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The UPA has long been planning a shift to direct cash transfers for poor households, with a view to replacing the 3.23 lakh crore worth of unwieldy subsidies currently in place. Last year, the then finance minister Pranab Mukherjee had spoken of the famously inefficient food and fertiliser subsidies, and of a comprehensive overhaul through cash transfers. Now, that plan has been fleshed out further. The prime minister heads the national committee monitoring the transition, which involves collaboration between the Planning Commission, Aadhaar, as well as ministry inputs from rural development, social justice, minority affairs, food and public distribution, etc. On January 1, cash transfers will kick off in 51 chosen Aadhar-enabled districts with the needed banking infrastructure, and then progressively extend outwards to all states. Starting with cooking gas, it is hoped that food, agricultural inputs, power, fuel and other welfare schemes like scholarships and pensions in these districts will ultimately move to direct electronic payments.
Many nations, including Brazil, Indonesia and Chile, have shown success in cash transfers, and there has been much academic debate on the design and intentions of such a programme. Opinion in India has been mixed, with critics pointing out that inflation can erode the value of money, that cash may be misused and that banking services have not penetrated many parts of India sufficiently. The advantages of cash transfers are manifold — they reduce transaction costs, eliminate the pilferage, waste and corruption that accompany redistribution in kind, they enable access for migrant workers, and besides, it makes more sense to trust the poor with how to use the money meant for them than to rely on the state's paternalistic judgment and methods. Biometrics can narrow the leakages to a great extent — eliminating "ghost" payments, creating a clear and auditable trail, etc.