Last week, the Economist ran a series of articles on India’s Unique ID program that echoed themes that the Global Assets Project has been writing about for some time. Specifically, as we have argued, the Economist pointed out that delivering public benefits as cash into recipients’ bank accounts, as opposed to via in-kind methods such as grain, would make the Indian government more efficient, prevent corruption and eliminate ghost workers.
The UID scheme is set to register its 200 millionth user this month and, if it gets fully refunded, hit 400 million by the end of the year, or approximately a third of all Indians. With this system in place, states the Economist, “India will be able to rethink the nature of its welfare state, cutting back on benefits in kind and market-distorting subsidies, and turning to cash transfers paid directly into the bank accounts of the neediest.” In the eyes of many, including the government’s chief economic adviser, the new system should be able to pay for itself because “’plugging leakages’—that is, stopping huge theft and waste in welfare and subsidies—will be ‘very big, very beneficial’.” In addition, the UID system will make it easier for banks and microfinance institutions to identify clients and thus to make loans, and will enable small store owners to turn a profit from serving as agents for the distribution of government payments.
We believe that India’s shift to cash payments for its public benefit schemes also offers an exciting opportunity to promote savings and asset building. By tying these benefits to the chance to accrue wealth over time, India will help enable its poorest households to not only cover costs but also to build toward a better future for themselves and their children.