The parliament on Thursday was informed that as many as 13 centrally sponsored schemes have been identified under direct benefit transfer (DBT), subject to cash transfer directly into the account of beneficiaries. Each year, the Indian government delivers ~$40BN of in-kind social welfare transfers (for food, fertilizer, fuel), $31BN in pension payments, and $25BN in cash-based welfare payments (e.g. MNREGA; JSY). These flows constitute a large pool of transaction volume that can be leveraged to connect millions of low-income transfer recipients to digital payment platforms, develop a range of new G2P-linked health, agriculture, and financial services applications, and (by guaranteeing volume) encourage payment providers to deepen their reach into poor and rural geographies. Converting these flows into digital payments also creates an opportunity to reduce the cost of delivering social welfare programs and reduce leakages to unintended recipients.
Unfortunately, the governments efforts to digitize these social welfare schemes have been frustrated by a range of barriers. Only 35% of Indian adults have a bank account. Also, Banks and their partners are struggling to build and manage viable cash-in/cash-out (CICO) points to enable poor people to access their payments. In addition, there have been data collection gaps in the UIDAI enrollment process which prevent the mapping of bank account numbers to Aadhaar numbers. These gaps have been caused by (i) registrars not collecting customers bank account details during the Aadhaar enrollment process; and/or (ii) data entry errors.
On the back-end, many state and local governments lack the technical capacity or political will to convert their paper- (or excel-) based beneficiary databases into digital databases that can be used across welfare schemes and lack the technical capacity to create a robust system for verifying and monitoring the eligibility of recipients (e.g. based on frequently updated socio-economic data). Successfully digital delivery of G2P payments requires the active participation of a range of stakeholders, including central and state government ministries, district collectors, banks, CICO network managers, and the UIDAI. This has (unsurprisingly) led to coordination failures within and across schemes. Providers have not developed compelling G2P-linked applications for health, agriculture, sanitation, and financial services.
In addition, to these delivery-oriented barriers, several cross-cutting challenges have complicated the governments efforts to effectively digitize these flows. Indias G2P flows are spread across 50+ social welfare schemes which each use their own, customized delivery system involving a byzantine mix of central, state, and district government agencies. As a result, G2P experimentation in India so far has been highly fragmented and most learnings have remained buried within individual government agencies and their G2P delivery partners.
To complicate the scenario, government ministries typically lack adequate budget to hire high-quality technical support to address key challenges in the G2P process. And those that do have adequate budget are often constrained by (i) a lengthy and onerous procurement process and/or (ii) pressure to hire organizations that offer the lowest bid thus compromising quality. Information asymmetries such as requirements of minimum liquidity for CICO networks and minimum level of system uptime and flexibility in payment platforms have underpinned G2P flows. Unfortunately, government ministries have not been able to develop adequate visibility into the G2P readiness of CICO networks, payment platforms, and other key elements in the G2P process.
Instead, they have to rely on guess-timates from third-parties or self-assessments by the banks, CICO managers, and IT vendors themselves. These self-assessments are often fraught with overly rosy estimates aimed at securing G2P contracts or currying favor with the RBI or government. This has led to debacles in Haryana and Rajasthan where ministries digitized their schemes before robust CICO networks and IT systems were in place, leading to widespread dissatisfaction among beneficiaries who could not access their payments.
The need of the hour is to tackle these barriers at each segment in the G2P value chain- namely, Customer, Distribution, Front-end, and, Back-end. The defects emerging out of phase-1 and phase-2 DBT transfers implementation needs to be addressed thoroughly. The asymmetry needs to be addressed from both supply and demand side for the successful implementation of Direct Benefits Transfer in a prospective Indian scenario.
Akshay Kumar: He is an undergraduate in Civil Engineering from IIT Delhi and, currently, working at Ernst & Young in strategy consulting. He has been engaged in debating for the past 11 years at various levels. Since past 4 years, he has primarily focused on policy and economics debates and research papers and has been engaged at premier global debating platforms such as G8-G20 Group, Harvard debates, EUDC. Recently, he has developed debating models and tested them at national debating conferences