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Direct Cash Transfer Can Control Inflation: Chakrabarty
Describing the government's ambitious direct cash transfer scheme as a "powerful tool", Reserve Bank Deputy Governor K C Chakrabarty has said the initiative will help reduce fiscal deficit, which in turn will also bring down inflation if implemented well.

"The direct cash transfer scheme will reduce the fiscal deficit, which in turn will facilitate inflation control," Chakrabarty, the senior-most of the four deputy governors at the Mint Road, told PTI in an interview.

The former commercial banker, who recently got a second term for another two years, explained that the scheme will have a positive impact on the inflation front.

The efficiency in expenditure will help reduce the fiscal deficit, he added.

Chakrabarty said the programme, which is planned to be introduced in 43 districts starting January 1, will help in curtailing the massive leakages and wastages in the subsidy distribution system.

It is learnt that the government can save up to Rs 20,000 crore a year through this as it will plug the porous distribution system that helps middlemen.

The scheme, once nationally rolled out, envisages transferring as much as Rs 32,000 in cash on an average into the bank account of each beneficiary family or a total of Rs 3.2 trillion per annum.

While 16 states will be covered by April 1, 2013, the national roll-out is planned for April 1, 2014.

The government plans to include training of all involved in the process like the revenue officials, bankers, etc., before the launch.

The financial inclusion drive being carried over through the last three years, complemented with the Aadhar drive, will help fulfil the Know-Your-Customer requirements, and make the transfer scheme a success, Chakrabarty said.

Chakrabarty further said there may be some hiccups initially in the implementation of the cash transfer scheme, but that it is essential to try and implement it.

"Yes, initially, there may be hiccups, there may be problems...(but) ultimately, we have to move in that direction," he said.

He warned that there is a significant constituency of people thriving and running their families through the leakages, which will have to be taken care of.

"What may further complicate the matter is that this constituency may be very active participant of the society," he said.

"They have a vested interest in not allowing this to happen. You will have to overcome that difficulty and in a democracy, they are also a part of the system and they may be more aggressive voters, they may have more voice," he said.

Chakrabarty said the programme will also help in driving the financial inclusion agenda of the apex bank.

"It can develop saving habits among the poor as one may be drawing money only as and when he/she requires. This will give him/her the security and that is what banking is all about," he said, adding this will soon extend to taking credit and accessing other financial products.

When asked about the multi-level KYC requirements, Chakrabarty said the Aadhar, which identifies the customer along with his address, can be used in the first stage of the KYC.

He conceded that there is a lack of understanding on the KYC requirements, both in the rural as well urban areas, especially for the underprivileged section of the society.

Hence, RBI prefers that new bank accounts should be opened in camp mode or through special drives, in presence of officials from banks and also other government departments, thus expediting the process. This, he said, is essential for the success of the programme.
Emerging story. Watch this space for updates as more details come in
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1/D-141
Dec 14, 2012
08:47 PM

FDI in retail can control inflation. Direct Cash transfer can control inflation. What else? Does global warming cause inflation? Does the performance of Indian cricket team contribute in any way to inflation?

All the economic geniuses headed by Manmohan Singh have absolutely no clue about how to control inflation. Hence this parade of nonsensical statements.

Rakhal, Philadelphia
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