You are here: Home » Opinion » Columns
Business Standard

Ashwani Kumar: Is cash transfer a 'Congress calling card'?

Patronage democracy has acquired a new legitimacy but the game-changing impact of the scheme is questionable

Ashwani Kumar 

By embarking on the world’s largest “cash transfer scheme” for the poor at the start of the new year, the United Progressive Alliance (UPA)-II has upset the political calculations of the Bharatiya Janata Party-led National Democratic Alliance.

Although Left-liberal critics and electoral rivals of the ruling party have called it the “Congress calling card”, direct cash transfer (DCT), or “aapka paisa, aapke haath”, through the Aadhaar-enabled Unique Identification has emerged as the most historic one-shot transformative social policy instrument in India. It is on a par with the abolition of the zamindari system, the Green Revolution, banks nationalisation, the Right to Information and the National Rural Employment Guarantee Scheme (NREGS).

That explains the overhyped optimism in the finance minister’s description of the scheme as “pure magic”, and the unusual haste from Rural Development Minister Jairam Ramesh, a firebrand progressive democrat, who will launch the scheme from Gollaprolu Mandal of East Godavari district in Andhra Pradesh today (January 2). That DCT has been sanctioned by the top Congress leadership is clear from the fact that the scheme will be rolled out in 20 districts for 26 programmes, despite opposition from prominent National Advisory Council members, academics and activists, and the not very encouraging results from the implementation of the Kotkasim (Rajasthan) pilot of cash transfers for kerosene.

Most critics do not oppose cash transfer of pensions, maternity benefits and scholarships. But many are strongly opposed to cash transfers for food, employment, health services and education, and prefer making these entitlements universal so as to not exclude the poor. Civil society critics justifiably argue that DCTs will accentuate poverty and starvation because they are not indexed to inflation, and may be used as an excuse to reduce welfare subsidies in the name of “good economics”.

Economists such as Esther Duflo argue that the outcome of cash transfer is robust when the beneficiary is a woman or the household is headed by a woman. But, in a highly patriarchal society like ours, exemplified by the tragic Delhi rape, the tyranny of male heads over women in families in rural India opens the floodgates of intra-household inequity. Also, the manipulation of welfare cash by the local elite and moneylenders is a distinct possibility, if micro ATMs are placed at neighbourhood grocers.

Given the phenomenon of “democratic upsurge” – the poor voting more frequently than the rich and the middle class – it is no surprise that UPA-II, pilloried for “policy paralysis” and “crony capitalism”, eventually gave “patronage democracy” a new respectability. Continuing with the Nehruvian vision of “state welfarism”, Indira Gandhi’s “pro-poor populism” and Rajiv Gandhi’s “new age digital solutions” for governance, Sonia Gandhi-led UPA-II – after reaping handsome electoral benefits from NREGS in 2009 – has come out with a potential game-changer for general elections in 2014.

The increasing popularity of NREGS across the political divide is not counter-intuitive, since most political parties love serving their constituencies, especially the poor (the voting population), through marketing social welfare policies. Although it would be foolish to equate DCT with plain vanilla “economic voting”, it would be naïve to ignore its potential in turning an “incumbency disadvantage” into a winning proposition. It also offers a masterstroke in blunting the sharp edges of the neo-liberal economic policy, especially foreign direct investment in retail and reducing subsidies on fertilisers and petroleum products. Besides, DCT schemes create “multiplier effects” for good governance without any confrontation with dominant caste and elite groups. Therefore, they don’t effect any change in power relations — a deviation from the spirit of the social welfare state.

Policy lessons from the implementation of conditional cash transfer schemes, such as Brazil’s Bolsa Familia, Mexico’s Oportunidades, Peru’s Juntos, Turkey’s Þartlý Nakit Transferi and Indonesia’s Program Keluarga Harapan, highlight enormous challenges in conceptualisation and implementation. Most South African experiences started in the 1990s and gradually expanded through trial and error. But these are primarily “conditional cash transfers”, which are implemented on the condition of fulfiling various conditions like school attendance, professional skills and regular health check-ups. However, there is no clarity about the role “conditionalities” played in outcomes. Studies from Zambia and Namibia point out that cash transfers may stimulate local demand and local market development; there is no evidence of a relationship between cash transfers and aggregate growth.

Randomised control trials of cash transfer to households with school-going girls in Malawi shows robust improvement in school enrollment and reduction in teenage pregnancies. But Brazil’s Bolsa Familia succeeded because it was implemented through state-owned banks and financial institutions. Thus, the tender floated by the finance ministry for converting India into clusters of privately-owned banking correspondents for cash transfer is not only bad economics but also bad politics.

The result of the study of Gangopadhyay, Lensink and Yadav (2012) may have prompted Sheila Dikshit to launch “Saral Money” and introduce DCTs for food subsidies in Delhi, but concerns over the compromise on food and nutritional security remains. In Melghat and Keonjhar – notorious for starvation deaths and malnutrition – DCT is potentially disastrous. With 100-million bank and post office accounts, NREGS stands out as the single-largest cash transfer programme, but the delay in payment has robbed it of its transformational impact. Given that the socio-economic survey for identifying the poor has not yet been completed, the issue of bogus below-poverty-line beneficiaries will wreak havoc with public money.

Given customary delivery failures and institutional voids at the grass roots in India, transferring cash for 26 welfare programmes will be a massive undertaking, which will involve identifying beneficiaries, deciding their eligibility and linking them with Aadhaar. Another major challenge is to open bank accounts or expand the reach of the postal network quickly, since only 40 per cent of India’s 1.2 billion people have bank accounts, and only 36,000 of 600,000 villages have a bank branch. Note that the total number of bank branches has been increasing but the number of rural bank branches has declined from 35,134 in 1991 to 30,572 in 2006. Therefore, the Reserve Bank of India needs to play a proactive role in ensuring the expansion of rural branches when it issues new banking licences. All is still not lost, and policy makers have rightly decided to focus on the postal network of 155,516 branch post offices in India, Integrated Child Development Scheme branches and rural points of service. In fact, privately-owned banking correspondents whose performance is at best patchy and fraught with malfeasance, will become irrelevant if each branch post office acts as a banking correspondent.

The DCT scheme is radical but it’s inspired by flawed “libertarian doctrine” to ensure that the poor are adequately empowered to avail themselves of benefits due to them to the extent that they may end up spending monetary handouts on buying liquor, gambling, weddings and funerals. Ideologically inspired by philosophers like Fredric Hayek and Milton Freedman, it promises to restore the autonomy of the individual, introduce greater transparency in service delivery and mitigate individual poverty. But it is no panacea for the widespread poverty, hunger and starvation. With a sluggish economy, runaway inflation and continuing food crisis, if the scheme is not backed up by a near universal food security Act, it may end up restricting the scope of universal entailments for the poor. It is surely “a game-changer”, but it is ideologically and politically disturbing, if not dangerous.


The author is Professor and Chairperson, Centre for Public Policy, Habitat & Human Development, Tata Institute of Social Sciences, Mumbai

First Published: Wed, January 02 2013. 00:21 IST