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Zia Haq, Hindustan Times
New Delhi, February 21, 2013
Striking a cautionary tale in the government’s rush for cash transfers, UPA chairperson Sonia Gandhi has advised against replacing subsidies in kind, such as food rations, with cash until 90% of the recipients get bank accounts. Although the UPA’s money transfer plan could eliminate notorious payment delays, switching to cash instead of cheap grains or subsidised fertilisers — as opposed to monetary benefits like pensions — could be tricky, according to analysts.

Conditional cash-transfer programmes work only if people have bank accounts to receive government payments. According to the Reserve Bank of India, just about 40% of Indians have bank accounts.

Gandhi’s instructions came after the Planning Commission suggested to the food ministry that direct cash should be paid for at least 10 kg of the 35 kg monthly food quota reserved for some 25 million “poorest” households.

The Planning Commission proposed food aid to be partly in the form of cash transfers under the food security law, despite pending test-runs in select areas.

Although the food security bill will have provisions for money transfers, it will now apply only if 90% “financial inclusion” is achieved, sources said.

In her final comments on the food bill, Gandhi opposed any form of cash transfers unless a majority of “food card-holders” had bank accounts. Otherwise, a large number of poorest households without bank accounts could lose out on food aid, she said.

The flagship food bill, under which about two-thirds of Indians will get cheap food grains, would be tabled in Parliament in the budget session.