Corruption, Cash Transfer and Crony Capitalism

by Ritwik on October 22, 2012

Continuing with its born-again “reformist” zeal, the Government of India has announced that subsidy amount on cooking gas shall now be directly transferred to beneficiaries’ bank accounts. This is in contrast to the present situation where all cooking gas cylinders sold for non-commercial purposes are made available at a subsidized amount. However, with the government now capping the number of subsidized cylinders to six per family per year, some mechanism is no doubt required to ensure that people can’t avail of subsidy on more than the designated number. Capping the number of cylinders, and that to a small number like 6, is a silly move, but as many have dwelt upon it I shall not waste time in repeating well known points.

The government and its cheerleaders [mostly belonging to business/technocrat/economics backgrounds] have hailed this “pilot project” as a landmark step against inefficiency and corruption. They are no doubt awaiting the “success” of this initiative so that direct cash transfers can replace the existing “inefficient” subsidy regime in food, fuel and perhaps healthcare and schooling as well.

Whether or not direct cash transfers meaningfully improve efficiency in delivery of public services is a hotly contested topic. My instinct says that it may not prove very successful in India, especially if extended to healthcare and schooling. However, I am not particularly fussed about the kind of administrative regime the government puts into place to improve the lot of the poor and the dispossessed, as long as it gets it done within a reasonable time frame. That is not to say I support phasing out of subsidy and phasing in of direct cash transfers per se, but some intelligent, and preferably decentralized combination thereof is not ideological anathema to me.

But beyond the basic concept of direct cash transfer, there does exist the attendant problem of how it is sought to be executed, on the basis of biometrically-linked identity cards. I am against any compulsory citizen identification programme, particularly if it is bio-metric  as I don’t believe in the eternal-ness of the State which philosophically underpins such ideas. The Aadhar cards become compulsory “by the back door” as soon as you link critical food and fuel subsidies to them.

The second issue that I would like to highlight, which is perhaps more topical than the problem with id cards, is of how the government, the industry and sections of the policy-making apparatus want us to characterize and understand corruption. The narrative runs something like this: since middlemen [including government officials] will be eliminated through cash transfers, people will get the real benefit of what the government spends on subsidy. It will not be “siphoned-off” by greasy bureaucrats.

We may all have loved office, office and certainly the bribes demanded by a small-time [or big-time] babu to get essential stuff done are insidious and frustrating, but to conceive of corruption primarily in these terms would be a grave folly.

What is to be noted is that there has been no action or policy step on large scale looting of public resources, which is catapulting our big-boy industrialists to the “world stage”. The rocketing wealth of Ambani, Tata, Jindal et al, with which they are making splashy acquisitions, owes less to entrepreneurial brilliance [assuming that some degree of entrepreneurial competence does play a part] and more to precious, often- exhaustible natural resources [like land, coal and other minerals or spectrum] being allotted for the use of large corporations at throwaway prices and without any kind of transparent process.

Reform and liberalization have come to stand for ridiculously large profit making by a select group of top-level politicians, armed forces officers, bureaucrats and especially corporations. This is what report after CAG report has talked about – on 2G spectrum, coal etc

The finance ministry is full of imported ideas and much zeal on curbing “corruption” on part of  small time middlemen and government officials by dubious methods like direct cash transfers. If it comes off, then it shall certainly be worthy of applause.

However, we wait in vain for any real initiative on the critical political-economic issues responsible for the mind-boggling scale of corruption. Some of these issues are: electoral reform [with an aim at reducing influence of money in politics, especially to reduce money as a barrier to common citizens to join politics], media reform, national land, water and forest policies, policies on coal and other precious mineral resources, transparency in defence acquisition etc

The government had made a promising beginning by talking about GAAR [general anti-avoidance rules] with respect to the Vodafone case. The multinational behemoth acquired the Indian company Hutchison Essar Telecom in Mauritius, thereby avoiding billions of Dollars in taxes. Alas, one of the first steps taken by Mr Chidambaram on resuming charge of the finance ministry was to ditch GAAR.

This does suggest the direction the battle against corruption will take.



Good job at identifying the government’s selective approach to tackle corruption. While the direct cash transfer does not [merely by a lack of perspective on prioritization] become a dubious idea, its implementation has obvious issues, which can be better handled [unless the not-so-middlemen put their thinking caps on, like they did in 2g and coal] than the earlier method of distributing welfare.

by Yash on October 22, 2012 at 3:30 pm. #

The big fish are seeking to divert attention away from themselves, by trying to net the smaller ones.

I am not too pessimistic about cash transfers. Despite all its shortcomings, they certainly are a step up.

But as you correctly mentioned, its a drop in the ocean of corruption. At least, they could be doing much worse.

by Manuhar on October 22, 2012 at 7:04 pm. #

@Manuhar – I am not sure I agree they could be doing much worse. Could you elaborate?

by Ritwik on October 22, 2012 at 8:08 pm. #

The system of direct cash transfer has been in use for almost ~8 years in the Supplemental Nutrition Assistance Program of the US (the food stamps). Here in France, it is already in place, for a wide range of benefits from food, social, old age, housing etc. Moving on to the BRICS, I believe Brazil has one of the most successful direct subsidy transfer systems called the BFP.

Notwithstanding your “imported ideas” comment, I think it is a step in the right direction. If nothing else, it will reduce the long term cost of providing this service. But it should also make a dent in the leakages, where the rupees are funneled away by middlemen.

On the “much worse” side, pretty much everything the current and previous governments have been doing over the last decade or so.
(maybe the subsidies had additional benefits for the economy like boosting rural demand, but that was not the intended consequence)

And regarding citizen identification programs, I am certainly against making it mandatory. But from the management side, the UID can make the process structured, and maybe even transparent (if it ever gets properly implemented). So I thing the poor would be okay with losing a bit of their privacy in exchange for a slightly more efficient way to get food, pensions etc

by Manuhar on October 22, 2012 at 9:09 pm. #

“We may all have loved office, office and certainly the bribes … but to conceive of corruption primarily in these terms would be a grave folly.” Hitting the nail on the head as usual.

Eliminating the middle-man is hardly the problem. Hell, why even grudge a poor clerk a few pennies? This kind of file-pushing corruption is a symptom, not the cause. That is, as you mentioned, the nexus between the Govt and the rich industrialists, which is actually the cause of the system rotting from within. But then again, it’s a big issue to be tackled. Why do it? It’s easier to catch a poor thief stealing for sustenance as opposed to big one plundering in broad daylight.

by Neelakshi Tewari on October 23, 2012 at 1:08 am. #

@Manuhar – I was only saying that there’s not much worse than what the government is doing at present, short of a systemic collapse! Thanks for your thoughtful comment, but as I state in the above post I am not much bothered about refuting the idea of direct cash transfer. Any kind of policy action needs to be well designed to work in its intended area of application. Since you mention the Brazil example, its interesting that the Government there has linked cash transfer to parents getting kids immunized on time. Such innovative measures could also be explored here.

@Neelakshi – unfortunately the issue of government-corporate nexus is systemic and global in its scope. We just need to be vigilant about it wherever it appears and in whatever form.

by Ritwik on October 23, 2012 at 4:40 am. #

Sadly though I might be entering the cheerleader category and I found your piece helpful as I could zoom out and see the big picture. I have one question though: could you elaborate on the eternal-ness of the state argument, in particular why should the state not be eternal and in your opinion what happens when the state withers away? I am not aware of the literature in philosophy on this topic so maybe if you write a blog post explaining this to a general audience that will be useful.

by Aaditya on November 24, 2012 at 4:29 am. #

@Manuhar :Adopting a cash transfer model fashioned on the lines of France or Belgium or US will be very unfair as most of the population there is urban and the intensity of bank branches is quite high. While India suffers from more than half of the population living below the poverty line(which Mr Ahluwalia will never admit instead he draws satisfaction out of squeezing the poverty line further) and poorer infrastructure.

Secondly the success of DCT hugely rely on the huge army of BCs but who is going to take their responsibility and who is ensuring that they don’t siphon off cash that they are suppose to deliver.Where is such a mechanism in place?

by Vaishali on December 24, 2012 at 12:59 am. #

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