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Insights into Editorial: Cash transfers: Look before you leap + MINDMAPS on Issues

Insights into Editorial: Cash transfers: Look before you leap + MINDMAPS on Issues

26 November 2015

The Union Government has launched the Direct Benefits Transfer (DBT) programme to give benefits like scholarships, pensions, NREGA wages, etc. directly to the bank or post office accounts of beneficiaries. There are also talks of direct transfer of subsidies for food, fertilizer and kerosene at a later stage.

  • However, some people are against cash transfer schemes. Cash transfer can be a very useful system to supplement other ways of making India a less unequal society, but it is not a magic bullet, and its pros and cons have to be assessed and scrutinised with an open mind.
  • Cash transfer works well when we are dealing with ‘direct cash’ rather than cash in lieu of a physical product.
  • The UID-linked bank account can be used to transfer MGNREGA wage or pensions of senior citizens or even subsidies on LPG.
  • But one has to think harder in expanding the scope of cash transfer. Translating the concept of cash transfer for the delivery of other services raises some ticklish issues that need to be addressed.

Issues associated with cash transfers:

The role of the state: Governments all over the world play a role in creating institutions for delivery of services. Once we move to cash transfers, the state frees itself from provision of services like health and education that are vital for lower income groups.

  • These services, provided by the state, are still the only points of contact for the poor, especially in far flung areas where access to private health or education facilities is remote.
  • Once we move over to cash transfers, the individual is left to choose the mode of use and the state steps out of the picture.
  • In a way, the government ceases to provide services which are required for maintaining social standards. Therefore, the state distances itself from its duty.
  • Hence, while cash transfers are more efficient as a mode of delivery, it becomes more nebulous when we are dealing with larger numbers of beneficiaries and physical products.
  • When taken to cover health and education, the state could subtly withdraw from its responsibilities, which may not be appropriate in a country like India where the number of underprivileged households is so big.

The end-use of the transfer: Unlike foodgrains provided by PDS, cash can be used for anything. While it is okay for the government to leave it as the prerogative of the beneficiary, it becomes self-defeating in case the money is used for other purposes.

  • Different surveys carried out by economists/institutions show that the rural poor actually prefer foodgrains to cash.

Other problems that need to be addressed before expanding the scope of cash transfer:

  • Any cash transfer scheme would require that the transfers be indexed to inflation in the local area, which is highly complex.
  • Transferring cash to households, while seemingly simple, requires significant implementation capabilities. The first step is to identify all potential beneficiary households, which remains incomplete and daunting in India.
  • Many Indians currently have limited access to financial services. A recent World Bank study estimates that bank account penetration across India is very low. Many poor households do not have access to bank branches or ATMs.
  • In any cash transfer scheme, there will undoubtedly be cases of non-payment, late payment, or inadequate payment to beneficiaries. In these cases, it remains unclear, in the design of India’s transfer, how citizens will be able to file grievances and how the government will redress these grievances.

Strategy adopted by Brazil:

The Indian government can learn from an alternative implementation strategy adopted in Brazil for the famous cash transfer programme, Bolsa Família.

  • Bolsa Família is a social welfare programme of the Brazilian government, part of the Fome Zero network of federal assistance programs.
  • It provides financial aid to poor Brazilian families; if they have children, families must ensure that the children attend school and are vaccinated.
  • The program attempts to both reduce short-term poverty by direct cash transfers and fight long-term poverty by increasing human capital among the poor through conditional cash transfers.
  • It also works to give free education to children who cannot afford to go to school to show the importance of education.
  • The Bolsa Familia program has also been mentioned as one factor contributing to the reduction of poverty in Brazil.
  • The programme has also improved the job market in the country and minimum wages too have increased.

Conclusion:

The Indian government’s ambition of establishing a cash transfer system at the proposed size and scope has the potential to deliver significant welfare gains. However, policymakers should be wary of overambitious implementation targets. Rushing into a massive cash transfer programme may complicate the government’s ability to rectify problems on the fly, both politically and administratively.

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