Manish Swarup/Associated Press
Poor and homeless people waited for food on Tuesday at a New Delhi temple.
NEW DELHI — India has more poor people than any nation on earth, but many of its antipoverty programs end up feeding the rich more than the needy. A new program hopes to change that.
On Jan. 1, India eliminated a raft of bureaucratic middlemen by depositing government pension and scholarship payments directly into the bank accounts of about 245,000 people in 20 of the nation’s hundreds of districts, in a bid to prevent corrupt state and local officials from diverting much of the money to their own pockets. Hundreds of thousands more people will be added to the program in the coming months.
In a country of 1.2 billion, the numbers so far are modest, but some officials and economists see the start of direct payments as revolutionary — a program intended not only to curb corruption but also to serve as a vehicle for lifting countless millions out of poverty altogether.
The nation’s finance minister, Palaniappan Chidambaram, described the cash transfer program to Indian news media as a “pioneering and pathbreaking reform” that is a “game changer for governance.” He acknowledged that the initial rollout had been modest because of “practical difficulties, some quite unforeseen.” He promised that those problems would be resolved before the end of 2013, when the program is to be extended in phases to other parts of the country.
Some critics, however, said the program was intended more to buy votes among the poor than to overcome poverty. And some said that in a country where hundreds of millions have no access to banks, never mind personal bank accounts, direct electronic money transfers are only one aspect of a much broader effort necessary to build a real safety net for India’s vast population.
“An impression has been created that the government is about to launch an ambitious scheme of direct cash transfers to poor families,” Jean Drèze, an honorary professor at the Delhi School of Economics, wrote in an e-mail. “This is quite misleading. What the government is actually planning is an experiment to change the modalities of existing transfers — nothing more, nothing less.”
The program is based on models in Mexico and Brazil in which poor families receive stipends in exchange for meeting certain social goals, like keeping their children in school or getting regular medical checkups. International aid organizations have praised these efforts in several places; in Brazil alone, nearly 50 million people participate.
But one of India’s biggest hurdles is simply figuring out how to distinguish its 1.2 billion citizens. The country is now in the midst of another ambitious project to undertake retinal and fingerprint scans in every village and city in the hope of giving hundreds of millions who have no official identification a card with a 12-digit number that would, among other things, give them access to the modern financial world. After three years of operation, the program has issued unique numbers to 220 million people.
Bindu Ananth, the president of IFMR Trust, a financial charity, said that getting people bank accounts can be surprisingly beneficial because the poor often pay stiff fees to cash checks or get small loans, fees that are substantially reduced for account holders.
“I think this is one of the biggest things to happen to India’s financial system in a decade,” Ms. Ananth said.
Only about a third of Indian households have bank accounts. Getting a significant portion of the remaining households included in the nation’s financial system will take an enormous amount of additional effort and expense, at least part of which will fall on the government to bear, economists said.
“There are two things this cash transfer program is supposed to do: prevent leakage from corruption, and bring everybody into the system,” said Surendra L. Rao, a former director general of the National Council of Applied Economic Research. “And I don’t see either happening anytime soon.”
The great promise of the cash transfer program — as well as its greatest point of contention — would come if it tackled India’s expensive and inefficient system for handing out food and subsidized fuel through nearly 50,000 government shops.
India spends almost $14 billion annually on this system, or nearly 1 percent of its gross domestic product, but the system is poorly managed and woefully inefficient.
India Takes Aim at Poverty With Cash Transfer Program
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India Takes Aim at Poverty With Cash Transfer Program
