[LST] #Cash transfer- Cash is no cure-all - Indian Express Mobile

http://m.indianexpress.com/news/%22cash-is-no-cureall%22/1036631/



News Astro Photos More

Op-Ed News
Cash is no cure-all


Lant Pritchett , Shrayana Bhattacharya

Cash transfers seem to be the latest fad. With elections looming, the
Prime Minister's National Committee on Direct Cash Transfers has been
tasked with an ambitious mandate to provide vision and direction to
enable direct cash transfers of subsidies under various government
schemes and programmes to individuals to enhance efficiency. Certain
activists warn against an ill-considered and hasty transition from
food to cash. Others believe directly transferring the subsidy amount
to citizens can offer beneficiaries more choice and allow the state to
sidestep poor supply side management practices plaguing the public
distribution of goods and services that result in leakage. Cash
transfers have increasingly become synonymous with ideological
contestation on the role of the state, making the debate on
feasibility shriller.
Like most medicine, cash transfers are a cure, but not a cure-all. It
helps to clarify which maladies can be solved by cash transfers, which
cannot — and identify those cases where the side effects of
introducing cash could be worse than the disease.

Over the years, studies of the PDS show that some states manage supply
of in-kind transfers fairly well, while in a large number of cases,
the pipeline connecting citizens to ration supplies is prone to
leakage and corruption. Money at the top, spent by state treasuries
for the distribution system, produces little food or fuel for PDS
beneficiaries at the bottom. Such findings, in combination with fiscal
stress, have bolstered the characterisation of the current delivery of
in-kind transfers as inefficient. However, we need to consider three
key issues when thinking of

using cash transfers as an antidote to inefficiencies within the
public distribution channel.

First, if the only inefficiency within any public distribution system
was that the costs of moving materials and getting the public sector
to produce or procure goods and services were much higher relative to
the overall gain, transparent and direct cash transfers would be a
complete and comprehensive solution. The development of technologies
such as biometrics and centralised fund-flow management systems have
created new pipelines through which cash can flow cheaply and
accurately to recipients.

Second, the efficiency of cash transfers has to be measured against
larger programme goals. For decades, economists have shown that the
direct delivery of money is more efficient than the transfer of
physical materials, if our sole purpose is to transfer purchasing
power. However, if programmes are not just intended to transfer the
ability to purchase, then moving to a system of cash transfers is not
efficient if the status quo of other objectives, such as nutrition or
disease prevention, remains unchanged. For example, in a Honduran
maternal and child health programme, it cost 1.03 lempiras to deliver
1 lempira of an income transfer in the form of a cash-like coupon,
while it cost 5.69 lempiras to deliver the same income transfer in the
form of food. However, the pure cash transfer had no effect on either
children's calorie consumption or on the use of the health centres,
while the food transfer increased both. Also, in Kenya, giving cash
alone did not result in consumers buying bednets that prevented
malaria. Much of the new behavioural economics is about using "nudges"
to promote programme objectives. But such nudges need not be cash
alone. In Rajasthan, experimental evidence shows how providing small
food transfers such as lentils can improve the coverage of
immunisation amongst resource poor families.

Part of the government's objective of moving commodities in PDS, for
instance, is to stabilise and "thicken" food and fuel markets so that
consumers, and not just beneficiaries, are protected against price
fluctuations and uncompetitive markets with few suppliers. While it
may be the case that PDS doesn't do this particularly well or that
this purpose is no longer needed in parts of the country,
market-making and regulation is a public purpose that needs to figure
into the "efficiency" discussion.

That said, even moving money is not so easy in India. A financial
inclusion survey conducted by a World Bank team found that only 35 per
cent of Indians had accounts in formal financial institutions. This
number dwindles to 21 per cent amongst the poorest quintile. These
estimates are lower than the 50 per cent global average and the 41 per
cent in developing countries. Recent assessments on social pensions —
an existing cash transfer — highlight that opening bank accounts is
tough for the poorest without policy and administrative support, even
in urban areas such as the state of Delhi. The experience with rural
social pensions shows that even cash transfers require fairly
sophisticated financial delivery mechanisms, accounting and
implementation capability, which is often lacking. Because the
temptation to loot cash may be the same or greater, directing and
tracking payments to individual beneficiaries require doing simple
things such as digitising programme records. Doing such simple things
has so far proved difficult in high profile cash-for-work schemes such
as NREGS. The government's own data indicates that a handful of
states, such as Karnataka, Rajasthan, Himachal Pradesh, Orissa and
Gujarat, have fully electronically updated the muster roll for
workers. It is worth remembering that Mexico and Brazil, where
conditional cash transfers famously replaced pre-existing in-kind
transfers, are richer economies with greater administrative
capability.

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.

Bhattacharya is a researcher with Accountability Initiative, Delhi.
Pritchett is professor of the practice of international development at
Harvard Kennedy School (on leave), US


Share this story:

More Sections
Home Business Technology Photos
India Sports Editorial Videos
City Showbiz Op-Ed Full Coverage
World Lifestyle Columns Astro
Weather
© 2012 The Indian Express Limited. All rights reserved.

--
Saurav Datta

Twitter: SauravDatta29
Mobile : +91-9930966518

"To those who believe in resistance, who live between hope and
impatience and have learned the perils of being unreasonable. To those
who understand enough to be afraid and yet retain their fury."

Sent from my Amazon Kindle Fire