13 May, 2020
10 Min Read
Getting cash transfers out of a JAM
By, Jean Drèze is Visiting Professor at the Department of Economics, Ranchi University; Reetika Khera is Associate Professor of Economics at IIM Ahmedabad
For some years now, the so-called JAM trinity (Jan Dhan-Aadhaar-Mobile) has been propounded as a dream cash-transfer infrastructure for India.
It was born in chapter 3 of the Economic Survey 2015, titled “Wiping every tear from every eye: The JAM number trinity solution”. This early JAM promo humbly concluded that “nirvana today seems within reach”. The same lyrical tone can be found in the following year’s Economic Survey, where JAM’s virtues were praised once again.
An illusion and its fading
What JAM really means, in practical terms, is conveniently vague. The original formulation, in 2015, mentioned two possible incarnations of the trinity: mobile banking and post office payments.
The second option never made much headway, perhaps because it did not have enough scope for private profit. So Aadhaar-enabled mobile banking became the supreme goal.
The intoxication reached new heights as the JAM project latched on to another flourishing narrative, universal basic income (UBI). If you want to make cash transfers to everyone, what better platform can you have than Aadhaar, India’s unique biometric ID, doubling up as a permanent financial address? An illusion emerged that India had developed an ideal infrastructure for UBI, ready to be deployed at any time.
It took the coronavirus crisis for the bubble to burst. In the early days of the crisis, JAM was often invoked (sometimes along with UBI) as a possible tool of emergency relief. But when the time actually came to make cash transfers to the poor, JAM turned out to be of little use.
For all the excitement it had generated, JAM had not gone beyond some fancy digital-payment systems for the privileged. Long bank queues and related hardships have started emerging, especially in rural areas where the density of banks is relatively low.
In a Dalberg survey conducted last month in 10 states, only 25% of poor households reported that it was “easy” to access cash benefits. The crowds are all set to swell further as and when the lockdown is lifted or relaxed.
JAM enthusiasts may respond that the central government’s relief package does rely on Jan Dhan Yojana (JDY) at least – the J in the JAM, if not the entire trinity.
Why is NREGA account better then JDY accounts for DBT transfers?
Indeed, the lead cash-relief measure in the national relief package consists of monthly transfers of ?500 to women’s JDY accounts.
One way to think about this is to compare women’s JDY accounts with another possible basis for cash transfers, at least in rural areas: the list of households that have a National Rural Employment Guarantee Act (NREGA) job card.
The numbers of accounts are roughly comparable: about 14 crore for NREGA job cards, and 12 crore or so for women’s JDY accounts in rural and semi-urban areas (assuming that the gender distribution of accounts is similar in rural and urban areas).
1. First,the NREGA job-cards list is far more transparent and well-organised. During the frantic initial JDY wave, in 2014-15, banks opened JDY accounts en masse to meet the targets.
Banking norms went for a toss: many accounts were opened without informed consent, duplicate accounts flourished, Aadhaar numbers were seeded without any safeguards, and so on. Later on, a large proportion of JDY accounts (40% in March 2017, down to 19% in January 2020) went “dormant” as customers were unable or unwilling to use them.
Other accounts were blocked because the account holders were unable to complete timely ex-post biometric authentication (“e-KYC”) of the Aadhaar numbers that had been seeded into their accounts. It is not clear what proportion of JDY accounts are operational today, in the sense that a bank transfer to these accounts will actually reach the recipient in good time.
2. Second, cash transfers to women’s JDY accounts are likely to involve large exclusion errors. According to a recent Yale study, less than half of poor adult women have a JDY account (an even lower proportion, 21%, know that they have a JDY account).
Consistent with this, the Dalberg study mentioned earlier finds that the proportion of poor households where at least one adult woman has a JDY account is just 57%.
The NREGA job-card list is likely to have much better coverage of poor households. The natural complementarity between NREGA and social security pensions (covering more than four crore persons under the National Social Assistance Programme alone) would further help to reduce exclusion errors.
3. Third, inclusion errors are also likely to be larger in the JDY approach. Job cards are meant for rural workers, JDY accounts are for everyone.
National Election Studies 2019 data, show that JDY beneficiaries tend to be better-off than NREGA beneficiaries.
Back to cash in hand? (Way Ahead)
There have been significant issues (e.g. delayed, rejected, blocked or diverted payments) with NREGA payments, often related to Aadhaar. But then, numerous “direct benefit transfer” schemes (social security pensions, scholarships, maternity benefits, among others) have faced similar problems, also reflected in official transaction data.
Both the Aadhaar Payment Bridge System (APBS) and the Aadhaar-enabled Payment system (AePS) are shot through with technical glitches, possibly exacerbated by the recent surge in transactions, and especially unkind to the powerless.
Transfers to women’s JDY accounts are unlikely to be more reliable than transfers to job-card holders.
In fact, as far as effective payment is concerned, there is a further argument in favour of the NREGA job-cards list: unlike JDY accounts, it lends itself to the “cash-in-hand” method (on-the-spot payment in cash, instead of bank payments) .
The reason is that the job-cards list is a transparent, recursive household list with village and gram panchayat identifiers, while the list of JDY accounts is an opaque list of individual bank accounts.
Cash-in-hand may seem like the antithesis of JAM, but this option may become important in the near future if the banking system comes under further stress.
There are precedents of effective use of the cash-in-hand method, notably in Odisha for pension payments, and in various states for NREGA wage payments. Several states (including Andhra Pradesh, Odisha and Tamil Nadu) have already resorted to cash-in-hand for relief payments during the lockdown.
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