In three Union territories where the government is running an experimental project to distribute cash instead of subsidised foodgrains, a third of beneficiaries surveyed said they either had not received any money at all (with or without proof) or did not know if they had received it. This despite government claims that 99% of the cash transfers were successful.

These findings are part of a third and final study by researchers from the Abdul Latif Jameel Poverty Action Lab, which was commissioned by the government policy think tank Niti Aayog to evaluate the pilot project.

The project was launched in Chandigarh and Puducherry in September 2015 and in Dadra and Nagar Haveli in March 2016. Since then, the government has been transferring money into the bank accounts of beneficiaries instead of providing them with foodgrains through ration shops. These cash transfers are called direct benefit transfers.

The study recorded that two-thirds of the beneficiaries prefer cash transfers because they can now buy better quality foodgrains. But it was unable to assess whether overall food consumption by these households had declined since the price of foodgrains is higher in the market compared to the ration shops.

The study said the direct benefit transfer system has long-term promise but given the challenges in implementing it and the as yet “unknown impact on food consumption and nutrition”, it recommended that the government implement a choice-based direct benefit transfer pilot in the next round. In such a system, beneficiaries would be free to choose whether they want benefits in cash or in kind through the public distribution system.

This would “insure beneficiaries against welfare losses, and will allow for a politically and ethically risk-free approach to policy experimentation with DBT [direct benefit transfers],” the study added.

It would also help policy makers understand the nutritional impact of cash transfers and beneficiaries’ preferences, which the current design does not allow for lack of a control group.

Tracking the money

Between March 2016 and January 2017, the researchers surveyed 1,000 households in the three Union territories. The third study, conducted in February and March this year, recorded and analysed beneficiaries’ experiences with the new scheme between October 2016 and January 2017.

While in the second study, 48% of the people surveyed either did not receive full payments or did not know whether they had received anything at all, this number dropped to 33% in the third round.

All figures in percentage.
All figures in percentage.

But the third study did not track several indicators that were a cause for concern in the second study. For instance, the second study made a distinction between those who received no payment, some payment and almost all or full payments. The third study simply tracked those who received payment, did not receive it or did not know about it. It is, therefore, unclear whether the monthly instalments received by people were the full amounts they were entitled to.

Burak Eskici, a researcher associated with the report, explained that this was because they had found in the second round that information collected from bank passbooks was not always reliable. When researchers in the second and third rounds asked beneficiaries if they had received any money, they did not always show them their passbooks, making the data collected patchy.

“This verification is slightly difficult in the field,” Eskici said. “We have a lot of data, but we were not confident of the quality of data received.”

The researchers also found a mismatch: only 67% of beneficiaries had proof that they had received transfers against government claims of 99% of transfers being successful. One reason for this might be that those who said they had not received any money had in fact received it in other accounts, Eskici said. What often happened was that when asked if they had received any money, the beneficiaries showed the passbooks of those accounts they thought they would receive the payments in. However, since this is an Aadhaar-enabled payment system, another bank account might be linked with the central system, which beneficiaries might not use on a regular basis, he added.

Preference for cash

Despite these glitches, the third study recorded a rise in beneficiaries’ preference for cash transfers. Across all three study areas, the average acceptance of direct benefit transfers is now at 65%, up from 45% in the second study period and 39% in the first.

Figures in percentage.
Figures in percentage.

The highest rise in preference for direct benefit transfers was recorded in Puducherry – from 38% in June 2016 to 77% in October 2016. However, this might be because two months into the pilot project, the Union territory resumed its distribution of grains in parallel with the cash transfers.

“In Puducherry, the Central government scheme has shut down, but it still has its own in-kind transfer programme where they [beneficiaries] are still getting rice from the Union territory and wheat from the Central government,” Eskici said. “So they are still getting some benefits of the public distribution system.”

Those who preferred cash transfers said they did so because they could buy rations of their choice and when they wanted. Some 95% of them said they used the transfers to expand their dietary diversity.

Those who preferred the public distribution system, on the other hand, did so because they got more foodgrains at lower prices.

The study also found that beneficiaries with higher incomes had a slightly higher preference for direct benefit transfers. This was, however, statistically significant only in Dadra and Nagar Haveli. Most Union territories are more urbanised than other parts of the country.

Access to the scheme

However, the study found several factors affecting the implementation of the project. For one, information about the scheme is spotty. Though almost all respondents had mobile phones, a little less than two-thirds of their phone numbers were seeded with government databases – and only 16% remembered receiving a text message about the transfer.

“It is not ok for the government to say we have sent the money and it is done,” Eskici said. “The government has to make sure the citizen is aware of the transfer. That is why in the combined report, we tried to emphasise who received it and who did not.”

The report also found that beneficiaries had to spend more time and money to access cash benefits, particularly those who did not have ATM cards for the accounts the payments went into. As many as two-thirds of the respondents did not have these cards. Withdrawing money from banks also took more time and money than getting foodgrains from the ration shops.

With cash transfers, beneficiaries also ended up having to spend more per person to purchase the same amount of foodgrains they earlier received from the public distribution system. This is because the amount the state transfers is less than the market price of grains, which also keeps fluctuating. A four-person household, for instance, in the three Union territories spent between Rs 30 and Rs 124 more from their own pockets each month, the report found.