1. Building State Capacity: Evidence from Biometric Smartcards in India by Karthik Muralidharan, Paul Niehaus, and Sandip Sukhtankar

   Abstract

   Antipoverty programs in developing countries are often difficult to implement; in particular, many governments lack the capacity to deliver payments securely to targeted beneficiaries. We evaluate the impact of biometrically authenticated payments infrastructure (“Smartcards”) on beneficiaries of employment (NREGS) and pension (SSP) programs in the Indian state of Andhra Pradesh, using a large-scale experiment that randomized the rollout of Smartcards over 157 subdistricts and 19 million people. We find that, while incompletely implemented, the new system delivered a faster, more predictable, and less corrupt NREGS payments process without adversely affecting program access. For each of these outcomes, treatment group distributions first-order stochastically dominated those of the control group. The investment was cost-effective, as time savings to NREGS beneficiaries alone were equal to the cost of the intervention, and there was also a significant reduction in the “leakage” of funds between the government and beneficiaries in both NREGS and SSP programs. Beneficiaries overwhelmingly preferred the new system for both programs. Overall, our results suggest that investing in secure payments infrastructure can significantly enhance ‘state capacity’ to implement welfare programs in developing countries.

2. Curbing Leakage In Public Programs With Direct Benefit Transfers: Evidence From India’s Fuel Subsidies And Black Markets by Prabhat Barnwal

Abstract:

Pervasive corruption and evasion often undermine the provision of public programs. I focus on a large in-kind subsidy program in India that provides fuel subsidies to households for do- mestic cooking. This subsidy to households, when combined with taxes on commercial usage of the same fuel, gives rise to a black market. In this setting, fictitious “ghost” beneficiaries are often used to divert the subsidized fuel from beneficiary households to the commercial sector. This paper studies the impact of a major policy change in welfare administration, which enabled direct transfers to the bank accounts of verified beneficiaries. I use unique data from admin- istrative records for 23 million fuel purchase transactions and distributor-level fuel sales, and conduct a survey that allows me to infer black market prices. My empirical strategy exploits two quasi-experiments: (a) the phase-wise policy roll-out across districts, and (b) its unexpected termination. I find that directly transferring subsidies to households’ bank account significantly reduced domestic cooking fuel purchases, suggesting a reduction in subsidy diversion via “ghost” beneficiaries to the commercial sector. Once the policy is terminated, black market prices went down drastically, that indicates policy-termination led to a positive supply shock in the black market with increased supply of diverted subsidized fuel. Finally, in response to the lower black market prices, commercial firms reduced fuel purchases through formal channels and re-entered the black market for fuel. In sum, this paper illustrates that investment in enforcement capacity can significantly strengthen the state’s ability to target program beneficiaries and reduce leakage.