Cash transfers, the lazy short cut

Alleviating poverty in India requires not only cash transfers but also other enabling changes

Advocates of unconditional cash transfers claim that they can be both emancipatory and transformative. They argue that people are quite capable of making rational decisions. And that this kind of basic income support can improve their lives.

I have no quarrel with the claim that we must trust the poor. Such suspicion is part of an elite mindset, which we must firmly reject. However, what is equally true is Babasaheb Ambedkar’s reminder that we must not romanticise the poor. We need to bear in mind that historically Indian society has had more than its share of prejudice and discrimination, based especially on caste and gender. Robust empirical evidence suggests that access to food, rather than cash, favours children rather than just adults, and girls, not just boys. Income support goes a long way in providing a modicum of security to those left out of the mainstream development process. But the problem with regarding unconditional cash transfers as transformative silver bullets in themselves is that we may leave unattended many fundamental requirements of poverty elimination, without which cash transfers will just not work.

What will cash do without essential capabilities and skills? Development is much more about empowering the poor and creating concomitant conditions that allow them to translate their aspirations into tangible outcomes. A key part of these conditions is possessing requisite capabilities to be relevant in a rapidly evolving economy. Transmitting these skills is a completely different ball game than just transferring cash to the poor.

Providing linkages

What will cash do without forward and backward linkages? Poverty elimination demands sustainable livelihood options and these require not just cash but vital inputs (such as water or raw materials or veterinary services) and a market, where the outputs produced could be sold. It is good to see the National Rural Livelihoods Mission working not only on skills, but also on assuring these forward and backward linkages.

Can cash work for the unorganised poor when faced with exploitative markets? As any student of the poor in India knows, when individual small and marginal farmers enter any market, they face extremely onerous conditions. The nexus of interlocked markets presents grievously unfair terms for them and most of the time they end up making distress sales, getting even deeper into debt. It is for this reason that recent work on farmers’ poverty has focussed so much on building powerful economic institutions of the poor such as Self-Help Group Federations or Farmer Producer Organisations, so that they can compete on better terms in the market. A mere transfer of cash without this major innovation will do the poor little good.

Can cash work for the unorganised poor when faced with unresponsive governments? Another reason why the poor need to be organised is to generate greater accountability of systems of governance that are the weakest in our most deprived regions. When the poor get organised, especially when led by women, we get much higher quality of mid-day meals and primary health centres. Removing poverty without strengthening systems of public health delivery is almost inconceivable in the poorest regions of India. And without strengthening Panchayati Raj Institutions, governance reform and better public service delivery will continue to remain a pipe dream. The 12th Plan Rajiv Gandhi Panchayat Sashaktikaran Abhiyan is a source of much hope in this direction.

What will people do with cash where there are no options? One of the fundamental requirements for cash transfers to succeed is the availability of affordable high quality options for the poor so that they can choose the best service provider. But as the repeated experience of the Rashtriya Swasthya Bima Yojana shows, the poor have hardly any options for proper health care or for any other basic requirements of life. Indeed, the danger, as I have witnessed over the last 25 years first-hand, is that the poor are caught in a terrible web of low quality local, private providers of health and education. Cash transfers without strengthening quality of service provision could end up even making things worse in this respect.

In large parts of rural India, market failure is rampant. Here, a range of public goods and infrastructure need urgent provisioning. The trustworthy beneficiary of our direct cash transfer cannot arrange for this all by herself. No one has ever stopped the private sector from going there but there is no incentive for a profit-seeking capitalist to travel to these impoverished regions of India. What the markets cannot do, what the private sector will not do, the State must.

The Indian challenge

Governments in all developed nations in Europe, the U.S., Canada, Japan, Australia, South Korea, Singapore and many others have provided their citizens social security, education, health care, mass transport etc. Such public investments also generate many positive externalities and spur private investment; they are indeed, a precondition for it. Cash transfers cannot be a substitute for this. The challenge we face in India is of massive government failure in these crucial sectors. We need to extend the process of reform to these key parts of the economy, where the state is in close interface with our most vulnerable regions and people.

The almost irresistible seductiveness to the idea of cash transfers is a reflection of great intellectual, policy and political ennui. Since real change is hard to come by, why not go with a lazy short cut? Just give everyone a dole. Which is what unconditional cash transfers are. In fact, cash transfers are just one element of India’s anti-poverty programmes. They work only when they are accompanied by other enabling changes, each of which addresses key elements of the poverty syndrome in India. We have many such conditional cash transfer schemes, which I strongly support because their success is contingent upon something more than mere cash transfer: such as the creation of durable assets under Mahatma Gandhi National Rural Guarantee Act; incentivising education of girls and disincentivising their early marriage in the Ladli Lakshmi Yojanas of many States; or the Janani Suraksha Yojana that incentivises institutional deliveries. The real challenge is to reform their functioning and improve their quality, learning creatively from best practices set up by many States, so that these programmes can deliver up to their real potential.