India’s Finance Ministry and Planning Commission are looking into ways of using electronic smart cards to transform the distribution of relatively small amounts of government money to India’s 220 million people who live below the poverty line, and maybe to 200-300 million more who are only marginally better off. This would make it much more difficult for bureaucrats, politicians and middlemen to siphon off the funds as they move down the distribution chain.
“We already have the technology today to do this and it would be feasible to use it for putting money in the pockets of the rural poor within 18 to 24 months,” K.V.Kamath, managing director of ICICI Bank, a leading Indian financial institution, said in Delhi last week.
The Smart card system would not have been possible a few years ago because there was not sufficient telecom connectivity. But India now has 190 million cell phone users – rising by more than six million a month – plus 40 million fixed lines. This increased connectivity to remote areas opens up various possibilities for smart card use.
In a parallel technological development, ICICI is introducing biometric smart cards that enable people to identify themselves by their thumbprints at ATM and other terminals. It expects to have 220,000 cards in use by next March (justifying a claim Kamath sometimes makes about ICICI really being a technology company that’s into banking).
Other banks, including Citibank, are experimenting, but are not so far advanced. Adding to the potential network, state governments are opening 100,000 internet kiosks in rural areas, often linked by cell phone circuits, by the end of this year. India’s electorate, totaling 650 million, voted electronically in the 2004 general election, which demonstrated the practical potential of information technology, and national identity and social security numbers are being progressively issued, which could be used to access digitized data.
Put all that together, and India is on its way to transforming banking for the 70% of its 1.1 billion population who live in rural areas, once ways of ensuring security for mobile phone and smart card transactions have been worked out. Ideas about how the government could use the technology to improve what the experts call the “social delivery mechanisms” of poverty programs emerged in Delhi last week, when the debate at the launch of a book on economic reforms switched to India’s most crucial problem – how to deliver hand-outs and development aid without a large proportion leaking.
Lord Meghnad Desai, a professor at the London School of Economics, suggested a dollar a day could be delivered via smart cards – he later amended that to a more modest dollar a week, which would add about 14% to low-paid laborers’ weekly wages. N.K.Singh, a former top bureaucrat, whose collection of Indian Express newspaper articles was being launched as a book called “The Politics of Change,” later suggested that the cards should not just be used for the odd dollar, but for all government payments to the poor.
Currently billions of dollars a year are distributed by elected village officials and low level bureaucrats, who routinely take some of the money for themselves, sometimes denying money to authorized recipients. In some states, as an experiment, 200-rupee monthly payments are being credited to destitute old age pensioners’ post office accounts, reducing the opportunity for leakage. The idea now is that aid recipients would be allocated smart cards credited with the handouts. The cards would be swiped through small electronics terminals and authorized officials would hand out the money. That would still leave room for the officials to bully recipients and deny them their full allocations, maybe demanding a commission, but it would be simpler to administer than post office accounts and far less leakage-prone than the current system.
Palaniappan Chidambaram, the Finance Minister, agreed at last week’s meeting that smart cards could be used in this way. Yesterday he told me that a good starting point could be to issue smart cards for the government’s popular Rural Employment Guarantee Scheme, which has been allocated a minimum of $3 billion this year. “The technology is proven. We should quickly move to implementation,” he said. Some senior officials are concerned about how to persuade tens of thousands of bureaucrats, who gain by administering current programs, to give up their lucrative work. Chidambaram is not sure that this is a problem, but some of his officials tell me the process could take several years. The technology, it seems, is almost ready, but the bureaucrats may not be so keen.