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Aadhaar-Based Cash Transfers: Promising Reform, but More Data Needed

India’s shift towards direct benefit transfers (DBTs) is on the fast track. According to official statements, in the 2015-16 fiscal year the central government deposited nearly $5 billion of subsidy and welfare payments directly into the bank accounts of 300 million beneficiaries. It has also set an ambitious target to transfer all payments to the Aadhaar-based biometric DBT platform by the end of 2017. This will surely be the greatest subsidy reform in the world, but we need more data to accurately evaluate its impact.

Cash at Your Fingertips: Biometric Technology for Transfer Systems

This is a joint post with Caroline Decker

Last week CGD published our working paper on the use of fingerprint and iris scans for cash transfers. As we continue to look into this topic, we are even more convinced of the potential this technology has for transfer systems, particularly those in resource-rich countries.

Cash transfers are increasingly being used by developing countries and development agencies to address a range of economic and social problems, including human investment and greater equality. But the option to directly distribute natural rent to citizens of resource-rich developing countries may also be especially relevant. Such an approach could encourage better resource management and head off the governance problems associated with the concentration of large rents in the hands of the state. Unfortunately, it is often difficult to establish efficient transfer programs in developing countries, many with a record of corruption and leakage. Evidence suggests that even well designed transfer programs experience 10-20 percent leakage, if not higher.