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India Combines Benefits and Banking for the Poor

Ad for Mobile Phones for Below Poverty Line Card Holders in India

New Orleans     There’s something interesting happening in developing countries around welfare benefits that is very important now:  they are increasing the effectiveness and efficiency of their direct cash welfare programs as the income and wealth of their countries improve.  This is not to say that we are knocking on the door of a real solution around global poverty, but it is to say that countries with huge populations and improving economies are taking important steps to deal with some of the more abject conditions of the poor.

Obscured by the horror of the government’s mishandling of the country’s recent crisis around rape, which has exposed in stark relief the culturally narrow role of women in India, is their new program to distribute welfare benefits across an array of 29 government programs directly to their poorest citizens using cash transfers to bank accounts.   An article in the Wall Street Journal noted that “only 40% of  India’s 1.2 billion people have bank accounts, and only 36,000 of India’s 600,000 villages even have a bank branch,” as part of the challenge of this “massive undertaking.”

Two things make this possible, one of which is embraced in our high tech world, and the other which is ignored in the knee-jerk embrace of globalization and worldwide capital movement.  Much has been made of the commitment of some of India’s high-tech stars to creating a national identification system for everyone in the population.  For a host of reasons this is critical, not the least of which is addressing the huge problems ACORN India has confronted organizing in the mega-slums that currently center on the difficulty of getting government IDs, which now are only issued in home villages meaning millions of internal Indian migrant workers who have been drawn to Delhi, Mumbai, Bangalore, and other cities form the villages, can’t get IDs which also denies them the ability to vote, get ration cards and food allowances.  The bio-metric IDs which are now available to 200 million people are meant to solve that problem and also eliminate fraud in receiving cash welfare payments.

The other major reason that India can move in this direction, which the Journal did not mention, has to do with the fact that banking in India is still protected by foreign direct investment (FDI) regulations, as is multi-brand retail, which date back to independence.  Banking and insurance are therefore public enterprises, state-owned, operated, and regulated.  The argument in India for maintaining this kind of control of their financial system is that they can have a vast network of branches in a huge number of villages, which global banking centers would not support.  The constant efforts of Citi, Standard Charter, Barclays, and others to “open” up banking is based on their interest in the growing 200+ million Indian middle class, and not the national network for all.  Having such a capacity gives the Indian government the ability to contemplate a system which will require the poor to be “banked” and eventually have bank accounts.

The Indian government is targeting this new and improved cash transfer system to 90 million household, more than 350 million people or a quarter of the Indian population.  This is huge!  In India critics are arguing that this stepped up welfare system is arising partially because national elections are looming in 2014 and the ruling Congress Party is in trouble and has to step up its game.  I’m actually OK with that, just as I was for the raising of welfare payments (the bono) in Ecuador being raised from $30 USD per month to $50 USD per month in the political campaign in that country recently.

There’s everything right with politics being about more equity and benefits for the poor.  In the United States we are now talking about an inverted, twisted kind of politics where we claim we are seeking equity in taxation, but have huge debates about how to cutback “entitlements” which are mostly payments in support of the poor and elderly.  We could learn a lot by looking closely at some of these new welfare programs in India and other developing countries, not only about efficiency and banking, but about doing better for the most low income families, who are increasingly invisible and voiceless between the cliffs and ceilings in America.