e-RUPI a welcome addition, but challenges galore

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With the launch of e-RUPI on 2 August, direct benefit transfers (DBT) by the government will get a boost just as UPI or Unified Payments Interface (UPI) has turbocharged digital payments since its launch as a pilot in April 2016. The number of UPI transactions has increased from 17.9 million in 2016-17 to 22.33 billion in 2020-21. Their value has shot up from Rs 6,900 cr to 41.64 trillion (lakh crore ) during this period.

Its full form, if any, is not available even on the website of the National Payments Corporation of India (NCPI) which has created the digital voucher system, brings the simplicity of UPI to welfare payments. Unlike UPI, it does not require a bank account or a smartphone. The vouchers are transferred as SMS or QR codes. And they not limited to the government. Even companies and charities can use them. One of the first uses of e-RUPI has been for Covid-19 vaccinations. An employer or a charity can make paid vaccinations available to employees or other intended beneficiaries by sending them SMS or QR codes, exchangeable for jabs at the vaccination venues. The moment the vaccine is administered money is transferred to the bank accounts of the vaccinators, making the entire payments process contactless and efficient.

These digital vouchers can be used to deliver food, fertiliser, cooking gas, power and water subsidies, maintenance money to the disabled and the destitute, old age pensions, fellowships and scholarships and wages for manual work done under MGNREGA, the rural employment scheme. It can be used to provide income support to poor expecting women in advanced stages of pregnancy or newly lactating ones, persuade women with incentives to opt for deliveries in hospitals, or to reduce out-of-pocket expenses on healthcare and schooling. According to DBT Bharat portal there are 314 direct benefit transfer schemes covering 54 ministries. States also have their own set of such programmes.

DBT push

DBTs were started in January 2013 to make government’s welfare payments faster and targeted at the intended beneficiaries. They were expected to reduce or eliminate corruption and fraud. A DBT Mission was created in the Planning Commission. It was transferred to the Department of Expenditure in July 2013. From September 2015, it has been housed in the Cabinet Secretariat.

One of the biggest users of the DBT mechanism is MGNREGA, the programme that is supposed to provide work on demand, and make payments of wages within 15 days. Ninety-nine percent of the expenditure of Rs 1.11 lakh cr last year (of which the wage component was Rs 78,000 cr) was made electronically to the bank accounts of the workers. But workers face multiple problems. Payments are rejected for technical reasons like incorrect bank account numbers or Aadhar numbers not matching with those linked to bank accounts. In the five years to July 2020, wage payments worth Rs 4,800 cr were rejected. Bank accounts are also blocked if KYC verification is not done. A 2018 survey of 1,947 households in Jharkhand, Rajasthan and Andhra Pradesh, funded by the Research Centre of Azim Premji University and conducted by LibTech India, a grouping of academicians and activists, found workers making multiple trips to banks located at considerable distance from their homes to find out whether wages had been credited at all, and to withdraw the wages.

How can e-RUPI help?

The e-RUPI can get over some of these hassles as it does not require bank accounts or digital pay apps. The workers who responded to the study mentioned above had a satisfactory experience with post offices. That being the case, it would help if e-RUPI wage vouchers were encashable at post offices. It should be possible to verify the identity of the workers with their Aadhaar cards. Currently, biometric authentication has its own set of problems owing to smudged fingerprints or poor connectivity. But a phone or a SIM card lost can create its own set of problems.

DBT and e-RUPI however cannot eliminate errors of exclusion – those entitled not being included – or errors of inclusion – that is, the truly needy being excluded. According to Jean Dreze, an economist who co-authored the MGNREGA bill, middlemen make money by including dummy workers on muster rolls and by inflating the number of days worked.

Food subsidy when given in the form of cash can reduce the cost of providing it. For instance, wheat was procured from farmers this year at Rs 1,925 a quintal (100 kg), but by the time it was delivered to the ration shops the government had incurred a cost of Rs 2,740 a quintal on account of transportation, storage and interest on the inventory cost. If beneficiaries were given subsidy vouchers, they could buy the grains – or other things – from the open market. This would also reduce the distortion of the grain market caused by the government impounding huge quantities of wheat (or rice).

Challenges

Food subsidy as DBT can work in urban areas where supply chains are efficient and there are many kirana stores. But DBT may not be advisable in rural or remote areas where supply is constrained and traders can gang up to jack up prices and skim the subsidy. This happens in Punjab and Haryana where manufacturers inflate the prices of machines meant to eliminate the burning of paddy stubble as per the subsidy offered on them. During calamities like the Covid-19 pandemic, DBT may not work. It is only because the government had more than adequate buffer stocks that it could provide free grains to people without work in urban and rural areas when a strict lockdown was imposed last year. In such events, it is not money in the wallet but grain in the granary that staves off hunger.

Digital subsidy vouchers can be used to incentivise judicious use of resources and prevent environmental damage. In Punjab where electricity for agriculture is free, the vouchers could be used to reduce power consumption and over withdrawal of water from the ground. If power rates are allowed to float, farmers will save some of the subsidy received by shifting to drip or sprinkler irrigation or growing crops, other than paddy, that use less water. The vouchers could be made tradable as well. This can also be applied to fertiliser subsidy on urea, which is being provided as DBT from March 2018.

DBT and e-RUPI may not work where the poor have to pay first and are reimbursed later. As per an audit done by the Comptroller and Auditor General (CAG) in 2019, 1.93 beneficiaries of PM Ujjwala Yojana had bought on average only 3.66 refills a year. They got LPG connections free but the subsidy on cylinders was credited to their accounts after they had bought the refills. Rural folks who have little cash income can’t afford to pay upfront, which explains the under-consumption of cooking gas.

Efficient payment systems are necessary for delivery of subsidy but they should also be tailored to the living conditions of the poor for them to be able to avail of the welfare benefits.