Cash is no cure-all

Finally, in a world with budgetary constraints that require capping the number of benefit recipients, moving from in-kind to cash transfers doesn't help with other administrative inefficiencies in beneficiary identification and implementation of the eligibility determination protocols. If the problem is that people who are eligible find it hard to procure paperwork to prove their citizenship and poverty to make claims on state resources, while those who are ineligible nevertheless manage to get benefits, it is hard to see how moving to cash helps. In cash-for-work schemes, a work requirement is costly to implement (as money has to be spent on inputs and works) but in spite of this, it can be efficient if it induces self-selection targeting, whereby only those truly in need show up. Evidence from many locales, like the Indonesian programme during the financial crisis, shows that a work requirement does identify those who have had negative shocks better than any eligibility scheme.

The difficulty with cash-for-eligibility schemes is that everyone would like to be eligible (present company not excluded). If universal transfers are deemed too expensive, one way the move to targeted cash transfers through banking networks could help the eligibility determination process would be if fund flows, assets and financial activities of citizens applying for schemes could be traced to allow state governments to credibly distinguish between the rich and poor. However, this requires the effective implementation of parallel policy reforms to tackle state surveillance and increase incentives for all citizens to report and hold assets in financial institutions.

Cash transfers are terrific at what cash transfers are terrific at — a pure and direct transfer of purchasing power. If the goal of transferring resources to citizens is simply to attain a socially desirable distribution of money and ability to buy things, cash works very well. However, if the idea is to tackle market failures and attain a socially desirable form of behaviour, where administrators allocate benefits to the poorest and the poorest are able to use the subsidy amounts for good nutrition and health outcomes, the idea of cash as a cure-all is problematic. Much of the current discussion on cash transfers is focused on what the state ought to do, without enough consideration of what the Indian state is capable of doing. Proponents of a cash-based approach assume the state has better ability to supply cash than the supply of physical goods. However, cash transfers leave many of the hard problems in implementing social programmes in India just as hard, if not harder.

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