How to make cash transfers work

Should they be targeted? Should they go to individuals or households? Are conditionalities necessary? Without a full consideration of these issues, cash transfers will remain an expensive gamble

Having worked on cash transfers for over 25 years, and being an economist, I find recent criticisms of the idea shrill and ill-informed. Only a right-wing ideologue would call them a panacea or a cure-all. They would merely be a vast improvement on the existing mish-mash of subsidy-based social policies, which, as all economists should know, leads to inefficiency, inequity and corruption.

However, if cash transfers are to be successful, authorities at national and state levels must ensure certain conditions are met and that certain design considerations are evaluated, before they rush into what could be an enormously expensive venture.

Cash transfers come in many forms, and the authorities must assess the advantages and disadvantages of each of them before rushing ahead. There is no evidence this has been done. The presumption seems to be that they will replace the PDS, and possibly a few other subsidy schemes, and be targeted on the poor, however defined. I believe that will be a serious, expensive error. Others may disagree. But where is the proper professional debate on that key decision?

There is no need for any kind of targeting. Bear in mind the overwhelming evidence that the subsidy system is chronically inefficient. Yet it is based on targeting via BPL cards. Like others, in our surveys in Gujarat, Delhi and Madhya Pradesh, we have found that a huge proportion of those in need either do not have the cards or are denied them for some spurious reason. The incidence of possession is actually regressive, with the poorest being the least likely to have them. The same is the case with MNREGS. We have surveyed many dozens of villages in various areas. The majority of respondent households and individuals have not had any labour under the scheme, and given the link with the BPL cards, that is scarcely surprising.

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