihood
assistance programs. With large amounts being spent on subsidies, the Government is examining
ways to ensure that this spending is carried out in ways that maximize positive outcomes, and
lead to significant poverty reductions. With these objectives in mind the government has come
up with Direct Cash transfer Scheme where the subsidies that are being provided by the State
now can be more efficiently provided to the intended beneficiaries directly. It complements
public provisioning by the State, rather than supplanting it. It also enables the State to reach out
to the deserving intended beneficiary more effectively.
2.
PREVIOUS ATTEMPTS
Cash Transfer schemes originated in middle-income Latin American countries that had good
infrastructure and supply systems. They were positioned as formal, publicly provided safety net
programmes that essentially supplied cash to the needy and helped them tide over the period of
economic crisis. The earliest of such programmes, Progresa, was initiated in 1997 in Mexico
with a new approach integrating interventions in health, education and nutrition [D.P.Coady,
3
2000]. It was based on the understanding that these important dimensions were direct correlates
of human welfare. Other countries that initiated CCT programmes include Chile, Colombia,
Ecuador, Jamaica, South Africa and Turkey. In Asia, Bangladesh had a Female Stipend
Programme as early as 1982 followed by a Food for Education Programme in 1993 [The Indian
Economist
RSS,
accessed
on
8th
Apr.2013]
[Web:
<http://www.kpmg.com/in/en/issuesandinsights/articlespublications/kbuzz/pages/gov.aspx>,
accessed on 8 Apr. 2013]. Food grants were later converted to cash grants in 2002. Indonesia
launched a pilot CCT programme called Programme Keluarga Harapan (PKH) in 2007 [The
Indian
Economist
RSS,
accessed
on
8th
Apr.2013]
[Web:
<http://www.kpmg.com/in/en/issuesandinsights/articlespublications/kbuzz/pages/gov.aspx>,
accessed on 8 Apr. 2013]. Its beneficiaries are very poor households that have pregnant women
and/or zero to 15-years-old children. The PKH requires them to access education and health
services to be eligible for the cash transfer.
Design
Indonesia
Elements
Size
& Cost of program : US$
frequency of 2.3 bn (Around 25% of
amount saved from
transfer
subsidy reduction)
Iran
Mexico
Reform Act At least

50% of savings from
subsidy removal used to
compensate households
for price increase
Energy compensation
card issued.
Payments
in
two installments
Disbursed
directly
or
through
community
leaders
Post offices used
for
delivering
transfers
Rapid program
Monitoring,
appraisal in 05
Evaluation
& 08
&
Govt.
Communi Illegal diversion
of
funds
cation
reported
Amt.
of
transfer
depended on status of
recipient
household.
Transfer made every two
months. 18.4% c. of
energy
expenditure
added in 2007
Initially transfers
via cash but
through
debit
cards since 2003
Transfers made
to female heads
of households
Delivery
Mechanisms
Absence of any
dedicated
Transfers directly
into
specially
created
bank
accounts
Upgradation &
expansion
of
banking
infrastructure
No formal model
introduced
as
such
But
proactive
problem redressal
by
the
government
Regular Q&A by
Independent
Impact
Evaluation
Protocol
Rapid
assessments
key stages
at
Regular Q & A
4
Sources
complaint
govt. controlled
registration unit
media
PR
campaign
(2005)
Bacon
&
Kojima Guillaume et al (2011);
(2006); Hastuti et al. Bozorgmehr (2012)
(2006); Widjaja (2009);
Cameron
&
Shah
(2011); ASEAN Report
publication
govt.
by
Angelucci et al. (2006);

Fernald et al. (2008);
Govt. of Mexico (2010);
Nino Zarazua (2010);
World Bank (2010)
Reference: Mr. Jaireet Johal, MBA, IIT Delhi
The largest and the most successful conditional cash transfer program is the Bolsa Famlia
Program (BFP) in Brazil that covered close to 100 percent of Brazil's poor in 2007 [Lindert, L.
Anja, H. Jason, Bndicte de la Brire, May 2007]. Under the programme, the government
transfers cash straight to a family subject to conditions such as school attendance, nutritional
monitoring, pre-natal and post-natal tests. The entire system is managed through efficient
targeting, disbursement and regular monitoring of the disbursed funds. Like other conditional
cash transfers (CCTs), the BFP seeks to help
Reduce current poverty and inequality, by providing a minimum level of income for
extremely poor families; and
Break the inter-generational transmission of poverty by conditioning these transfers on
beneficiary compliance with human capital requirements e.g. school attendance,
vaccines, pre-natal visits.
Throughout the world there is a feeling that the under privileged have right to Social assistance
and the society owes them a historical debt for their exploitation for centuries. In some ways,
CCTs serve as a social policy instrument that seeks to integrate these rights to education,
health and social assistance. While the cash transfers provide minimum incomes and a way for
society to pay its historical debt to the poor, the conditionalities are widely viewed as tools to
help encourage the poor to take up these rights. Since even universal availability of health and
education services does not mean universal access by the poor due to direct and indirect
opportunity costs of taking up these services CCTs are seen as a way to remove such barriers to
access by providing cash linked to education and health service use [Lindert, L. Anja, H. Jason,
Bndicte de la Brire, May 2007].
The basic premise for linking school attendance to cash assistance was based on demand-side
constraints: even if schools are available, poor children cannot always attend due to direct and
indirect (opportunity) costs. Cash assistance was seen as an incentive to help counter these
demand-side constraints and promote school attendance.
Some of the key features of the implementation of Bolsa Familia Programme are:
A. Coverage of beneficiaries
As of June 2006, the program covered 11.1 million families (approximately 46 million people),
which represents 100% of the poor and 25% of the Brazilian population [Lindert, L. Anja, H.
Jason, Bndicte de la Brire, May 2007].
B. Overview of Institutional Roles [Lindert, L. Anja, H. Jason, Bndicte de la Brire,
May 2007]
The organizational structure for the implementation is highly decentralized. The program is
managed by Ministry of Social Development and is managed by municipalities at the ground
level. The institutions involved and their responsibilities are as follows:
I.
The Ministry of Social Development (MDS) is the programs policy and supervision
agency.
II.
Municipalities carry out many aspects of program implementation. They are responsible
for maintaining a local coordinator for the program (local program point-of-contact),
registering potential beneficiaries in the Cadastro nico, monitoring health and education
conditionalities and consolidating associated information.
The Caixa Econmica Federal has been contracted as the programs operating agent. The
Caixa consolidates and manages the national registry database for social programs, the
Cadastro nico, assigns registered individuals the unique Social Identification Number
(NIS), and makes payments directly, crediting beneficiaries electronic benefit cards
(EBCs) on a monthly basis through its extensive banking network.
III.
IV.
The Ministries of Health and Education are responsible for establishing technical and
operational guidelines regarding school attendance and health.
V.
State Governments provide technical support and training to municipalities (particularly

for smaller municipalities).
VI.
Three controls agencies the General Controllers Office (CGU), the Federal Audits Court
(TCU), and the Office of the Public Prosecutor (MP) are responsible for formal oversight
and controls of the BFP.
All these agencies have signed formalized agreements for the smooth functioning of the
programme and to overcome the challenges due to decentralization. These agreements follow a
standard template and serve two key functions in establishing the overall framework for
decentralized implementation:
(a) They clarify roles and responsibilities for implementation of the program; and
(b) They establish minimum institutional standards for program operation at the municipal
level.
C. Targeting and the Cadastro nico Registry System
Fig.1 Image Source: http://siteresources.worldbank.org/INTLACREGTOPLABSOCPRO/Resources/BRBolsaFamiliaDiscussionPaper.pdf
The municipalities have access to a data program, which enables them to identify inconsistencies
or gaps in the information registered. By simply clicking on a button in the software for either
personal inconsistencies or household inconsistencies the program will automatically run
cross-checks and list all inconsistencies encountered. It is also possible to do searches by name,
NIS or address and other basic variables.
Application of eligibility criteria to family data is carried out automatically by the Cadastro
nico software, which compares self-reported incomes to the official eligibility thresholds,
prioritizing families and assigning benefits according to income and family composition. MDS
then runs additional consistency checks to verify information and finalize the beneficiary list.
I.
D. The Payment System

Payments via the Banking System
The BFP program makes payments via the banking system, through the Caixa Econmica
Federal, which credits benefit payments to beneficiaries electronic benefit cards (EBCs) on a
monthly basis. The use of the banking system has several potential benefits, including:
7
(a) Supporting transparency; (b) Promoting efficiency by taking advantage of Brazils extensive
banking infrastructure and systems (no lines, fewer staff needed); (c) Reducing the scope for
clientelism, since public authorities (federal or local) are not involved in handing out benefits
directly to beneficiaries; and (d) Presumably linking poor BFP beneficiaries to the banking
system (which has development benefits and helps promote identity and self-esteem, as reported
by the beneficiaries themselves).
II.
Withdrawal of Monthly Benefits
Withdrawal of benefits can be done at Caixa agencies, or at other participating locations, so as to

ensure easy access to the funds, even in smaller communities. The Caixa operates over 2,000
agencies nationwide, and is linked with close to 9,000 lottery points and over 2,000 banking
correspondents [Lindert, L. Anja, H. Jason, Bndicte de la Brire, May 2007]. In total, there are
over 32,000 points where program benefits may be withdrawn. This broad network is supposed
to guarantee its presence in all Brazilian municipalities,
E. Conditionalities
Menu of Bolsa Famlia Conditionalities
Health Conditionalities
Education Conditionalities
Children
Women (pregnant or
lactating)
For all children ages 0-7 years old:

Vaccine schedules
Regular health check-ups and
growth monitoring of children
Pre-natal checkups
Post-natal checkups
Participate in educational health
and nutrition seminars offered
by local health teams
Enroll all children ages 6-15 in

school
Guarantee at least 85%
minimum daily school
attendance each month for all
school-aged children
(Parents)
If child misses school, inform
the school of the reason
Inform the local BFP
coordinator if the child moves
schools
I.
Education
The evidence from impact evaluations shows that the BFP is having an impact in increasing
enrollment among the poor.
Impact on Daily Attendance: Regular attendance in school is an important input to learning and
school attainment. As such, the BFP includes conditions that require that beneficiary children
attend a minimum of 85% of the time [Lindert, L. Anja, H. Jason, Bndicte de la Brire, May
2007].
II.
Health Conditionalities
8
These conditionalities include:

(a) completion of vaccines according to the recommended schedule, and regular health checkups and growth monitoring for children ages 0-7 years old; and
(b) pre and post-natal checkups for pregnant women
III.
Monitoring of Compliance with Conditionalities
a. Monitoring of Compliance with Education Conditionalities
b. Health Conditionalities
To facilitate the monitoring process for beneficiaries as well as for local health providers, each
targeted family member of the BFP (children under 7, pregnant and lactating women, elderly
over 60) is provided with a health card. The health card contains basic information on
beneficiaries health condition and history. These cards also provide basic information for the
families, such as useful information and help for parents concerning the development and needs
of their children. The cards furthermore contain a schedule of future health visits/required actions
for the family member in question. This information is recorded by the health agents for their
record which facilitates the monitoring process.
For all points of service, health service providers record data on health visits, vaccination,
nutritional status, growth monitoring and other BFP conditionalities into a special module of one
of six main national health information systems SISVAN, a database system designed to
monitor the health and nutrition situation of the general Brazilian population. This special
module (Mapa Dirio de Acompanhamento) also contains information on the BFP beneficiarys
names, their social identification number, and address.
Each municipality is responsible for ensuring that the consolidated information is entered into
the SISVAN data system and transmitted to the Ministry of Health (Ministrio da Sade, MS)
9
twice a year, by June 30 for the period between December 1st and May 31st, and by December
31 for the period between June 1st and November 30 of each year [Lindert, L. Anja, H. Jason,
Bndicte de la Brire, May 2007].
IV. Consequences for Non-Compliance

The consequences for non-compliance with conditionalities are gradual, beginning with a
warning, followed by blockage, then suspension, and ultimately cancellation of benefits
As stated in the law and as repeatedly asserted by officials at the central and local levels, the
focus is very much on helping families comply with the conditionalities and not on
uncovering non-compliance in order to penalize them.
3.
INDIAN SCENARIO
A. Direct Benefit Transfer Scheme: Objectives
It should be noted that direct subsidy transfer is not a standalone solution for subsidy delivery,
but just one among several strategies that may be employed to deliver welfare services. It is not a
substitute for other regular government welfare services, but a complementary piece. It can be an
effective strategy to channelize subsidies to beneficiaries, especially in multiple price markets
with pervasive incentive distortions, and it is desirable to provide choice to beneficiaries. The
subsidy framework can also address wrongful inclusion errors (by weeding out the duplicates
and fakes) while it would indirectly address wrongful exclusion errors.
10
Direct subsidy transfers should also be carefully tested to ensure that they bring about real choice
and empowerment for beneficiaries, without distorting markets in unacceptable ways. A move
towards direct transfer of subsidies will require re-engineering the subsidy administration
process. In doing so, it has to address existing challenges with targeting, address leakages and
diversion through transparency and use of technology, empower beneficiaries with choice in
accessing subsidies, provide a quick and convenient method to report grievances, provide a
robust electronic process for identification of beneficiaries, and electronic transfer of funds into
their bank accounts.
Any effective subsidy regime has to incorporate the following elements: [Ministry Of Finance,
June 2011]
Empowerment and choice for beneficiaries

Transparency in subsidy administration and information visibility
One price for subsidized goods
Efficiency in production
Convenient and effective grievance redressal
Support all types of direct subsidy transfer models
Fully electronic service delivery
An incentive-compatible solution across stakeholders
B. Infrastructure Requirements
The above objectives can be achieved only when a well-established infrastructure is in hand of
the government. The major components of the implementation plan are the following: [Ministry
of Finance, 2012]
Government e-Payments Gateway (GePG)

Electronic Opening of Accounts
Aadhaar Payments Bridge (APB)
Branch-less Banking with Micro-ATMs
Electronic Payments
Remittances
Mobile Banking
Role of India Post
Some of these are explained in detail here:

I.
The importance of Electronic Payments:

a. Need for unified payment architecture: - Various social divides exist in India today,
which have led to a variety of different payment systems. A unified payment
11
II.
III.
architecture cuts across these social divides, and offers convenient channels of access to
all residents of India.
b. Cost of cash: - The Indian economy predominantly operates on cash today. Cash is
expensive for all stakeholders in the ecosystem. More so, there is no traceability and
accountability for cash transactions, which leads to problems of bribery, corruption, and
black money. Indians are amongst the biggest users of cash worldwide. International
data (BIS) on banknotes and coins in circulation as a percentage of GDP shows India in
4th place. Studies have estimated that the cost of cash to the economy is 5-7% of GDP,
and this can be reduced by a third through the use of retail electronic payments.
Initially, a less-cash approach needs to be followed rather than going for a cash-less
approach. Various costs associated with cash are: i. Cost of cash for the Reserve Bank of India: - The RBI bears costs include
printing currency, currency chest management, and wear and tear. RBIs
annual report (2010-11) shows that it spent Rs. 2,376 crore on security
printing, and Rs. 45.5 crore on currency chest operations.
ii. Cost of cash for banks: - Banks bear the cost of cash logistics, cash
management, security, storage, and the opportunity cost of idle cash in
branches and ATMs.
iii. Cost of cash for individuals: - transportation cost to an ATM or a branch outlet,
storage and security, risk of theft, and interest foregone in case the funds were
parked in the bank till the time of use.
Electronic Opening and Linking of Aadhaar-Enabled Accounts:
a. Funneling various Government payments to one account: - Various Government
Schemes insist that their appointed banks open new accounts for the customer, and
maintain a separate account for the purpose of disbursement. This leads to considerable
duplication of work, the cost of which is eventually borne by the Government.
Beneficiaries also find it confusing to use different accounts for different Schemes,
each of which has its own method of access. So it is important to have one account for
all govt. schemes.
b. Linking existing accounts with Aadhaar: - Banks and post offices may consider linking
existing customer accounts to Aadhaar as follows:
i. Physical presentation of Aadhaar letter at a bank branch or post office
ii. Physical presentation of Aadhaar letter to a BC sub-agent operating a microATM
iii. Sending Aadhaar number collected from the customer along with the KYC
data as part of an electronic authentication request to UIDAI, and linking if the
authentication is successful. This can be enabled on all channels such as the
branch, ATM, micro-ATM, POS, internet, and mobile.
Debit Cards, Electronic Payments and E-commerce:
12
In the case of DTS payments (Fertilizer, LPG, and Kerosene), it is recommended to sell
goods at market prices, and reimburse the subsidy into the bank accounts of beneficiaries.
However, if the beneficiary pays electronically (for example, by using a micro-ATM, debit
card, Kisan Credit Card, etc.), only the subsidized price may be charged, and the subsidy
can be reconciled electronically by the next working day the subsidy will be credited into
the retailers account.
IV.
Mobile Banking:
Fig: Mobile Penetration in Indian States, Economic Survey 15-16.

There has been a dramatic rise in mobile phone penetration over the last few years. TRAI
reported an urban tele-density of 66.79% and rural tele-density at 33.21% with a total of
980 million wireless subscribers in India as of June 2015. With such a large number of
connections, the mobile phone has become the first connected computing device that is
accessible to most residents in this country.
a. Recommendations from the Report of the Inter-Ministerial Group:
i. A simplified common template for the KYC requirements for the Mobile and
Aadhaar linked Accounts which is acceptable to all service providers;
13
V.
ii. Cash-in / cash-out operations at the front end involving deposits and
withdrawals into Mobile and Aadhaar linked Accounts. Business
Correspondents (BCs) or the sub-agents of BCs, undertaking these operations
will perform them on behalf of all Banks;
iii. An Account Mapper that provides linkages between Aadhaar Number, mobile
number, and the account number;
iv. An interoperable central payments switch that will facilitate real-time
transaction routing across Banks; and
v. Interoperable repositories at the national level for hosting and managing
mobile and Aadhaar-linked accounts that may be created and managed by
independent third party service providers / organizations on behalf of the
participating Banks.
Role of India Post:
India has the largest postal network in the world with 1,54,979 Post Offices of which
1.39,182 (89.81%) are in the rural areas. This network has been leveraged by the post
office to make payments of social benefit schemes at the last mile. The payments are made
through Post Office Savings Bank accounts or through the traditional remittance services.
The Post Offices are currently engaged in wage disbursal to MGNREGA workers. As of
now, nearly half of the total disbursement under MGNREGA is being routed through Post
Offices. Similarly, Post Offices are distributing pensions under Indira Gandhi Old
Age/Widow/Disabled pension schemes through a combination of its savings and remittance
products. The characteristics of the India Post that can help in the Direct Transfer Scheme
are discussed below:
a. Computerization and Networking of Post Offices
b. Post Office Savings Bank: - The Post Office Savings Bank (POSB) is one of the oldest
and largest banking institutions in the country. POSB operates around 23.75 crore
savings accounts. Department of Posts is planning through its IT project to modernize
its postal operations, including the POSB operations. Core Banking project will
facilitate Anytime Anywhere banking for POSB customers.
c. Structural strengths of the Postal network: - The Postal personnel for rural Post Offices
are largely drawn from the local communities and therefore enjoy trust of the people.
This combined with the fact that in many small villages Post Office is the only
government agency; it has traditionally enjoyed the trust and confidence of local people
and is highly accessible to all the sections of the society. Post Offices are fairly evenly
distributed throughout the country and are under a centralized command. Such
environmental conditions allow Post Offices to be a trustworthy channel to deliver
various aspects of social security programmes.
d. Post offices and identification of social security programme beneficiaries: - Post Office
personnel are in a much better position to identify and reach especially the poor
households, as they generally belong to the local communities. Experience of delivering
14
MGNREGA wages and social security pension schemes in various states suggests that
Post Offices can provide effective and cheaper mechanisms to deliver social protection
programmes according to the needs of the social protection recipients.
e. Disbursement of MGNREGS wages through Post Offices: - Such wages are disbursed
by opening savings bank accounts in the names of MGNREGS beneficiaries at post
offices. The State Government agency responsible for MGNREGS works submits wage
list and the consolidated amount of wages to its concerned post office where the wages
are credited in the workers accounts as per the list. The workers are then intimated
about receipt of their wages who attend the post office to withdraw the amount of their
wages from their accounts.
Issues relating to costs: - The costs incurred by India Post while opening and maintaining
MGNREGS accounts have been estimated internally and also through the Administrative
Staff College of India. Such studies have revealed that average number of transactions is
higher in the case of MGNREGS accounts when compared to ordinary post office savings
bank accounts, and that is why the cost to operate such accounts for India Post is higher
than that for ordinary post office savings bank accounts. An Expert Group constituted by
the Ministry of Finance has pegged this cost to be Rs. 165.59 per account per annum.
C. Solution Architecture and Implementation Procedure:
Now we present the solutions that have been proposed to fulfill the objectives of direct cash/
subsidy transfer schemes:
I.
Core Subsidy Management System(CSMS): [Ministry Of Finance, June 2011]

The direct transfer of subsidies consists of a Core Subsidy Management System (CSMS),
to be implemented by the Ministry/Agency driving the subsidy scheme. The CSMS
automates all business processes related to direct subsidy transfer. CSMS would maintain
the subsidy accounts of all beneficiaries, and all policies related to subsidy management.
In addition to maintaining the subsidy accounts, it would need to be integrated with a
number of other external systems of other Government Departments, partners, and service
providers to effectively monitor the scheme, and ensure the desired quality of service.
15
Fig.4 Image Source: http://finmin.nic.in/reports/Interim_report_Task_Force_DTS.pdf
The basic modules of CSMS include:

a. Beneficiary and family identification module(Aadhaar integration) :
Robust identification of the beneficiary is of utmost importance in the direct transfer of
subsidies, since funds will go to the beneficiarys designated Aadhaar Enabled Bank
Account (AEBA). UIDAI provides an Aadhaar authentication service, which will provide
a Yes/No response in real-time when the beneficiarys Aadhaar number, demographic
data, biometric data and/or other information are sent for verification. The Aadhaar
authentication service which would be available online real-time, and would provide a
robust and secure way to link a beneficiarys Aadhaar to his/her subsidy account and to
his/her payment instrument can be used for a one-time KYC.
16
b. Product movement and stock tracking module(ERP systems integration)

c. Direct subsidy transfer module(Integration with nodal bank and payments gateway)
d.
e.
f.
g.
h.
i.
II.
Transparency module
Contact Centre module
Training, education, and outreach module
Logistics module
MIS Module
Module to integrate with other subsidy management systems
Role of banks and payments at the last mile:

Access to electronic payments at the last mile is an integral part of the solution for direct
transfer of both, cash and non-cash subsidies. This has been recognized by Government of
India, and a number of actions have been initiated to facilitate financial inclusion and
Electronic Benefit Transfers (EBTs).
Given that the subsidy payments will be based on the beneficiarys Aadhaar Number, the
payment may be sent to any payment instrument that is linked to Aadhaar bank accounts
and any other payment instrument approved in the future. A payments bridge (Figure 8)
can then be setup to route subsidy payments of Government of India to beneficiaries simply
by providing the Aadhaar number and the payment. Payments should be designed to be
real-time; the backend infrastructure set up should be built for real time payment to the
beneficiaries. Finally, Government subsidy schemes should budget for a suitable
commission to be paid to banks for setting up and operating the payments infrastructure
(Figure 7). The commission schedule may be higher initially to cover fixed costs, and
subsequently taper off to cover only marginal costs, once the infrastructure is up and
running.
17
III.
Role of Aadhaar: [Ministry of Finance, 2012] [Ministry Of Finance, June 2011]

The Aadhaar number can play an important role in addressing existing challenges within
Indias subsidy delivery infrastructure. When a resident enrolls for the Aadhaar number,
the individuals basic demographic information and biometric details are stored in a central
database, and linked to their assigned Aadhaar number. The database can then be contacted
by agencies and service providers anywhere in India to confirm that the person is who they
say they are. There are three major roles of Aadhaar in the DBT scheme:
a. Aadhaar letter and Aadhaar authentication for Know Your Customer (KYC)
requirements. The following progress has been made in acceptance of Aadhaar as
KYC for financial products:
i. Addition of Aadhaar to the list of officially valid documents by Ministry of
Finance
ii. RBI included Aadhaar as a valid PoI (Proof of Identities) and PoA (Proof of
Address) document for opening bank accounts
iii. The Insurance Regulatory and Development Authority (IRDA) has notified
Aadhaar as a valid KYC document to insurance companies
18
iv. The Securities and Exchanges Board of India (SEBI) has notified Aadhaar
as a valid KYC document
b. Aadhaar number as a financial address for receiving and sending funds: The
beneficiary may link their Aadhaar number to their account at any bank, and change
this at any point in time, based on the quality of service they receive.
c. Aadhaar authentication for authorizing electronic transactions: Aadhaar
authentication is the process wherein Aadhaar number, along with other attributes
(including biometrics) is submitted to UIDAIs Central Identities Data Repository
(CIDR) for verification; the CIDR verifies whether the data submitted matches the
data available in CIDR and responds with a yes or a no. No personal identity
information is returned as part of the response.
The unique identification number stored within the centralized Aadhaar database
offers potentially substantial benefits in subsidy delivery:
i.
ii.
iii.
Ensures one beneficiary has one number across subsidy programs.

Enables real-time authentication of identity at the time of subsidy delivery.
Enables delivery of welfare benefits and subsidies through direct transfers
into Aadhaar enabled Bank Accounts (AEBA) using the Aadhaar Payments
Bridge.
The process of implementation of a new subsidy regime has to be done in

stages/phases so that the stack-holders can become familiar with it and so that
their feedback is taken into account. So, the implementation should be done in the
following phases:
First Phase: To have centralized software for Product/service transfer in place.
Second Phase: Depending on the availability of other modules in the ecosystem,
their integration in the CSMS can commence as the next phase. An option is to
conduct Aadhaar number seeding and authentication in the next phase.
Final Phase: Final integration could be the banking payment systems as it may
take a while for the payment systems to gear up for direct transfer of subsidy.
4.
ECONOMIC ANALYSIS: Under this, Cost-Benefit analysis for the proposed DBT
scheme in India is done. Also Internal Rate of Return (IRR) is calculated for the expected
cash inflows and cash outflows. [Methodological Guide To Social Cost-Benefit
Analysis, Apr.2011] [Rufus E.P., University Of Cambridge]
A. Cost Benefit Analysis:
Definition: Cost benefit analysis (CBA), sometimes called benefitcost analysis (BCA),
is a systematic process for calculating and comparing benefits and costs of a project,
decision or government policy. CBA has two purposes:
19
To determine if it is a sound investment/decision (justification/feasibility),

To provide a basis for comparing projects. It involves comparing the total
expected cost of each option against the total expected benefits, to see whether the
benefits outweigh the costs, and by how much.
Principle: Cost-Benefit analysis evaluates costs C and benefits B for the project under
consideration and proceeds with it if and only if, benefits match or exceed the costs. That
is: [Methodological Guide To Social Cost-Benefit Analysis, Apr.2011]
i.e.
Usual Metric for Costs and Benefits: MONEY

I.
II.
Steps of Cost Benefit Analysis: [Methodological Guide To Social Cost-Benefit Analysis,

Apr.2011]
a. Step 1: Identification of public policy problem. It is determined if the problem is relevant
for the State to address.
b. Step 2: Determination of the public initiative goals.
c. Step 3: Identification of realistic alternative solutions to the problem.
d. Step 4: Analysis of alternatives: In this step, we evaluate the costs and benefits of each
alternative when implemented.
e. Step 5: Evaluation of implementation of the selected alternative and to assess the success
of implementation.
The technique of cost-benefit analysis is in particular useful when making the fourth step of
impact assessment as it allows the determination, evaluation and comparison of the costs and
benefit of different alternatives and the identification of the optimum solution to the problem.
So here main focus would be on the fourth step i.e. the Assessment of alternatives.
Assessment of alternatives: [Methodological Guide To Social Cost-Benefit Analysis,
Apr.2011]
It includes the following steps;
a. Setting the scope, assumptions and period of assessment.
b. Identification and estimation of costs, benefit and stakeholders that incur/receive them.
Estimation of costs and benefit in monetary terms:
The estimation of costs and benefits in monetary terms is the most difficult stage of the
analysis. The costs and benefit of a decision should be calculated on the basis of real market
20
prices. However, in practice, situations are frequent when the market prices cannot be used
for public intervention assessment.
Where a good is not sold in the market the market price does not exist. For instance, there is
no market price for clean air, saved lives, nature preservation, etc. The economic value of
such goods can be estimated using indirect value determination approaches for instance, by
revealing relative preferences of individuals with respect to them, making a comparison with
other similar goods with the market value. It is assumed that consumers can estimate the
significance of non-market goods for their welfare. For instance, a consumer wishing to live
in a cleaner environment may be willing to pay a certain amount of money for that. The
largest amount of money he would agree to pay expresses his willingness to pay and shows
how an individual estimates the improvement of environmental quality compared to other
goods and services he would acquire for the same amount. On the other hand, knowing about
the deterioration of environmental quality an individual can agree to a monetary
compensation of a certain amount, which, in his opinion, offsets the damage caused to his
welfare. The smallest amount an individual would agree to accept for negative consequences
is his willingness to accept compensation. It shows how an individual estimates the
deterioration of quality in the context of other goods that can be acquired for money.
Willingness to pay for non-market goods or accept a compensation for negative
consequences differs between individuals. Therefore, in order to identify what impact on the
welfare of the whole society (in the opinion of society members themselves) was made by
the change (e.g. improvement or deterioration of environmental quality), it is necessary to
aggregate the willingness to pay for non-market goods or accept compensation for incurred
damage of all the individuals affected by the change. The aggregated willingness to pay or
accept compensation reflects the estimation of the change in welfare in terms of money.
Cost Benefit Applied to Direct Benefits Transfer Scheme:

From the above obtained know-how about Cost Benefit Analysis, we can do
preliminary analysis of the proposed scheme. We can use already available data
related to costs and benefits from research papers and government documents. Once
data is available in detail, one can do a full scale cost benefit analysis.
i.
Estimation of Costs to government:
Estimates of volume of last-mile Government payments: -Assuming that
Government pays a transaction fee for all last-mile payments to banks at the
rate of 3.14% with a cap of Rs.20 per transaction into Aadhaar-enabled
accounts, the total transaction fee could be approximately Rs.5,000 crore,
when fully implemented [Ministry of Finance, 2012].
21
Assumptions
Transaction fee as a percentage
3.14%
Cap on transaction fee
20.00
Scheme
Amount
2010-11
per Txn
(Rs.crore) (crore)
(Rs.crore)
Civil service pensions (Rs.3,000 per person / month)
3,000
54,000
18.00
360
Food Subsidy (Rs.1,000 average transaction amount)
1,000
60,000
60.00
1,200
LPG subsidy (Rs. 250 / transaction)
250
23,000
84.00
722
Kerosene subsidy (Rs.200 / transaction)
200
20,000
165.00
628
62,000
32.40
648
Fertilizer Subsidy (10.8 crore farmer Hoseholds with
Transactions Txn fee
3 transactions / farmer household)

Rural Housing (Rs.15000 / installment)
15,000
10,000
0.67
13
MGNREGS (Rs.750 / transaction)
750
24,000
32.00
640
NSAP pensions (Rs.200 / transaction)
200
4,000
20.00
126
ICDS (Rs.500 / transaction)
500
7,000
14.00
220
Social Security & Welfare Ministry of Women & Child
1,000
9,000
9.00
180
SSA (Rs.750 / transaction)
750
7,000
9.33
187
NRHM (Rs.500 / transaction)
500
13,000
26.00
408
293,000
413.40
5,332
Development (Rs.1,000 / transaction)
TOTAL
Table 1. Source: http://finmin.nic.in/reports/Report_Task_Force_Aadhaar_PaymentInfra.pdf
Estimates of cost of last-mile Government payments: - The cost of last-mile Government

payments through BC sub-agents is estimated. The transaction fee is shared by three
stakeholders: the issuing bank, the network operator, and the acquiring bank. The transaction
cost is estimated at 3.14% per transaction for an average transaction amount of Rs.500. As per
this analysis, the issuer should retain roughly 1/3 of the transaction fee, and pass on roughly 2/3
of the fee to the acquirer. A cap of Rs.20 per transaction is recommended. The analysis below
estimates the total cost per account (issuing cost + acquiring cost) at Rs. 179.98, which also
includes technology cost at the last-mile [Ministry of Finance, 2012].
22
Assumptions
No of BC sub-agents
150
No of accounts per BC sub-agent
700
Total number of accounts
105,000
No of transactions per account per month
Average transaction amount

One time account opening expenses
500
Cost
borne by
Unit of
Cost per
No of
units
Total
Unit
9.0
105,000
Expense
945,000
Vendor cost per enrolment
Issuer
Measurement
Per account
Digitization of data and upload to CBS
Issuer
Per account
9.0
105,000
945,000
Account opening form printing
Issuer
Per account
1.50
105,000
157,500
Magstripe card (life of 3 years)
Issuer
Per account
10.0
105,000
1,050,000
Card personalization
Issuer
Per account
5.0
105,000
525,000
Card distribution
Issuer
Per account
10.0
105,000
1,050,000
Welcome pack / Financial literacy
Issuer
Per account
10.0
105,000
1,050,000
Total expense spread over 3 years
Issuer
5,722,500
Average annual cost per account
Issuer
18.17
Transaction cost
Cost
borne by
Unit of
Cost per
No of
Total
Measurement
Unit
Units
Annual
Expense
CBS cost
Issuer
Per account
annually
39.6
105,000
4,200,000
Network charge
APB
Network
Per transaction
0.55
AEPS
Network
Per transaction
0.20
MicroATM (Rs.20,000 device

depreciated over 3 years)
Acquirer
Per MicroATM 667.0
Cost of connectivity
Acquirer
/ month
Per MicroATM
Acquirer
/ month
Per transaction
Cost of printing receipts
100.0
0.25
150
150
150
1,200,600
180,000
315,000
23
Cost of FI switch
Acquirer
Per MicroATM
/ month
500.0
Total
1,500.0
administration
overhead per
MicroATM per
month
150
150
900,000
2,700,000
Acquirer
per month
3,000.0
Per MicroATM 80.0
150
150
5,400,000
144,000
Acquirer
/ month
Per MicroATM 1,000.0
150
1,800,000
Acquirer
/ month
Per agent
150
150,000
12,789,600
BC network administration cost (Salaries

of supervisors, office etc.)
Acquirer
BC sub-agent salary
Acquirer
Agent salary
Cash management insurance

Cost of cash management
Training cost
annually
1,000.0
Total Annual Expense for Acquirer
Acquirer
Average annual cost per account
Acquirer
Total annual Issuer cost per account
Issuer
Account
opening +
recurring
CBS costs
Total annual Acquirer cost per account
Acquirer
BC network +
MicroATM
costs
Issuer cost per transaction
Issuer
4.85
Acquirer cost per transaction
Acquirer
10.15
Network cost per transaction
Network
121.8
158.17
121.8
1
APB + AEPS
0.75
Total cost per transaction
15.71
Transaction fee as a share of withdrawal

Issuer's share of the transaction fee
Issuer
3.14
%
30.65%
Acquirer's share of the transaction fee
Acquirer
64.62%
Network's share of the transaction fee
Network
4.74%
Cost estimates for Micro-ATM switching: - A transaction analysis of the NPCI Aadhaar Enabled
Payments System switch yields an average price of 19.5 paise per transaction [Ministry of
Finance, 2012].
24
DIRECT TOTAL Expenditure for Aadhaar Enabled Payment System (Rs.crore)

Total
Total
Total
Total
Total
Total
Proposed
Incurred
Incurred Incurred Incurred Incurred Incurred to
be
in FY
in FY
in FY
in FY
in FY
in FY
Incurred
2010-11
2011-12 2012-13 2013-14
2014-15
2015-16 in FY
2016-17
Proposed
to
be
Incurred
in FY
2017-18
DIRECT
Total Capital
& Operating
Expenditure
3.11
15.43
15.46
Business
Model from
April 2011
201011
(PoC)
2016-17
2017-18
Volume:
96
150
Aadhaar
Enabled
Payment
System
Aadhaar
Authentication
Volume:
MicroAT
M
Switching
Total Volume
3.07
6.95
6.95
6.97
7.00
Volume & Revenue Projections (All numbers in crore)

20112012-13
2013-14
2014-15
2015-16
12
(PILO
T
0
3
12
24
48
Stage)
Total
64.94
Total
0.005
0.02
0.04
0.08
0.16
0.32
3.005
12.02
24.04
48.08
96.16
150.32
2016-17
2017-18 Average
0.16
0.10
Business
Model from
April 2011
201011
(PoC)
Cost per
Free of
transaction
charge
Volume & Revenue Projections (All numbers in crore)

20112012-13
2013-14
2014-15
2015-16
12
(PILO
T
Free of
2.31
0.58
0.29
0.15
Stage)
charge
333.63
0.195
DIRECT Capital Expenditure for Aadhaar Enabled Payment System (Rs.crore)

Sl No Items
CAPEX CAPEX Proposed Proposed
Proposed Proposed Proposed Proposed
in FY
in FY CAPEX
CAPEX
CAPEX
CAPEX
CAPEX
CAPEX
2010-11 2011- FY 2012- FY 2013-14 FY 2014- FY 2015- FY 2016- FY 2017-18
1
Capital Expenditure 1.00
1.00
1.00
1.00
1.00
1.00
12
13
15
16
17
Cost of using
Existing NFS
switch + upgrades
Item
wise
Cost
6.00
25
Setting up basic
0.23
AEPS
3
Development of
0.08
UIDAI authentication software
4
UIDAI-NPCI
0.02
Network
connectivity (2 DCs)
5
Bank Network
0.50
Cost (NPCINet)
6
Future enhance2.00
ments to go from
20 TPS to 150 TPS
7
Upgrade to new
10.00
switch
for
high
transaction volumes
8
AMC for AEPS
0.10
switch
Total Capital Expenditure 1.85
0.23
0.08
0.04
0.06
0.50
0.50
0.50
0.50
0.50
3.00
2.00
2.00
2.00
10.00
20.00
0.10
0.10
0.10
0.10
0.10
1.00
1.00
2.60
1.72
3.60
3.60
3.60
3.60
11.00
11.00
39.97
8.00
Sl No Items
2
3
DIRECT Operating Expenditure for Aadhaar Enabled Payment System (Rs.crore)

OPEX OPEX Proposed Proposed
Proposed
Proposed Proposed Proposed
Incurred Incurred OPEX to OPEX to
OPEX to OPEX to OPEX to OPEX to
in FY
in FY
be
be
be
be
be
be
2010-11 2011-12 Incurred
Incurred
Incurred
Incurred
Incurred
Incurred
in FY
in FY
in FY
in FY
in FY
in FY
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
0.01
0.10
0.10
0.10
0.12
0.15
0.18
0.21
UIDAI
NPCI
Network
connectivity
Bank certification 0.25
Other operational 1.00
costs
(staff,
marketing, etc.)
Total Operating
Expenditure
1.26
Item
wise
Cost
0.97
0.25
1.00
0.25
3.00
0.25
3.00
0.25
3.00
0.25
3.00
0.25
4.00
0.25
4.00
2.00
22.00
1.35
3.35
3.35
3.37
3.40
4.43
4.46
24.97
Cost estimates for Aadhaar Payments Bridge: - A transaction analysis of the

NPCI Aadhaar Payments Bridge solution yields an average price of 54.9 paise
per transaction [Ministry of Finance, 2012].
DIRECT Capital Expenditure for Aadhaar Payment Bridge System and Automated Clearing House (Rs. crore)
Capex incurred
Capex Proposed / committed
Sl No Items
2010-11 2011- 2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
Total
12
26
Capital Expenditure
Cost of deploying
APBS application
2
Capital Expenditure
Cost of deploying
ACH solution
3
Hardware &
Software
Upgrade
4
AMC for ACH
Total Capital Expenditure
0.00
0.14
0.14
0.00
0.00
0.00
0.00
0.00
0.28
0.00
12.43
2.50
0.00
0.00
0.00
0.00
0.00
14.93
0.00
0.00
0.00
0.00
0.00
1.13
1.13
1.13
3.39
0.00
0.00
0.00
12.57
0.00
2.64
1.35
1.35
0.75
0.75
1.00
2.13
1.03
2.16
1.04
2.17
5.17
23.77
DIRECT Operating Expenditure for Aadhaar Payment Bridge System and Automated Clearing House (Rs. crore)
Opex Incurred
Opex Proposed
Sl No Items
2010-11 2011- 2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
Total
1
Direct Operating
0.36
0.35
1.50
2.00
2.50
2.75
3.00
3.50
15.96
12
Costs (Inclusive of
Data
Centre
/
Bandwidth
Cost
and Other costs)
Total Operating
Expenditure
0.36
0.35
1.50
2.00
2.50
2.75
3.00
3.50
15.96
DIRECT TOTAL Expenditure for Aadhaar Payment Bridge System and Automated Clearing House (Rs.
crore)
Cost Incurred
Cost Proposed / Committed
Particulars
2010-11 2011-12 2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
Total
DIRECT
0.36
12.92
4.14
3.35
3.25
4.88
5.16
5.67
39.73
Total Capital
& Operating
Expenditure
Business Model
from April 2011
Volume:
Aadhaar
Transaction Processing
Total Volume
Business Model
from April 2011
Cost per transaction
Volume Projections (All numbers in crore)

2010-11 2011-12 2012-13
2013-14
2014-15
(POC
&
PILOT
0
0Stage) 0.36
7.20
10.80
0.00
0.00
0.36
7.20
10.80
Total
2015-16
2016-17
2017-18
14.40
18.00
21.60
72.36
14.40
18.00
21.60
72.36
2016-17
2017-18
0.29
0.26
Cost per transaction Projections (All amounts in Rs.)

2010-11 2011-12 2012-13
2013-14
2014-15
2015-16
(POC
&
PILOT
Stage) 11.50
0.00
0.00
0.47
0.30
0.34
Average
0.549
27
Particulars
APBS Volume (in crores)

Year
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
Assumptions
Account Linked Aadhaars

Transactions per month
Interbank transactions
15 % of Total
Aadhaar issued
2 times in a month
10% of total monthly
tranx
Aadhaar
No Volumes 1
0.15
20
3.00
30
4.50
40
6.00
50
7.50
60
9.00
0.30
0.03
6.00
0.60
9.00
0.90
12.00
1.20
15.00
1.50
18.00
1.80
0.36
7.20
10.80
14.40
18.00
21.60
Total Per Year
ii.
Scheme|Year
MGNRES
PDS
Fertiliser
Subsidy
LPG Subsidy
Other
schemes
Total
Estimation of Benefits: All figures in Rs. Crores [National Institute of Public

Finance and Policy, Nov. 2012]
201112
0
0
201213
61
158
201314
155
412
201415
317
861
201516
646
1797
201617
1,318
3752
201718
2,688
7834
201819
3,427
10226
201920
3,496
10680
202021
3,566
11150
87
214
419
821
1609
3154
3863
3786
3710
32
80
161
321
643
1286
1607
1607
1607
18
47
95
195
397
810
1032
1053
1074
356
908
1853
3780
7719
15772
20155
20622
21107
Table 8. Source: http://planningcommission.nic.in/reports/genrep/rep_uid_cba_paper.pdf
iii.
Benefit to Cost Ratio: The Benefit to Cost ratio is found by dividing Total
Benefits from Table 8 with Total Costs found from Table 1 for each year.
Scheme|Year
2011- 2012- 2013- 2014- 2015- 2016- 2017- 2018- 2019- 202012
13
14
15
16
17
18
19
20
21
Benefit/Cost
0.067
0.17
0.35
0.71
1.45
2.96
3.78
3.87
3.96
B. Internal Rate of Return:

Here with the assumption that cost per year i.e. annual cost of the project is constant
and equal to Rs. 5332 Crore, and with varying benefits as shown in the Cash flow
Diagram below, the calculated IRR of the project comes out to be 19.5%.
28
C. Observations:
As is clear from the results, assuming that the Direct Benefit transfer scheme starts in
the session 2011-12 in India, it can be seen that the expected costs outweigh the
expected benefits in the period, 2012 - 2016 and the situation reverses thereafter.
D. Conclusions:
The above observation is not at all surprising in public projects. In any public project,
money has to be invested initially and only when the project is fully functional are the
profits realised. Same is the case with this kind of project which has to be
implemented on such a large scale. For example, the complex technical background
would take both time and a large sum of money to set up. The government would
have to ensure the availability of direct cash to the beneficiaries by negotiations with
banks.
As the expected benefit to cost ratio surpasses 1 after 2016, and the Incremental Rate
of Return (IRR) of the project is 19.5%, which is much higher than the present
interest rates as well as inflation rate. Thus, it is viable for the government to
undertake this project and improve the subsidy regime and fund channelisation in
India.
29
5. DBT India 2016- JAM
Fig: Increase in Jandhan and Aadhar numbers.

A. Progress in factors
I.
II.
III.
I.
II.
The current government has built on the previous governments support for the Aadhaar
program: 210 million Aadhaar cards were created in 2015, at an astonishing rate of over 4
million cards per week. 975 million individuals now hold an Aadhaar card over 75
percent of the population and nearly 95 per cent of the adult population
Every beneficiary needs a bank account. This constraint has been significantly eased by the
Pradhan Mantri Jan Dhan Yojana, under whose auspices nearly 120 million accounts were
created in the last year alone at a blistering, record-setting pace of over 3 lakh accounts
per day.
Despite Jan Dhans 2 record-breaking feats, basic savings account penetration in most
states is still relatively low. Thus, the unbanked rather than unidentified may serve as the
bottleneck.
B. JAM - DBT in LPG
Pahal scheme directly transfers LPG subsidies into customers bank accounts. The current
government launched the Pahal scheme in late 2014 and early 2015, restarting and modifying
a program that the UPA government had begun and then suspended. Currently over 151
million beneficiaries receive LPG subsidies via DBT, and R29,000 crore have been
transferred to beneficiaries to date.
Households could buy LPG cylinders at subsidised prices (~Rs 430). Commercial
establishments are ineligible for the subsidy and must pay market prices plus central and state
taxes of about 30 per cent on average. This violation of the One Product One Price principle
30
III.
IV.
V.
provides strong incentives for distributors to create ghost household accounts and sell
subsidised LPG to businesses in the black market.
Now, with DBT in place, the government identifies beneficiaries by linking households LPG
customer numbers with Aadhaar numbers to eliminate ghost and duplicate households from
beneficiary rolls . Households buy at market prices (currently ~Rs 670), and have the subsidy
credited into their bank account within 3 days.
Sales of subsidised domestic cylinders fell by 24 per cent when the scheme was introduced
and spiked when the scheme was suspended by the UPA. Pahal had a similar impact: a 27 per
cent reduction in sale of subsidised cylinders. Based on prices and subsidy levels in 201415,
we estimate that the potential annual fiscal savings of Pahal will be Rs 12700 crore in a
subsequent FY. JAM in LPG has succeeded in reducing leakages rather than excluding the
poor.
Another reform that could further reduce LPG leakages with limited genuine exclusion is
lowering the household cap from 12 to 10. Table 4 shows that even the richest households
the top 10 per centtypically do not consume more than 10 cylinders per year, so reducing
the household cap will be unlikely to hurt the poor. Moreover, as Figure 9 illustrates, there is
a well-known March problem in LPG. Because March is the end of the fiscal year,
distributors have strong incentives to invoice unconsumed subsidised cylinders to households
and resell them in in the black market.
31
Fig: Consumption of Cylinder per month. Source: Economic Survey 15-16.
I.
C. MNREGA and DBTS

In the old system, disbursals were based on forecasted expenditure, and funds sat idle in local
government accounts till expenditures were incurredthough MGNREGS has reformed its
system.
II.
III.
The old MGNREGS system (and the current system for most schemes) has 4 major
problems:
1. Float: idle funds accrue interest costs for the central government since this is borrowed
money. Outside of MGNREGS, the estimated stock of unspent balances in government
accounts is at least Rs 1 lakh crore and leads to an annual cost of Rs 8500 crore. The new
system keeps funds in a central pool and only disburses expenditure in real-time, reducing
float by 26 per cent.
2. Leakages: funds had to pass through multiple layers, meaning more people can demand a
cut to secure the release of funds. Accounting happens ex-post and in aggregate, making
32
monitoring difficult. The new system reduced leakages by 14 per cent and fund disbursal by
38 per cent even though a household survey showed no change in the amount of work done
in MGNREGA.
3. Misallocation: funds, once disbursed, usually do not return, so forecast errors lead to
misallocation of fiscal resources, with idle funds in some accounts and shortages in others.
This leads to scheme shortages for beneficiaries in some panchayats, even if a neighbouring
panchayat has available but unused funds.
4. Resource-intensity: scheme managers spend valuable time haggling with officials at higher
administrative units, who often demand arbitrary documentation to release funds. Similarly,
businesses must haggle with programme managers and face arbitrary requirements to receive
payments. The reform has eased the burdens in doing business with the government, both
internally and for vendors.
6. What Next for DBT?
I.
II.
DBT in LPG has generally been a big success, and policymakers in other areas are
understandably keen to emulate its success. However, when designing DBT schemes in other
areas, caution should be exercised in drawing lessons from the LPG case. Several features of
LPG made it conducive to the application of JAM. Table 5 presents a framework to help
policymakers decide whetherand howto pursue JAM in various policy areas.
Policy makers should decide where next to JAM based on these considerations:
Size of leakages: JAM significantly reduced leakages in LPG and MGNREGS with
limited exclusion of the poor. The returns from pursuing JAM in other areas depends on
the size of leakages in those sectors. Subsidies with higher leakages have larger returns
from introducing JAM.
Central government control: when introducing JAM, policymakers will confront
administrative challenges in coordinating central and state government departments, and
political challenges in bringing the supply chain interest groups like Fair Price Shops on
board with DBT.
Based on these considerations, the policy areas that appear most conducive to JAM are those
where the central government has significant control and where leakages and hence fiscal
savings due to JAMare high. The Table below shows that this combination is met for fertiliser
and within-government fund transfers. We consider two JAM options: DBT and BAPU
Biometrically Authenticated Physical Uptake. With DBT, subsidies are transferred to
beneficiaries in cash. With BAPU, beneficiaries certify their identity using Aadhaar and then
physically take the subsidised goods like today.
33
Table: Spread of JAM across Indian Economy [Economic Survey 15-16]
34
JAM preparedness index Rural
III.
IV.
One possibility would be what we call BAPUBiometrically Authenticated Physical

Uptake. It can be done to reduce leakages in the meantime, while banking correspondent
networks develop and mobile banking spreads. Beneficiaries verify their identities through
scanning their thumbprint on a POS machine while buying the subsidised productsay
kerosene at the PDS shop. This is being successfully attempt by Krishna district in Andhra
Pradesh, with significant leakage reductions.
Despite financial inclusion scores being low, if Fair Price Shops are equipped with POS
machines, beneficiaries can simply authenticate their identities while taking their rations as
under the current system. BAPU preparedness is much better than for Rural DBT
preparedness.
35
I.
II.
III.
IV.
V.
VI.
VII.
7. CHALLENGES
A. Technical
Execution and monitoring of such large, complex, IT intensive projects often requires
specialized skills and manpower. Hence, a difficult job on part of the policy makers
Operational problems may also arise with respect to banking and online connectivity.
In rural India, however, there is a serious last-mile problem of getting money from banks.
into households hands: only 27 per cent of villages have a bank within 5 km 3 .
Even if it is made sure that cash transfers will work in a way that meets these difficulties,
there may still be a serious problem of transition, especially if there is a time lag in opening
an account in a bank, or in a post office, to receive the cash transferred. If, meanwhile, the
subsidised food disappears, the poor who fail to open an account adequately fast, for one
reason or another will lose doubly through not having the cash yet, and through the fact that
others will have the cash to buy food which would keep the food prices high. The transition
problem need not be impossible to handle, but attention will have to be paid to that, bearing
in mind that many of the poorer Indians lead a life of hand-to-mouth existence, and any delay
in the period of transition may plunge some people into extreme hardship. All this is in
addition to the long-run problems of the modality of cash transfer, including distributional
issues, as well as the adequacy of the amounts of cash transferred [Direct Cash Transfer:
Part 2, The Indian Economist RSS accessed on 8 Apr. 2013].
Bankers will have to face problems arising out of fake accounts and cope with gigantic
numbers of cases of nonpayment or short payment to villager through ATM and they will
have to sacrifice their core banking activities related to lending and ensuring of quality
lending to stop rise in bad assets. An article headed Cash Transfers face Identity Crisis was
published in the Times of India. According to it, several State- run banks have refused to bear
any liability for transactions done with any customers authenticated through the UID
mechanism. The banks are supposed to use the Aadhaar to fulfill their KYC (Know Your
Customer) norms. But they have expressed concern that the details in Aadhaar are verified
by third party non-government operators and agencies to whom UIDAI has outsourced work.
Hence they are not willing to bear any liability for any fraudulent transactions that may occur
against accounts created using Aadhaar. So, the government will have to provide some
incentives and assurances to these banks so that the direct cash transfer process is not
disrupted for long and can start on time [Direct Cash Transfer: Part 2, The Indian Economist
RSS accessed on 8 Apr. 2013].
In the case of kerosene and LPG for instance, where the methodology will need to change
from giving the subsidy to the supplier to giving it to the user, it could be a challenge.
Correct identification of the beneficiaries is also an important piece that needs to be fixed
[Ministry Of Finance, June 2011].
Challenges for electronic payments: Various challenges are there that are deterrents to the
use of electronic payments: [Ministry of Finance, 2012]
36
a. Transaction cost: Typically, either the consumer or the merchant bears the cost of an
electronic payment which is explicitly charged to someone in the value chain.
b. Consumer acceptance of retail electronic payments is challenging.
c. Non-repudiation: - In case of cash transactions, the settlement is instantaneous. But in
case of Electronic payments, it is possible only in few scenarios till now.
d. Fungibility: Cash is fully fungible. Once received, it can be used to make any other
payment.
I.
B. Social
Statistics show that: [D. Puja, H. Stephen and M. Rinku, 2010]
II.
III.
IV.
V.
VI.
35% of the beneficiaries know virtually no details of the scheme,

only 58% know about the level of benefits
While only about 8% know details of the eligibility criteria and the process of
application.
Qualitative work also indicates high awareness of the scheme but not of the application
process including required documents, eligibility criteria and sanctioning authority, even
among several Sarpanches (village government heads) interviewed.
Eminent economist and Nobel Prize winner Amartya Sen, sounded a note of caution in cash
transfer of food subsidies, saying direct access to food often helps reaching nutrition to
children and girls. But when the subsidy is given as cash directly it may benefit adults and
boys more due to biased social priorities in Indian society. Dr. Sen said the transition delays
in cash transfer could cause extreme hardship to people, many of whom lead a hand-tomouth existence [The Hindu, accessed on 8 Apr. 2013].
The policy makers will have to ensure that the subsidized goods are sold at the same price
everywhere across the country. Arbitrage opportunities may otherwise spring up, which may
be exploited by anti-social elements at the expense of the common man [Ministry Of
Finance, June 2011].
There is no foolproof method in vague which can guarantee extending of cash subsidy to real
poor. Identification of families which are Below Poverty Line (BPL) and which are supposed
to be the real beneficiary of Direct Cash Transfer (DCT) scheme of the government, is
difficult. As long as GOI do not finalize the list of BPL, there is all possibility of subsidy
meant of poor misused for giving bribe to voters of ruling party. As in MNREGA scheme,
beneficiary of the scheme is used to be decided by agents and political workers of the ruling
party so will be case for giving DCT scheme. Political workers of the party in the village will
play the pivotal role in sending and recommending the name of beneficiaries of cash subsidy
as also in opening of no-frill accounts in banks [Direct Cash Transfer: Part 2, The Indian
Economist RSS accessed on 8 Apr. 2013].
Government will be under pressure to enhance quantum of subsidy year after and the
political parties may use the same to enrich their vote bank at the time of election. But real
37
VII.
VIII.
IX.
I.
II.
poverty will end only by enhancing the capacity of poor to produce more and more to
contribute to real GDP [Direct Cash Transfer: Part 2, The Indian Economist RSS accessed on
8 Apr. 2013].
GOI has seen a lot of controversy on usage and accessibility of Aadhaar Cards and hence
success of DCT scheme will remain a remote possibility and at best remain confined in few
districts, selection of which will depend on whims of politicians ruling this country.
The success of Aadhaar in weeding out ghost beneficiaries depends on mandatory
enrollment. If enrollment is not mandatory, both authentication systems (identity card based
and Aadhaar based) must co-exist. In such a scenario, ghost beneficiaries and people with
multiple cards will choose to opt out of the Aadhaar system. Furthermore, key schemes such
as PDS suffer from large inclusion and exclusion errors. However, Aadhaar cannot address
errors in targeting of BPL families. It cannot address problems of MNREGA like incorrect
measurement of work and payment [Direct Cash Transfer: Part 2, The Indian Economist RSS
accessed on 8 Apr. 2013].
Safeguard for Maintaining Privacy- Information collected when issuing Aadhaar may be
misused if safeguards to maintain privacy are inadequate. Though the Supreme Court has
included privacy as part of the Right to Life, India does not have a specific law governing
issues related to privacy. Also, the authority is required to maintain details of every request
for authentication and the response provided. Authentication data provides insights into
usage patterns of an Aadhaar number holder. Data that has been recorded over a long
duration of time may be misused for activities such as profiling an individuals behaviour.
[Direct Cash Transfer: Part 2, The Indian Economist RSS accessed on 8 Apr. 2013]
C. Economical
In case of benefit transfers like that of pensions: [D. Puja, H. Stephen and M. Rinku, 2010]
a. Duplicate records in the administrative database of pensioners lead to the possibility that
a pensioner is overpaid, or that someone else is cashing in one of the money orders.
b. If enrolled pensioners are not receiving payments because they are missing (either do
not exist, or have moved or died) there is the risk that fraudulent pension recipients are
receiving the pension in their stead.
c. Enrolled pensioners might not be missing, but still might not be receiving their pension in
full, or even in part.
d. Pensioners might have to pay bribes at the time of joining or during the year to receive
the pension.
e. Pensioners might be enrolled, but may not be eligible, given scheme guidelines.
Last Mile, Statistics and Multiple Scaffolding- Finally, the cash transfers go to the bank. The
last mile between the bank and the customer is designed to work through a business
correspondent (BC). This is the weakest and the most muddled link because of the possibility
of corruption and cash misallocation [Ministry of Finance, 2012].
38
III.
Banks have been reluctant to come to rural areas. This is because no-frills accounts in these
areas do not fit in with their business model [Ministry of Finance, 2012].
8. SUGGESTIONS
After reviewing various Cash Transfer schemes implemented throughout the world, and
studying the various aspects of its implementation in India, we propose the following
suggestions to improve the Indian model:
I.
Amartya Sen has rightly pointed out that if the scheme is implemented in its current format,
then the women and children will be worse than before due to unavailability of nutrition.
As it is evident from the example of Brazil, where, by law, the woman is considered as the
legally responsible beneficiary and is given all the payments, the payments are utilized in a
more efficient manner for the benefit of whole family. Hence, on similar grounds, in India
too, the payments should be made to the women to empower them socially in the otherwise
oppressive scenario.
II.
Benefits should be credited on a rolling basis on a pre-specified day each month. They should
be paid out over a span of some days in each month like from 1st to 10th of each month. For
example some fixed set of beneficiaries can be paid on 1st others on 2nd, 3rd and so on till 10th.
This roll-out of payments over time presumably will have the benefit of reducing lines at the
withdrawal points and smoothing out impacts on local economies. Beneficiaries commonly
do their monthly purchases upon receiving benefits. They may also purchase some
perishables (e.g., milk, meat, fruits and vegetables). In small communities with relatively
large numbers of beneficiaries, grocers could potentially face supply bottlenecks if swamped
with a sudden increase in demand if all beneficiaries received payments the same day. In less
well developed marketing systems and areas with little competition, staggered disbursements
could be a useful way to guard against price spikes or supply bottlenecks in local stores.
III.
Most of the cash transfer schemes implemented around the world are conditional and involve
conditionalities imposed on the beneficiaries to follow. Conditionality carries the following
befits: (a) reduces current poverty and inequality, by providing a minimum level of income
for extremely poor families; and (b) breaks the inter-generational transmission of poverty by
conditioning these transfers on beneficiary compliance with human capital requirements
e.g. school attendance, vaccines, pre-natal visits.
India can also implement a similar model so as to improve the HDI index and to eradicate the
poverty from its root.
But some developments have to be made in the system prior to addition of conditionalities.
Most important of all, what India lacks as comparison to the other countries is the lack of
strong supply side. The Education and health services are not universally available and thus
39
putting the conditions based on these factors will be unfair. Hence the government should
make these basic services universally available so that later conditions can be imposed in the
direct cash transfer scheme.
IV.
The central element in the success of Cash transfer scheme is to ensure that beneficiaries
about the scheme. The particulars of the schemes, its aspects and methods to receive funds
etc. should be highly publicized by the government, on television, radio, billboards and in
newspapers.
9. CONCLUSION
I.
The Pahal scheme has been a big success. The use of Aadhaar has made black marketing
harder, and LPG leakages have reduced by about 24 per cent with limited exclusion of
genuine beneficiaries. However, diversion of LPG from domestic to commercial sources
continues, because of the differential tax treatment of commercial and domestic
LPG. In other words, the One Product One Price principle is still being violated.
Diversion could be further reduced by equalising taxes across end-uses. This will not
necessarily be inequitable because, LPG subsidies almost entirely benefit the well-off.
II.
Meanwhile, the centre should prioritise areas where it has the highest control over the
first- and middle-mile factors and leakages are high. Fertiliser and within-government
transfers stand out as good candidates. The example of MGNREGS highlights that
delivering within-government transfers via JAM can help other centrally sponsored
schemes reduce idle funds, lower corruption and improve the ease of doing business with
government
III.
Despite huge improvements in financial inclusion due to Jan Dhan, the JAM
preparedness indicators suggest that there is still some way to go before bank-beneficiary
linkages are strong enough to pursue DBT without committing exclusion errors. In that
sense, the JAM agenda is currently jammed by the last-mile challenge of getting money
from banks into beneficiaries hands, especially in rural India. The centre can invest in
last-mile financial inclusion via further improving BC networks and promoting the spread
of mobile money. The recent licensing of banks will help. Regulations governing the
remuneration of BCs may need to be reviewed to ensure that commission rates are
sufficient to encourage BCs to remain active.
IV.
In the meantime models like BAPU offer the prospect of lower leakages without the risk
of exclusion errors, and therefore merit serious consideration.
REFERENCES
[1] Economic Survey -Volume I- Spreading Jam across India's Economy
[2] D.P. Coady, The Application Of Social Cost-Benefit Analysis To The Evaluation Of Progresa,
Nov. 2000.
[3] "Direct Cash Transfer Scheme- A Game Changer? PART 1." The Indian Economist RSS. N.p., n.d.
40
Web. 8 Apr. 2013. <http://theindianeconomist.com/direct-cash-transfer-scheme-a-gamechanger-part-1/>.

[4] "Direct Cash Subsidy and Its Impact in the Indian Context ." Direct Cash Subsidy and Its Impact
in the Indian Context. N.p., n.d. Web. 8 Apr. 2013.
<http://www.kpmg.com/in/en/issuesandinsights/articlespublications/kbuzz/pages/gov.aspx>.
[5] Lindert, L. Anja, H. Jason and Bndicte de la Brire, The Nuts and Bolts of Brazils Bolsa
Famlia Program: Implementing Conditional Cash Transfers in a Decentralized Context, Social
Protection Discussion Paper, World Bank. May 2007.
[6] Ministry of Finance, Interim Report of The Task Force on Direct Transfer of Subsidies on
Kerosene, LPG and Fertilizers, June 2011.
[7] Methodological Guide To Social Cost-Benefit Analysis, Apr. 26, 2011.
[8] Rufus E.P, Cost-Benefit Analysis in a Nutshell, University Of Cambridge.
[9] A cost-benefit analysis of Aadhaar, National Institute of Public Finance and Policy, Nov. 9, 2012.
[10] "Direct Cash Transfer: Part 2." The Indian Economist RSS. N.p., n.d. Web. 8 Apr. 2013.
<http://theindianeconomist.com/direct-cash-transfer-part-2/>.
[11] D. Puja, H. Stephen and M. Rinku, Small but effective: Indias Targeted Unconditional Cash
Transfers, ASARC Working Paper 2010.
[12] "Cash Transfers Can Help Make India Less Unequal, but Are Not a Magic Bullet" The Hindu.
N.p., n.d. Web. 8 Apr. 2013. <http://www.thehindu.com/opinion/interview/cash-transfers-can-help-makeindia-less-unequal-but-are-not-a-magic-bullet/article4291270.ece>.
[13] S. Bernd and S. Rachel, Social Cash Transfers in Low-Income African Countries: Conditional or
Unconditional?, Development Policy Review 2006.
[14] "UPA's Talk Show." UPA's Direct Cash Transfer Scheme Faces Many Challenges. N.p., n.d. Web. 8 Apr.
2013. <http://businesstoday.intoday.in/story/direct-cash-transfer-faces-many-implementation[15] Ministry of Finance, Report of the Task Force on an Aadhaar-Enabled Unified Payment
Infrastructure, feb. 2012.
41

Direct Benefit Transfer Scheme in India PDF

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Direct Benefit Transfer Scheme in India PDF

Uploaded by

Copyright:

Available Formats

Direct Benefit Transfer Scheme in India

Reform Act At least

Angelucci et al. (2006);

Reference: Mr. Jaireet Johal, MBA, IIT Delhi

State Governments provide technical support and training to municipalities (particularly

Fig.1 Image Source: http://siteresources.worldbank.org/INTLACREGTOPLABSOCPRO/Resources/BRBolsaFamiliaDiscussionPaper.pdf

D. The Payment System

Withdrawal of Monthly Benefits

Withdrawal of benefits can be done at Caixa agencies, or at other participating locations, so as to

For all children ages 0-7 years old:

Enroll all children ages 6-15 in

These conditionalities include:

Fig.2 Image Source: http://siteresources.worldbank.org/INTLACREGTOPLABSOCPRO/Resources/BRBolsaFamiliaDiscussionPaper.pdf

Fig.3 Image Source: http://siteresources.worldbank.org/INTLACREGTOPLABSOCPRO/Resources/BRBolsaFamiliaDiscussionPaper.pdf

IV. Consequences for Non-Compliance

Empowerment and choice for beneficiaries

Government e-Payments Gateway (GePG)

Some of these are explained in detail here:

The importance of Electronic Payments:

Fig: Mobile Penetration in Indian States, Economic Survey 15-16.

Core Subsidy Management System(CSMS): [Ministry Of Finance, June 2011]

Fig.4 Image Source: http://finmin.nic.in/reports/Interim_report_Task_Force_DTS.pdf

The basic modules of CSMS include:

Fig.5 Image Source: http://finmin.nic.in/reports/Interim_report_Task_Force_DTS.pdf

b. Product movement and stock tracking module(ERP systems integration)

Fig.6 Image Source: http://finmin.nic.in/reports/Interim_report_Task_Force_DTS.pdf

Role of banks and payments at the last mile:

Fig.7 Image Source: http://finmin.nic.in/reports/Interim_report_Task_Force_DTS.pdf

Fig.8 Image Source: http://finmin.nic.in/reports/Interim_report_Task_Force_DTS.pdf

Role of Aadhaar: [Ministry of Finance, 2012] [Ministry Of Finance, June 2011]

Ensures one beneficiary has one number across subsidy programs.

The process of implementation of a new subsidy regime has to be done in

To determine if it is a sound investment/decision (justification/feasibility),

Usual Metric for Costs and Benefits: MONEY

Steps of Cost Benefit Analysis: [Methodological Guide To Social Cost-Benefit Analysis,

Cost Benefit Applied to Direct Benefits Transfer Scheme:

Cap on transaction fee

Civil service pensions (Rs.3,000 per person / month)

Food Subsidy (Rs.1,000 average transaction amount)

LPG subsidy (Rs. 250 / transaction)

Kerosene subsidy (Rs.200 / transaction)

Fertilizer Subsidy (10.8 crore farmer Hoseholds with

Transactions Txn fee

3 transactions / farmer household)

MGNREGS (Rs.750 / transaction)

NSAP pensions (Rs.200 / transaction)

ICDS (Rs.500 / transaction)

Social Security & Welfare Ministry of Women & Child

SSA (Rs.750 / transaction)

NRHM (Rs.500 / transaction)

Development (Rs.1,000 / transaction)

Table 1. Source: http://finmin.nic.in/reports/Report_Task_Force_Aadhaar_PaymentInfra.pdf

Estimates of cost of last-mile Government payments: - The cost of last-mile Government

No of accounts per BC sub-agent

Total number of accounts

No of transactions per account per month

Average transaction amount

Vendor cost per enrolment

Digitization of data and upload to CBS

Account opening form printing

Magstripe card (life of 3 years)

Welcome pack / Financial literacy