Cash Transfer in India: A silver bullet or myth?

6 Feb

Over the past decade or so cash transfer has became the latest fad promoted by the International Development Industry as the preferred strategy for poverty reduction. This idea is gaining momentum in India in the UPA-II government tenure as means to reduce poverty as well as plug in leakages’. In January 2013, Rural Development Minister Jairam Ramesh and Finance minister P. Chidambaram, in an exclusive interview to Times of India claimed, citing the success of Oportunidades in Mexico and Bolsa Familia in Brazil that cash transfer will be very useful in the reduction of poverty. There are no dearths of “scholarly articles” and “studies” which claim cash transfer as a silver bullet. Government of India (GOI) is considering linking direct cash transfer (CCT) Unique Identification Card (UID) and thus plug corruption and leakages. What are more noises have been made that this scheme will be the flagship scheme for UPA-II government in 2014 general election.

However CCT is not a silver bullet as it often made out to be. Conditional Cash Transfer (CCT) schemes essentially transfer cash, seeks to target households, contingent on specific behavioural responses on the part of the household. Early theoretical works in economies tend to support cash transfer (Thurow 1974, Southworth 1945 cited by Sudha Narayanan in A case for reframing cash transfer debate in India”; Economic and Political weekly; p.p. 42). But empirical evidences are suggesting mixed results and not complete success of CCT / CT. In Mexico, CCT have a positive impact on grades of schooling attained but no effects on achievement in school exams. Attendance is increase but without any impact on quality of education and level of achievement in student (Beharam 2005 cited by Sudha Narayanan in A case for reframing cash transfer debate in India”; Economic and Political weekly; p.p. 44). In Columbia, CCT’s improved child nutrition measured by height for age (Attansio, 2005 cited by Sudha Narayanan in A case for reframing cash transfer debate in India”; Economic and Political weekly; p.p.) but in Honduras and Brazil, evaluation reveals that they had no meaningful effects on pre-school nutrition level rates or anaemia (Hoddinott & Basset 2008 cited by Sudha Narayanan in A case for reframing cash transfer debate in India”; Economic and Political weekly; p.p. 45).  There is broad agreement that the relative efficiency of Cash Transfers, in whatever form, is highly context dependent. In certain areas like old age pension and child care, cash transfer proved significant but relatively less significant in agriculture and food. And combination of cash and In-kind transfer always has more impact than Cash transfer alone.

There are problems associated with it.  First is issue of targeting. In Mexico‘s CCT programme, and in Brazil’s CCT programme according to International Poverty Centre of United Nations Development Programme (UNDP) 70% and 59% of the  poor were excluded respectively. Such errors are likely to be high especially in India, where structures of power and inequality already deprive certain sections of population of basic goods and allow powerful elites to appropriate those goods and services illegally. Huge misappropriation of funds, goods and corruption in identifying target population reveals shaky claims of proponents of CCT. Leakage and diversion in cash transfer is much easier and less risky in compare to In kind transfer as cash is very mobile and non-perishable which has universal utility. Identifying targeted population is daunting task. In India below Poverty Line (BPL) is ridiculously low (BPL is 29 Rs for Urban area and 22Rs for rural area and with such meagre sum it is not possible to even survive) and with complex socio-economic indicators and their measurement in scoring criteria is highly dubious & most of the needy get unnecessarily excluded. High rate of inflation, vagaries of market and monsoon and other social, political and natural factors, non-poor may suddenly fall into poor category and vice versa. For example non-targeted group may suddenly fall into poor category or overall inflation make fulfilling demand on given amount very difficult. Hence criteria must be upgraded continuously. Considering the government’s abysmally low BPL line and major methodological errors and deliberate manipulation of statistics and their usage, fair readjustment is highly dubious.

Second, availability of quality education and health services with ease of accessibility is absolutely crucial; the area India is facing immense problems. Even if poor’s have monetary capacity but lack of social infrastructure & services, social, political and physical inaccessibility render it worthless.  Third, cash transfer cannot substitute supply-side of picture. For adequate supply of basic goods and services requires self sufficiency in food grains & pulses as well as oilseeds, conservation of natural resources, government spending and subsidies in social sector. The benefits such as food availability and enough scope for growth of economy require this all. Unless these things are ensure cash transfer is not going to help much.   Market cannot supply, even with purchasing power of poor if there is no commodities available.Fourth, Unfair exclusion and unjustified inclusion is socio-economic and political problem and cannot solve by introducing technology. And worse, efficient technology without equal and just society pave way for excessive centralization hence and suffering for poor. In survey conducted in 2010, women slum-dwellers in Delhi overwhelmingly (99%) support in kind transfer than cash transfer as it reduces food consumption in household. Most of the cash is utilises for other purposes mainly gambling and addiction by male members or to cover spending on different aspects including health, consumer goods and more. Further, dependence on UID for efficient delivery of cash is not trustworthy either. The pilot studies in Orissa indicate that despite banking and UID mixture MGNAREGA worker’s reportedly handover their job cards and some cash to influential peoples and goons from their area. It shows that even UID cannot bring require efficiency.

Direct Cash Transfer without conditions can hardly bring desired results.  Direct cash transfer have major stumbling blocks, most of them are socio-political and geographical rather than technical. Non-availability of enough branches for banking purposes, physical in accessibility or difficulty for access of social services is major problem in rural parts of India. Considering moderate literacy rate among targeted population it is not cynical to assume large scale corruption, leakage and diversion of cash due to political corruption. As cash transfer without conditions increases either the possibility of diversion of cash by members of households in alcoholism, gambling or to cover spending on different aspects including health, consumer goods and more. The poorest household’s demands in kind transfer rather than Direct Cash Transfer. More the economically better off household, there are more demand for direct cash transfer. As studies shown poorest households prefer in-kind transfer as it increases food consumption definitely and significantly. On the other hand, relatively better of household’s demand cash transfer as they are not in dire need of in-kind transfer for their food-consumption. Direct cash transfer is not very famous for its achievements and even in conditional Cash Transfers there are huge gaps to be filled. As far as my stand in relation to Direct Cash Transfer in India is concerned I am totally disagree with it. But conditional cash transfer as empirical evidences shows achieve moderate success in India and also in Mexico and Brazil however it is context dependent. Indian government is considering commodities such as kerosene, LPG and fertilisers should be cover under direct cash transfer. It has the potential to plug in leakages in kerosene but once government withdrawn subsidy, prices will be determined by market and to constantly upgrade amount for cash is daunting. This is also true for LPG and fertilisers. In case of fertilisers, its use in agriculture is counterproductive in many areas hence may not be very useful. And more interestingly direct or conditional cash transfer put same amount of fiscal burden on government and in no way successfully reduce fiscal deficit. As same amount is deliver as cash for targeted population which earlier used to purchase goods for subsidies. Even managerial cost is much similar for both ways.

In neo-liberal framework, economic growth is achieved through incentive for production and trade rather than increasing mass-purchasing power and welfare schemes associates with Fordist- Keynesian model of economy. Cash transfer is fad of neo-liberalism which considers reduction of poverty as a single task, conveniently neglecting its multi-dimensional links closely associated with reduction in government spending on social sectors. Reduction of poverty is right of poor citizens and not philanthropic work or single policy solutions. Basic Income (BI) demand in (Latin America) shows this kind of analysis where families must have basic income and social infrastructure rather than cash transfer. It is strong reminder that when in compare to Latin American success one must remember that poverty reduction is multi-dimensional policy task which requires effective government spending in social sector, democratic grievances addresser system, economic growth with employment generation, minimum economic security with non hierarchical socio-political structure and reduction of income inequality, caused by exploitative and hierarchical income regime. Market will never be able to successful in reducing poverty as commercial interest and profit seeking is fundamentally against it and one of the main reasons for large scale poverty in society.

CCT may be very useful for certain sectors like old-age pension, child care, but it cannot and must not substitute the equal income distribution with basic income criteria i.e. progressive taxation for providing welfare sachems for society with minimum income guarantee to entire society from it and government spending for an availability and accessibility of social infrastructure. I am not against cash transfer in India as such neither direct nor conditional. It is useful in certain areas but cash transfer is neither a panacea nor a solution. It is just a small part of it. As long as economic growth without employment generation, spending cuts in social sector and development with various incentives for private sector is dominant model of Development cash transfer will never be able to reduce poverty or address problems in agriculture, education or health. These problems India facing are necessarily socio-political and economic and hence will never be address by cash transfer alone.

By  Vikrant Halkandar


1)   Ghosh Jayanti; “Cash transfer as the silver bullet for poverty reduction? A Sceptical note”; Economic and Political Weekly; p.p. 67-72, May 21, 2011 Vol. XLVI No 21.

2)   Kapur Devesh; “The shift to cash transfer: Running better but on the wrong road?” Economic and Political Weekly; p.p. 80-88, May 21, 2011 Vol. XLVI No 21.

3)   Narayan Sudha; “A case for reframing cash transfer debate in India”; Economic and Political weekly; p.p. 41-49, May 21, 2011 Vol. XLVI No 21.

4)   Pablo Yens; “Mexico’s targeted and conditional transfers: Between Oportunidades and Rights”; Economic and Political Weekly; p.p. 49-55, May 21, 2011 Vol. XLVI No 21.

5)   Sanyal Kauishiki; “Delivery through Cash Transfers”; PRS Legislative Research; 1-2, May 24, 2011 Vol. XLVI No 21.

2 Responses to “Cash Transfer in India: A silver bullet or myth?”

  1. jankipandya February 10, 2013 at 1:45 pm #

    For me Cash Transfer has its own benefits. It is still to be tested and seen in the Indian context of how successful it will be. But what seems to b appealing to me is the cut down in corruption rates that is sort of predicted in such case. Though there might be means to overpower that too however in general all transactions will be registered in the bank which will lead to some sought of a transparency. So in case if there is a problem it will be very prominent.

    I am really grateful for the other issues raised here with regards to literacy, accessibility and so on and I am glad there are discussions on this.

    The direct Cash transfer will either lead to more corruption or vice versa. It is for us to see in future what has happened to this borrowed genius system

  2. Kester Pereira March 4, 2013 at 2:24 am #

    The big problem with Direct Cast Transfer (DCT) is not just restricted to whom the money will go to but rather how it will be used. For the ones to truly benefit from such a scheme, it is important that the government should consider socio-psychological factors before economic considerations. Hence, other factors like literacy, infrastructure, etc become crucial in the implementation of such an ambitious scheme. Furthermore, if the reduction of poverty is the end, it is of immense importance that the means (DCT) be look into more critically so as to ensure that the means truly justify the end.

    All in all, I feel that DCT should work from an administration point of view rather than a management point of view.

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