How to make cash transfers work

In an article in The Indian Express ('Cash is no cure-all', November 27), Lant Pritchett and Shrayana Bhattacharya claimed that cash-for-work schemes like MNREGS work efficiently because they induce self-selection targeting, and are preferable to cash transfers. But not only is the first round of targeting nothing to do with voluntary action, since it depends on possession of a BPL or Antyodaya card, the idea that only those most in need would do the labour is risible. Imagine being disabled or sick through hunger. You are likely to be among the poorest. Will you or others like you be able to queue up for or do hard manual labour? The fittest are likely to be from higher-income families. They will be favoured. The poorest and frail would risk their health and risk more medical costs that would be greater than the value of any income gained through the labour.

So, the first discussion should be about whether cash transfers should be targeted at all. We have been conducting several universal cash transfer experiments, whereby thousands of Indian villagers have been receiving an unconditional monthly cash transfer. Before that, I was involved with SEWA in conducting a pilot in west Delhi. Although full results have yet to be published, we have found that the universality of cash transfers has important advantages, including community benefits. The point here is that policymakers should think through the issues before opting for old-fashioned targeting, which they know fails.

Let me move on from that subject, after noting that two options are available. Either the transfers can be provided universally for every legally resident Indian citizen with money being clawed back in taxes from the wealthier, through income tax or sales tax on luxury goods and services. Or one could operate a universal system whereby everybody must apply for the cash transfers. What the latter has induced in other countries is a tendency among middle-income and upper-income groups to forgo their right, thereby generating an implicit, ethically pleasing form of targeting.

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