India's ruling party wants to send direct payments to nation's poor

India considers cash handouts to the poor (Getty Images)

India's ruling Congress party presented an idea Tuesday that it hopes will win it the next elections: cash handouts sent directly into the bank accounts of poor people, replacing a corrupt and inefficient web of subsidies and rations that often fail to reach the intended beneficiaries.

"We think this is a game changer," said Finance Minister P. Chidambaram, choosing to unveil the plan alongside another senior cabinet member at Congress party headquarters rather than government offices. "We think people will appreciate what the government has done."

Elections are due by spring 2014, but the party is gearing up in case tensions within the ruling coalition force an early poll. This month, it announced the formation of a committee to coordinate its election strategy, headed by Rahul Gandhi, son of Congress party leader Sonia Gandhi.

Chidambaram and Rural Development Minister Jairam Ramesh pitched the idea squarely as a Congress party program, with a neat poll-ready slogan: "your money, your hand."

"The party is very proud that the government has decided to launch the scheme, and the party congratulates the government for pulling it together," Chidambaram said to chuckles from the assembled reporters.

The idea of cash transfers is founded on an effort to give every Indian a unique identification card and backed by biometric data.

The transfers will roll out Jan. 1 in 51 districts — less than a tenth of the country — and will start by paying out scholarship grants and pensions, leaving much more expensive and more complex systems of subsidies and rations for food and fertilizer untouched for the time being.

India's welfare system is notoriously plagued by corruption and inefficiency, and most of the money intended for the poor is stolen or wasted before it reaches them, studies have shown. Chidambaram said the plan will ultimately eliminate many of the fraudulent and duplicate claimants who receive government benefits, saving the cash-strapped government "considerable" amounts of money.

It will also lead to "incalculable efficiency gains" by transferring money to beneficiaries at the click of a button, he said, instead of channeling it through innumerable layers of government, where much of the cash ended up getting stuck, stolen or unspent.

"If the government says the subsidy is meant for you, it will reach you, and all the people in the middle who eat it up will be removed," Ramesh said.

The left-wing opposition said the plan to replace rations with cash was a "ruse" to gradually cut subsidies as prices rose, while one leading economist wrote that without a greater effort to identify who is poor and deserving of the money, the scheme would only open the door to greater "fiscal profligacy."

Ashok Malik, a political columnist, said the welfare system has expanded under this government into such a "jigsaw puzzle" of competing schemes that any attempt to simplify it and eliminate waste should be welcomed. But he said the new idea is unlikely to save the electoral fortunes of a Congress party widely seen as corrupt and inept.

"It can influence a few votes here and there, but I doubt it can buy a mandate," he said. "With 10 years of anti-incumbency, this is going to be a tough election [for Congress], and I don't see this reversing everything."