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A week ago I got involved in a discussion on direct cash transfers in India.  Trying to reproduce some of it here.

What do you think of corruption in welfare programmes in India?

Social Safety net programmes like pensions to the aged poor, food aid, free health services are an essential part of any State. Social safety nets are not means to necessarily engender development; they are meant to prevent the poor from further falling off the radar. In India they are an indispensable part of poverty alleviation and have been since independence.

Corruption has always accompanied social safety net programmes (and others too but these are not under discussion here). It is not difficult to understand why.

  • In the first place the power imbalance between the recipient and the giver (government) or even the conduit (the bureaucrat) is vast and the recipient cannot always protest any shortcomings.
  • Second, asymmetry of knowledge of the entitlements – often the giver knew more than the receiver and that meant sometimes that entire amounts could be siphoned off.
  • Third, both receiver and giver, looked at the money / food as ‘extras’ and some parts going amiss were not to bothersome. The fact is that the safety net protection is actually a right of the receiver and a duty of the State was conveniently forgotten or just not known.

What do you think of the direct cash transfer programme?

Once you assume & accept that social safety net programmes are important, it is only the mechanism that needs to be worked on.  For the last six odd decades in India the omniscient, omnipotent Government used to decide what was good for the poor – 5 Kgs rice, 2 kgs sugar, 10 litres of kerosene etc. This stuff would come through Public Distribution System shops and were available on production of a ration card. We all know about the leakages in the system and how a significant portion never reached the poor. What is not readily known or appreciated is that the poor have needs that go beyond what the system has decided for them. So it is natural to expect that the poor decide, rationally, that they should sell off part of the Kerosene and buy clothes with that money. I have seen this happen in responses to humanitarian disasters too; NGOs / governments distribute say Wheat to the people in camps who promptly sell part of the wheat to buy oil, salt and lentils. 

If safety net programmes have to be run, the best approach is cash transfers. Not only it is easier from the logistics angle (moving cash easier than moving tonnes of food stuff), it is also very good from the pov of dignity of the recipient. We MUST assume that the poor are rational, economic creatures and they know what is best for them. More importantly there is no reason to assume that you know more about what is good for them!  Cash transfers can be conditional (you get ‘x’ if you do ‘y’) or unconditional (you get ‘x’ every month). That does not matter and it depends on the purpose of the transfer.

If the cash transfers are done well and are based on the Unique Identity system, they will eliminate middle-men and reduce if not eliminate leakages. I know that there are still some wrinkles in the system. One of the biggest issues is that the poor are not account holders in banks. Not only do they not trust the system, the system is also reluctant to open accounts that may not see much transactions. I have seen this mistrust in a number of places where development funds were to be necessarily transferred through banks. However, it is a solvable problem. We are not going to have a perfect system from day one anyway.

This may be my misconception in understanding cash transfer scheme but things can go wrong. For instance, I fear people who drink too much alcohol would use this money for this purpose only and their children and women may suffer even more (at least earlier they were getting something). It can go further and this may increase violence against women from there husbands who will want this money for the same purpose of drinking.

Your fear is well grounded. That has been the reason why lot of development planners and professionals think they should decide what the family needs and not give them cash for them to decide. The logic being “poor people do not know what is good for them”. That, in my opinion, is pejorative.

If a person chooses to buy alcohol, marry off daughter or buy a TV over food, it means that they are making a choice that makes sense to them. It is just that we do not understand and accept that choice. Our problem not theirs. In any case, I have seen too many instances of the food aid being sold off and alcohol purchased. So not as if sending food helps.

At the end of the day, one has to stop deciding for others. You have the right NOT to give the money but little right to tell the recipient HOW to use it. Also, in the short term, people will drink away but in the long run with empowerment efforts, women will get a bigger role and this will reduce.

With the elections coming up in 2014, is this not a scheme to bribe voter?

The cash transfer proposed, to a large extent, replaces existing schemes with a new way of doing things. Since these were pre-existing, they cannot be called bribing unless the older ones were bribes too. Is the Government taking credit for the direct cash transfers as something that shows its heart bleeds for the poor? Sure. Would you not? Is the opposition screaming blue murder? Sure. Would you not? If the roles were reversed, the situation would not change. Just the screaming faces would be different.

In conclusion.

If we have to have social safety net programmes, which we must in a civilised society, the best way to do it is cash transfer simply because

  1. It eliminates a lot of middlemen and reduces avenues of leakages.
  2. It transfers decision making and restores dignity to the poor who can now decide what they want to do with the money – buy food, educate kid, marry daughter, settle debts, get drunk; it’s their life and their decision.

There will be leakages, accusation of bribing etc. That will happen even if new schemes are announced. We need to go with the flow and plug gaps as we see them.