Smartcards Reform India’s Corruption-Plagued Social Program

The biometric Smartcard, with its secure payment infrastructure, has the potential to revolutionize India’s corruption-plagued NREGA (National Rural Employment Guarantee Act of 2005) program. NREGA is the largest government workfare program in existence, covering 800 million people or 11% of the world’s population. It aims to improve conditions in India’s poverty-stricken rural areas by guaranteeing villagers a hundred days of paid labor a year. But widespread fraud and serious flaws in management divert an astounding 85% of the program’s funds away from intended beneficiaries, according to studies by the Poverty Action Lab.

In 2010, Andhra Pradesh, a state in southern India, began giving Smartcards to its NREGA-eligible population of 19 million in an effort to combat wasteful spending. Although the program does not yet cover the entire state, successes documented by the Poverty Action Lab have been inspiring so far. The time passed between working on a NREGA project and receiving payments fell by 29%, and the money people received increased by 24%. Beneficiaries further benefited by having to pay less in bribes.

The state’s government now directly transfers NREGA payments to a recipient’s Smartcard, circumventing corrupt middlemen. These Smartcards include the person’s photograph and contain a chip holding his biometric and bank account information. Beneficiaries collect their money after biometrically authenticating their identity, usually through fingerprinting.

Studies show that using Smartcards would save Andhra Pradesh $32.8 million annually by plugging financial leakages, and a further $4.3 million every year through the time saved by both workers and officials. The Smartcard program is therefore highly cost-effective- implementing the entire system took only $4.1 million.

Unsurprisingly, more than 90% of users prefer the new Smartcard program. Under the previous system, officials regularly over-reported owed payments to the government and under-paid workers, pocketing the extra money themselves. Less than 4% of workers could regularly access the labor provided by NREGA because of inept local administration. Even if they did manage to secure employment, payments were so unreliable that people were sometimes driven to commit suicide.

Smartcards are a “game changer for governance”, said Palaniappan Chidambaram, the former finance minister of India to the BBC. The federal government currently spends 7.9% of its budget on financing NREGA. The use of Smartcards has the potential to eliminate wasteful spending and free up funds to help the 179.6 million Indians living below the poverty line- 20.6% of the world’s poor, according to the Brookings Institution- at no extra cost.

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