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Cash transfers: govt's rush may lead to its failure

by The Business Blog 2 yearss ago

Cash transfers: govt's rush may lead to its failure

By R Jagannathan

Rahul Gandhi thinks it will win the Congress not only the 2014 election, but the 2019 one too. Members of his mother’s National Advisory Council are miffed about it. P Chidambaram believes it will help him reduce budgetary subsidies.

We are, of course, talking about the direct cash transfers scheme, which the government has been extra-eager to dish out for electoral reasons.

However, thoughtful observers and experts who have even a nodding acquaintance with cash transfers say there is no revolution on the way with adoption of the scheme. And it will work only if it is rolled out slowly, by learning along the way.

Guy Standing, professor of development studies at the University of London, who has worked 25 years with such schemes, says they are not a panacea. “They would merely be a vast improvement on the existing mish-mash of subsidy-based social policies, which, as all economists should know, leads to inefficiency, inequity and corruption,” he writes in The Indian Express.

Standing punctures many explicit or implicit assumptions about the scheme – both by its backers and its critics.

Among the points he makes, but in different words, are the following.

One, the presumption that they will replace the public distribution system is not only wrong, but would “be a serious, expensive error.” Cash transfers will work only if there is a serious effort to study what works and what doesn’t, but, as Standing notes, “There is no evidence this has been done.”

Two, targeting will defeat the very purpose of cash transfers – but this is exactly what the scheme intends. The move is to use existing BPL (below poverty line) cards to offer cash transfers, but BPL cards already exclude the really needy. So cash transfer would mean excluding the neediest. Standing says: “In our surveys in Gujarat, Delhi and Madhya Pradesh, we have found that a huge proportion of those in need either do not have the cards or are denied them for some spurious reason. The incidence of possession is actually regressive, with the poorest being the least likely to have them. The same is the case with MNREGS (i.e. NREGA).” As an example, he points out that NREGA is about hard labour, and this would automatically keep the old and the sick out.

Three, if the cash transfer scheme will work only if it is made universal, then it is open to question if it will really save the government money. Spurious BPL cases may get weeded out, but genuine cases would have to take their places. The only form of targeting Standing favours is the voluntary opt-out – where everyone is asked to re-enroll, and the better off stay away in an act of conscience.

Four, Standing does not believe a fast rollout would deliver. He says: “It will be important to roll out the scheme slowly and systematically, learning practical lessons in the process, without vast spending that would be involved if a rush forward were made. This is one reason for the success of Brazil’s cash transfer scheme, the Bolsa Familia in Brazil, where the scheme was executed over a decade, it worked.” In India, the Congress-led UPA wants to cover the entire country in the next 12 months. This would be folly, making direct cash transfer an expensive gamble.

Five, Standing advises against treating the household as the unit for making cash payments. Reason: it is difficult to define what constitutes a household – it could vary from a nuclear family to joint family to single individuals. He suggests that individualised payments may be better, since it also improves the status of women if they are recognised as individuals with their own economic entitlement, and not just as head of households.

He concludes: “The success of cash transfers will depend as much on how it is done as on the cash itself.”

But for Congress party strategists, the how matters less than the why. It is all about elections, which is why even Sonia Gandhi is not listening to critics in her own NAC. Pity. A good idea may result in needless waste from haste.

Read Guy Standing’s full article here.

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