From the comments, on UID

by on December 16, 2012 at 1:17 am in Economics, Political Science | Permalink

This is concerning the forthcoming Indian attempt to register individuals through unique eye scans and implement more cash transfers:

The domestic debate in India has largely been around :

1) This is just a sop before elections, a kind of brazen legitimised bribery. 2) The welfare architecture will not simply be migrated, it will be expanded. 3) Is conditionality critical to success? There remains no clear method to establish conditionality. 4) Identification of deserving families remains the problem. Until that is solved, nothing changes. 5) This is basically a turf war between ministeries and the previous operational/financial failures of the UID program are being hidden through the hasty implementation being planned now. 6) Getting in-kind subsidised goods through regular intervals during a month is superior cash flow management for a poor family than a lump-sum cash transfer at the end of the month

All the criticisms could be partially true. But the operational costs of the welfare delivery infrastructure will surely go down. Food and fertilizer have not yet been shifted – too politically sensitive – but amazingly, fuel has been. The biggest no-distortion gain is likely to come from there – the consumption of kerosene will most likely take a massive beating. It reduced by about 90% in a pilot.

The other corollary benefit – of using an Aadhar card as a means of establishing identity and for KYC norms in banks – is also absolutely tremendous.

It is indeed a top 5 most important economic policy issue in the world. But India is generally a low-trust society and in particular this gov’t is distrusted in most policy circles. Hence the rabid skepticism all around. I tend to be a lot more optimistic than that.

The great public choice question is – will they ever manage to bring food under this? For one, the PDS system was showing signs of an organic improvement. Second, the popular imagination has always conceived of the ‘man of the house’ frittering away hard earned money on country liquor if the woman of the house is not given grains directly. Third, giving away PDS distributorships has been an effective method of giving favours to those who the dirty work for national politicans at local levels – it is perhaps the longest running and biggest scam in India.

If they actually conclude that the greater ease for a poor family will convert into more votes than the losses they might take on the previous three fronts, it would be absolutely amazing. My sense is, like most great policy decisions, this will go through simply because it’s an idea whose ‘time has come’, and we will invent post-facto justifications of how it was politically rational to go through with this.

That is from Ritwik, who started off his comment with this sentence:

Privacy is actually a non-issue for most Indians.

Here is a good survey of what we know about cash transfers.

Hoover December 16, 2012 at 3:18 am

Veering off-topic somewhat, India is having an interesting argument about whether to allow the big supermarket chains (Walmart, Tesco, Carrefour) to set up.

The government would like the food chain modernised, as it’s alleged that 40% of Indian food supplies rots before it reaches the store. The numerous small shop owners are highly suspicious.

In my view, if you want to protect smaller shop owners, you can. Carrefour emerged in France, where every village has its own independent grocer and baker (or at least, very often a small franchised grocer), thanks to local planning laws. That lends a certain charm, but prices are much higher.

mulp December 16, 2012 at 1:35 pm

After Sandy, one of the few places you could buy food was at farmers markets, which had the wireless infrastructure to accept EBT cards (food stamps), and I presume credit cards – the Federal government has been funding rollouts of EBT at farmers markets using wireless networks, so the debit and charge services piggyback on the Federal initiative..

prior_approval December 16, 2012 at 3:22 am

But these are not ‘cash’ transfers, these are bank transfers. And for that reason, I thought that the information about these bank transfers would be how much the bank earns – because if there is one thing that banks are not notable for, it is providing any service without monetary gain. Merely a couple of percent, because if there is one other thing banks hate, it is not being able to get a couple of percent in performing their services. Much like publishers now seem to hate libraries for taking away sales by loaing out books to patrons, banks hate cash, since there is no effective way for them to make money off the transactions.

mulp December 16, 2012 at 1:50 pm

But that is not why banks no longer serve most people.

There was a time when a small profit on savings and checking was sufficient for banks to compete for customers.

I remember banks promoting getting your kid a saving account and bringing them in regularly to deposit their allowance regularly. I remember banks offering toasters to get customers to open accounts. I remember banks offering completely free checking if you maintained a $500 balance in your checking. I remember check costing 10 cents in the 60s when the processing was labor intensive, which today would be no more than 50 cents adjusted for inflation for labor intensive processing of checks.

I remember when electronic transfers to eliminate the manual labor of tellers, checks, moving paper all over, was going to cut costs to customers.

You are making the case for a radical change in the views of bankers from a service industry into a way to skim money for profit from the rest of the economy.

Careless December 16, 2012 at 6:53 pm

The more things don’t change, the more mulp thinks they have.

DocMerlin December 17, 2012 at 4:14 am

This is what happens when the fed holds down interest rates near 0 percent for too long.

Ray Lopez December 16, 2012 at 6:34 am

Re “the great public choice question is – will they ever manage to bring food under this?”: I’m not that familiar with India since I only did a brief stop there a while ago, but in the Philippines (PH), where I live a good part of the year, they import rice when they should be exporting it like Thailand. The internet says India had a three year ban on the export of rice that ended in September 2011. So food production in Asia is restricted, like bread in Egypt, like sugar in the USA, by government decrees. Why is this? Public choice? As in Mancur Olson? Not sure. I guess it’s city vs country votes, with this stat telling: “[India] Agriculture and allied sectors like forestry and fisheries accounted for 16.6% of the GDP in 2009, about 50% of the total workforce”. So simple arithmetic shows too many poor farmers in India (in the late 1990s in PH there were 40% farmers contributing 20% of GDP) and not enough city folk. Solution? Either free up farming so they can export rice like in TH, or encourage farmers to migrate to overcrowded cities as in China. Not sure how public choice comes into play here though.

mulp December 16, 2012 at 1:54 pm

What will an additional hundred million illiterate farmers who only know farming do in the cities?

And how will a hundred million farmers get fair prices for their labor produced rice in the global market?

Saturos December 16, 2012 at 10:22 am

Nice one Ritwik!

Joe Smith December 16, 2012 at 2:55 pm

This is India so half the money will be stolen by government officials and bankers no matter what they do.

The problem of monthly transfers should be easy to solve – it’s all electronic – just transfer the money in weekly installments (or daily or hourly if you like).

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