IN THIS bustling corner of western Delhi, ironmongers hammer away in workshops, and the narrow streets swarm with motorbikes and rickshaws. Raghubir Nagar is not desperately poor, yet signs of poverty abound.

Before a doorway a delivery man deposits two modest-sized aluminium pots. They contain rice and beans supplied, free, as part of a midday-meal scheme for all who attend school. Somehow 70 children from the nearby alleys are supposed to share the contents.

A woman of about 50, Shahjaha, oversees the distribution of the meal from her small brick house. She serves as a sort of health and social worker for the nearby streets. A skinny frame and wispy hair tell of her own limited supply of calories. For a family of 14 she scrapes together a few kilos of subsidised wheat, sugar and pulses each month. Her jobless husband complains it is hard sometimes to find the money, despite the subsidies.

A year ago, he says, things were easier. During 2011 Mrs Shahjaha was enrolled in a pilot project in the area, testing how cash transfers could replace public distribution of rations for “below poverty line” families. She got a monthly stipend of 1,000 rupees ($20) direct into her bank account instead of a right to use the ration shop.

The results were broadly encouraging. In all, 100 families got the monthly money. The women’s group overseeing the scheme found a “marked increase” in nutrition among families who got the cash, as they enjoyed a richer diet and better quality food. Strikingly, the quality of food in the ration shop also improved, perhaps as it saw customers opting to go elsewhere.

Mrs Shahjaha says she “once or twice” used some of the monthly money to buy medicine or pay for a trip to a doctor. Inevitably, she grumbles that the monthly stipend was too mean. Yet, overall, households appeared to gain, buying food where they wished. For the poorest, especially migrants lacking proof of a local address, getting cash via bank accounts was far simpler than proving eligibility for rations.

Cash in clean hands

Direct cash payments should drastically curtail corruption. In India abuse of the public distribution of food, fuel, fertiliser and other welfare-in-kind is legendary —two-fifths or more is stolen in some states. Switching to electronic cash transfers all but eliminates that. The success of such schemes elsewhere, such as Bolsa Família in Brazil, a “conditional” scheme that channels public money to 13m poor families while encouraging children to attend school, is now being debated in India.

Prominently, in late October the prime minister, Manmohan Singh, flanked among others by Sonia Gandhi, the leader of the ruling Congress Party, appeared in Jaipur, Rajasthan, to launch a national campaign promoting schemes for cash welfare. They praised those who have signed up to the country’s fast-expanding biometric database, known as the “unique identity” (or UID) project.

Nandan Nilekani, a former IT tycoon who has cabinet rank and oversees the project, says the next 18 months will bring a rapid expansion of the database and more applications to make use of it for cash transfers. Within two years he expects those in the database to rise to 600m—over half the population—from 215m today.

Mr Nilekani points to a rush of new pilot schemes where recipients are starting to get payments directly into bank accounts tracked with their UID number. They are for pensioners in Tripura state, employees in rural make-work schemes in Jharkhand and, soon, academics in Maharashtra. Yet making existing cash welfare more efficient is the easy bit. What follows—switching non-food rations for the poor to cash—will be more controversial.

First in line are public supplies of cooking gas. Over 100m Indian families get six cylinders of subsidised gas a year, through suppliers receiving wholesale payments from the government. Much is stolen and diverted to a thriving black market. Mr Nilekani and other reformers want gas sold to everyone at market rates, with government money sent to the bank accounts of the needy to help them buy supplies.

Since a cash system will eliminate fake recipients and be easier to audit, savings of a third could be made. A successful pilot scheme for gas provision in Karnataka state is a model for the country. Similar changes could be made to the provision of cheap fertiliser, paraffin and other fuels.

In the long run, and most controversially, officials want to see how to replace food rations with cash transfers, just as in Raghubir Nagar. Many oppose this, saying that in rural areas especially, recipients would struggle to spend cash well because working local food markets do not exist. Others fear that recipients will squander their cash on local hooch and the like.

Rather than switch to cash, critics say, food rations could be delivered much better, as has started to happen in certain states. For example, the chief minister of Chhattisgarh, Raman Singh, in his office in Raipur, cheerily describes how in the past few years he has transformed the supply of rations of rice to 3.4m poor families.

Mr Singh says the state system is now transparent. Food deliveries by lorry are tracked using GPS technology. Local councils rather than privately run ration shops oversee storage and distribution. Mr Singh claims that malnutrition and infant mortality are down as a result of the changes. Crucially, Mr Singh says, much less is being stolen. An aide claims that the gains are so popular that villagers now call the chief minister “Father Rice”. That should help Mr Singh as he faces a state election next year. He is against cash transfers.

Yet for the Congress Party in Delhi, the political opportunity may lie precisely with benefits as cash, not in kind. National elections are due by 2014 and Congress, beset by scandal and slowing rates of economic growth, has little to inspire voters with. If Mr Nilekani were able to get another 300m-odd people signed up for the UID scheme before the election, with their bank accounts linked to their electronic identities, then a new cash-welfare scheme could conceivably be rolled out in time. The capital’s politicians, who have promised to deal with public graft, might see the political advantages from cash transfers. In the alleys of Raghubir Nagar residents sound keen on the idea of leaders pledging to put money in their bank accounts, if they are not left worse off. Then one woman, a participant in the cash-transfer pilot scheme, cautions her neighbours: “We can’t believe what politicians promise. We have to see what they do.”