India begins direct cash payments to poor, aims to reduce corruption

Direct cash transfer of subsidies is aimed at stemming corruption in the existing system and to make the delivery of the government's welfare measures more efficient.

“This is a game-changer in how we account for money, it is game-changer in how the benefits reach the individual,” Finance Minister P. Chidambaram said Monday.

The initial phase includes seven types of subsidies, chiefly scholarships for students from India's lower castes and tribes, according to the Home Ministry.

The cash would be directly transferred to the bank accounts of 200,000 beneficiaries, it said.

The new policy would gradually be extended to 26 programs including old-age pensions and a state-sponsored work plan.

India is estimated to spend over US$60 billion annually on welfare.

There are no immediate plans to include food subsidies or kerosene — the main cooking fuel for India's poor — which are currently given out under a public distribution system. It would also not include fertilizers.

According to the 2001 census, at least 5.9 million households in India were categorized as poor.

The direct cash transfer program also faces challenges, with thousands of poor families having no bank accounts, many villages without banks at all, and logistical difficulties in identifying beneficiaries.

The plan is linked to the government's biometric identity scheme which aims to provide a unique identification number to each citizen, and is to help the poor open bank accounts.

In the past three years, an estimated 280 million of the 1.2-billion people have been issued identity cards.

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