Cash delusions

Print edition : April 22, 2011

Cash transfer as substitute for state service provision is a dangerous recipe for callously anti-poor and corrupt governance.

THE staggering number of recent articles, papers and books on the virtues of giving cash in place of public services to the poor has created an impression that a sort of epidemic has broken out.

Economists, policymakers, bureaucrats and newspaper commentators are all infected by it and are in turn infecting others. The central theme in the chorus is that the Indian state's efforts to provide services such as food distribution, health care and education to the poor have failed, thanks to massive leaks, inefficiency and corruption. These efforts must be replaced by direct money transfers with which people can freely buy these services.

Cash transfers are held by their advocates to be both more efficient and much less susceptible to pilferage than, say, grain from the Public Distribution System (PDS), a third or more of which is diverted.

Well-targeted cash transfers will reduce and abolish poverty and generate development, as the title of a new book puts it: Just Give Money to the Poor: The Development Revolution from the Global South. Even better, combine these with an Aadhaar or Unique Identity Number, proposed under the Unique Identification Authority of India chaired by Nandan Nilekani.

Conditional cash transfers (CCTs), which require recipients to put their children in school, or to be identified as below-poverty-line (BPL) households, are seen as a panacea by important policymakers, including Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission, Kaushik Basu, Chief Economic Adviser and Ashok Gulati, Chairman of the Commission for Agriculture Costs and Prices.

Gulati recently waxed eloquent on how CCTs replacing the PDS would provide food security to [the] poor in a cost-effective manner, promote a more diverse diet and empower women through education.

Kaushik Basu, an otherwise accomplished economist, even more radically questioned the idea of a rights-based approach (to food security, employment, education, and so on), which is translated into laws and schemes. Kaushik Basu said in The Wall Street Journal that where the legislation cannot be implemented, then you also violate those rights, and rights violation becomes a culture.

Ahluwalia heads a government committee on reforming the PDS, which has reportedly decided that rather than be given foodgrains, the poor should get money in an electronic account every month and should have freedom to buy food of their choice from fair-price shops ( The Hindustan Times, March 25). The committee is apparently preparing a road map under which the government will directly transfer the subsidy amount to an Aadhaar number-linked smart card in the first week of every month.

The smart card is to be in the name of a woman family member above 18. The CCT would represent the difference between the minimum support price for foodgrains and the PDS issue price. This would mean that a BPL family would get Rs.280-300 under the existing PDS of 35 kilogram of foodgrains a month (rice at Rs.5.50 a kg and wheat at Rs.4.15 a kg). According to a committee member, a BPL-cardholder can either lift his or her quota of subsidised foodgrains or will have the choice to buy any other foodstuff .

Such schemes are based on what might be called the crude logic of textbook economics of the neoclassical variety, which regards the individual or household as a free consumer within a developed near-perfect market. The consumer is also the decision maker and can choose rationally, without coercion or allurement.

Reality is vastly different, not just in India's villages but also its cities. The real manager of the household's food economy, its principal labour-provider, and often the main buyer of its food requirements is a woman. But the household is headed by, and its property typically vests in, a male.

The Indian foodgrains market is rife with imperfections, with fragmentation and great regional/local variations in supply/demand and prices. The consumer at best has incomplete information about its workings. An unequal power equation prevails between the buyer and the seller, often a moneylender. To imagine that the free consumer can seamlessly move from the PDS to CCT or that she/he can make rational choices about what to buy instead of cereals is to indulge in daydreaming.

Nothing would prevent the shopkeeper from selling nutritiously inferior or harmful substitutes such as junk food. Indeed, the poor already spend a significant portion of their budget on junk food such as biscuits, noodles and soft drinks in the belief that richer children, who look healthier than their own, consume noodles and that it must be good for health.

The gender inequality problem cannot be wholly resolved by creating smart cards in women's names. That would still not assure them of a supply of known quantities of foodgrains at regular intervals a fundamental requirement of food security.

Most poor people cannot place much faith in the private trader's honesty and ability to give them food of reasonable quality. A majority would like a reformed and revamped PDS with an expanded supply of pulses, cooking oil and other essentials. What CCT zealots want is the PDS' outright dismantling or severe contraction.

The PDS is admittedly poorly managed and extremely leaky. Empirical studies show that diversion of grain food that does not reach the intended consumer is as high as 36 per cent, and in some States 50 per cent-plus. One reason for this is targeting. The BPL category is marked by errors of both exclusion (of the deserving poor) and inclusion (of the non-poor powerful enough to ensure that they are listed as BPL households). There is, in addition, outright theft, concealment of stocks falsely declared as unavailable or having not reached.

None of these problems can be solved through the CCT device. Even worse, CCT, made conditional upon a household being classified as BPL, will exclude almost one-half of the poorest fifth of all rural households who, as research by economists Jean Dreze and Reetika Khera shows, do not have BPL cards. This is grossly unfair.

True, PDS reform is a complex and thorny issue. It will need a Herculean effort to make the government and its entire administrative machinery, as well as fair-price shopkeepers, publicly accountable. But the PDS is not uniformly bad.

States such as Chhattisgarh, Uttarakhand and Orissa have improved their PDS performance. States such as Tamil Nadu, which has a universal PDS, Kerala, Andhra Pradesh, Himachal Pradesh and Jammu and Kashmir have consistently done well. But there are laggards too. The short point is that CCT cannot be a substitute for PDS reform.

CCT poses other, serious, problems. Biometric smart cards are not foolproof. Fingerprint impressions can be changed simply by applying glue. Iris-scans cannot work on people with cataracts. Corrupt officials can refuse to issue cards or open accounts unless bribes are paid. Many illiterate villagers could find the process of applying for cards intimidating. Aadhaar poses serious problems of tracking, invasion of privacy and other rights violations.

Yet, those who seek techno-fixes to these formidable problems forget that food security is, must be, a fundamental right in a horribly poor country such as India, where half the children are undernourished. The State must fulfil this right as a high priority through a universal PDS.

This is equally true of health care, education, special nutrition for schoolchildren and employment. These are even less amenable to CCT. Access to genuine health care, as distinct form quacks, is abominably poor in India. There is simply no substitute for a strong publicly funded and run health care programme. Health insurance, however affordable, will not do because rural India only has meagre health facilities.

Similarly, programmes such as midday meal schemes for children have been remarkably successful with coverage of 80 per cent-plus. It would be suicidal to replace them with CCT. The same thing is true of education where we must halt and reverse the state's retreat from schools. The private sector cannot provide affordable or reliable schooling of a minimum acceptable quality. This applies to employment generation too.

Then arises the larger point of holding the state's feet to the fire, and making it deliver on a democratic agenda of the universal right of all Indians to life with human dignity. We cannot abandon this agenda to market forces, which intensify poverty and deprivation. The state's task is not to clean up after the market but to engineer development to which equity and redistribution are pivotal.

This calls for redirecting growth and investment in ways that structurally reduce deprivation and inequalities and empower the poor majority. This can only happen if the state is held accountable, as is happening to an extent under the National Rural Employment Guarantee Act (NREGA) through public scrutiny of works, job cards and contracts.

A deeper process is at work here that of bringing the state down to the people and forcing it to accept responsibility for inclusive growth and equitable development. CCT is the exact opposite of this. It distances the state further from the people and absolves it of its fundamental duty to fulfil the right to life with human dignity, even as it promotes corporate-led inequality-enhancing and largely jobless growth. That is precisely why CCT's promoters want it. And that is why we citizens must oppose it.

A letter from the Editor

Dear reader,

The COVID-19-induced lockdown and the absolute necessity for human beings to maintain a physical distance from one another in order to contain the pandemic has changed our lives in unimaginable ways. The print medium all over the world is no exception.

As the distribution of printed copies is unlikely to resume any time soon, Frontline will come to you only through the digital platform until the return of normality. The resources needed to keep up the good work that Frontline has been doing for the past 35 years and more are immense. It is a long journey indeed. Readers who have been part of this journey are our source of strength.

Subscribing to the online edition, I am confident, will make it mutually beneficial.


R. Vijaya Sankar

Editor, Frontline

Support Quality Journalism
This article is closed for comments.
Please Email the Editor