EVEN by the low standards of India’s government, its system of distributing benefits in kind to the needy stands out for waste and inefficiency. Two-fifths of food rations disappear into the pockets of bureaucrats, ration-shop owners, distributors and so on. Many of the 140m claims a year for bottled cooking gas come from families who do not need help or from “ghost” recipients created by black-market traders. Car drivers and businesses use an increasing share of cheap diesel, which in the 2011-12 fiscal year cost about $27 billion in subsidies.

As other countries have discovered, handing out cash is more efficient and less susceptible to corruption than handing out food or subsidising fuel. But as long as many of India’s 1.2 billion people lacked proper identification, let alone bank accounts, cash transfers were impracticable.

Now technology offers a powerful solution. A huge project is getting millions of Indians biometrically identified and opening accounts for them. Nandan Nilekani, an IT billionaire who is the brains behind it, expects that by the end of 2014 600m Indians will be enrolled, creating the infrastructure for a system of cash welfare.

Giving cash would, on its own, revolutionise welfare. It would be better still if handouts promoted socially useful behaviour by, say, paying families to keep girls at school. Such “conditional” transfer schemes do well elsewhere, notably in Brazil and Mexico, and a few already exist in India, such as one paying women to have prenatal check-ups and give birth in clinics (see article).

The Indian government wants to travel at least some of the way down this road. After a year of pilot studies, says the prime minister, Manmohan Singh, his government will start sending cash into beneficiaries’ bank accounts through a new electronic transfer system. His political boss, Sonia Gandhi, also seems to be a convert. At a rally on November 4th in Delhi she said that fuel subsidies were becoming unaffordable, and spoke up for wider reforms. They could save huge sums. A Delhi think-tank reckons that scrapping the subsidy for paraffin, which many poor people use for cooking and lighting, would release nearly $70 for every poor Indian family.

There is plenty of criticism of the plan. Many opponents presumably fear losing their rake-offs, though the arguments made are altruistic. Some claim that the poor might not spend the money wisely, though pilot studies show that recipients in fact often eat better than when they are on food rations (see article). Some argue that where markets for food and fuel are thin so profiteering middlemen will benefit most, though creating demand for these goods will increase the size of markets and so boost competition.

In kind isn’t kind

Mr Singh should ignore the objections and implement his cash-transfer plan in three stages. First, existing financial hand-outs, such as public pensions and scholarships, should be linked to the biometric scheme (to make monitoring easier and corruption harder). Next, cash for the needy should replace subsidies for fertiliser and fuel. Only then should he deal with the most sensitive issue: phasing out public rations of cheap grain and sugar. Once the poor have cash in their pockets, they will be able to cope without those handouts in kind.

But Mr Singh should not stop there. Making cash transfers conditional can make welfare payments even more effective. Now that technology has given India the chance to bin its appalling welfare record, Mr Singh should grab it.