Cash transfer would plug leaks, says Nobel laureate Mirrlees

Nobel Prize winning economist James A Mirrlees on Tuesday said providing direct cash transfers to the poor, as opposed to subsidies, would result in only small leakages, as experienced in other countries. “The experience with the US, Mexico and Brazil showed the leakages are small in cash transfers provided to the poor by the government,” Mirrlees told reporters on the sidelines of a seminar at the Indian Statistical Institute here.

Mirrlees said the Indian government was trying to manage subsidies well by introducing direct cash transfers to the poor. “I hope this will work well, as the leakages are quite small. Indirect transfer is more prone to leakages than direct transfer,” the Scottish economist said.

Asked whether there was a possibility that after getting the money at hand, the poor would have a tendency to spend it on unimportant items of consumption, Mirrlees said in many countries the government was transferring the money directly to the hands of women. “Women tend to be more reliable when it comes to good use of money,” he said, expressing doubt whether such a system would work in India. “I hope people will act in the best interest,” he said.

Asked whether such cash transfers would add to inflationary pressures in the economy, Mirrlees said it depended on how the government was financing it. “But it doesn’t seem so,” he said.

The United Progressive Alliance government has decided to launch direct cash transfers as a pilot project in select districts across the country from January 1 this year.

On the issue of foreign direct investment in multi-brand retail, Mirrlees said the small shopkeepers might face problems, but it would bring in more value-addition.