-Avni Pal Bharti
India is a parliamentary democracy where the elected public representatives play a vital role in looking after the interests of their constituencies. Being a welfare state, the policies of the government, conceptualized by the public representatives through the legislative process have a direct bearing on the lives of the people. Such policy interventions may be in different sectors of the economy, primary, secondary or tertiary. Out of these three sectors, the interventions made in the primary sector display the maximum effect. This is due to the fact the India is essentially an agrarian or agricultural economy where a large part of its populations is still dependent on the farm activities for their livelihood. However, due to shrinking farm sizes and income, there is a flight of rural population towards the urban centres. But due to limited income avenues, this populace is vulnerable in terms of economic and social development leading to poverty and unequal income distribution.
It is in this context that one can argue about positive government. The government welfare intervention may have two routes, one is to subsidize the prices of goods and services and second is to provide direct subsidy transfer to the select and eligible class of citizen based essentially on their income criteria. Out of the two routes, the latter method is more effective and transparent. In definition terms, Direct cash transfer is a poverty reduction measure in which government subsidies and other benefits are given directly to the poor in cash rather than in the form of subsidies.
In India, mainly the following subsidies are prevalent.
- Food subsidy : Over the past decade, the government spending over food subsidy has drastically increased. This is especially so after the Food Security Bill, which promises essential food grains at cheaper rates for people in the low-income category. This is to ensure access to food for those who cannot afford a basic meal.
- Fertilizer subsidy : Fertilizer subsidy is given to the farming section of the population. Government provides subsidies to farmers in terms of reduced urea and other fertilizer costs. It also provides separate subsidies for irrigation-related activities.
- Petroleum subsidy : The government also sells fuel at subsidized rates. This included petrol, diesel, kerosene as well as LPG. However, the government has decontrolled petrol and diesel prices. This means the end of subsidies for these two fuel variants. Only kerosene and LPG – gas cylinders are sold at cheaper rates. The subsidies on the petroleum and diesel prices have varied over the past years. This is mainly because of the fluctuations in the crude oil prices worldwide. In the financial year 2015-16, this subsidy is expected to decrease because of the diesel price decontrol. The government could now utilize this money constructively for infrastructure development projects.
- Subsidies in Social services Elementary education, family welfare, general education, information and broadcasting, labour and employment, medical and public health, secondary education, social welfare and nutrition, technical education, sports, university and higher education, water supply and sanitation, other social services.
- Subsidies in Economic services- Agriculture, rural development and allied activities, energy, general economic services, industry and minerals, irrigation and flood control, postal, science technology and environment.
How do Cash transfer work
The money is directly transferred into bank accounts of beneficiaries. LPG and kerosene subsidies, pension payments, scholarships and employment guarantee scheme payments as well as benefits under other government welfare programmes will be made directly to beneficiaries. The money can then be used to buy services from the market. Fore.g. if subsidy on LPG or kerosene is abolished and the government still wants to give the subsidy to the poor, the subsidy portion will be transferred as cash into the banks of the intended beneficiaries. There are several advantages of direct cash transfer. Firstly, they can help the government to reach out to identified beneficiaries. Secondly, it helps in preventing leakages of commodities. Third, it enhancess the efficiency of welfare schemes. Fourth, the provision of cash rather than donations in kind reduces thelogistics costs of transportation and storage of goods. Fifth, the provision of money in the economy helps development projects and post-crisis situations as cash transfer programs can serve to inject money into struggling local economic systems and stimulate recovery. Sixth, cash transfers help the poor households to sustain themselves without selling off assets or falling into debt during times of financial difficulty. And last, but not the least, direct cash transfers aim to bring transparency in funds sponsored by the Government.
Types of Cash Transfers
The above type falls under one of the two types of cash transfer, i.e. Unconditional Cash Transfer (UCT). The other type is the Conditional Cash Transfer (CCT). The UCT programs aim to reduce poverty by providing welfare programs without any conditions upon the receivers’ actions. The Direct Benefit Transfer Scheme(DBT) that was launched by the Government of India in 2013 aims to bring transparency in funds sponsored by Central Government. The DBT falls under the UCT category. There are several kinds of unconditional cash transfers-one off or recurring, means tested or not means tested at the individual, household and village levels etc.
Many organizations and programs are involved in unconditional cash transfers, for e.g. GiveDirectly in Kenya, UNICEF’s Alternative Responses for Communities in Crisis Programme in the Democratic Republic of Congo, South African Old Age Pension Scheme in South Africa for senior citizens, Bono de Desarrollo Humano in Ecuador as well as other programs launched in Niger and the Philippines. The effect of GiveDirectly’s UCT program has been studies in great detail. The impacts have been grouped into two, economic and psychological impacts. Economically, there wasincreased consumption by about 23% across a range of goods including food, medical and educational expenses, and social events. Psychologically, such households reported increase in psychological well-being due to increase in happiness and life satisfaction and reduction in stress and depression.
Comparison of two types of cash transfers
The above analysis establishes that unconditional cash transfers are more inclined to affect the economic well being of the recipients. With reduced costs of goods and commodities, their monthly purse becomes healthier. However, there is more to satisfaction in human life than economic progress. The satisfaction levels on social and cultural indices are equally important, more so towards the social development. It includes a plethora of measurable indices which improve the social and medical status of the families in the society. The Conditional Cash Transfer (CCT) programs provide cash to poor households in exchange for the recipient’s’ commitment to take actions such as enrolling their children in school or taking them regularly to health clinics and committing themselves to their complete immunization. These programs focus not only on reducing poverty and hunger but also to building human resource capital through partnerships between governments and poor households. CCTs have affected not only the overall level of consumption, but also the composition of consumption. There is a good deal of evidence that households that receive CCTs spend more on food and, in the food basket, on higher-quality sources of nutrients than do households that do not receive the transfer but have comparable overall income or consumption levels.
The earliest types of CCTs were witnessed in Latin American countries of Brazil and Mexico and in Bangladesh. The Brazilian program is called Bolsa Familia Program (BFP) and was launched in 2003. Today it covers more than 13 million families and is quite successful in not only eliminating hunger among the vulnerable sections of the society but also has improved the human resources. The World Bank studies of 2004 and 2009 have established these facts. The scheme was implemented through the municipalities and there was strict monitoring of the beneficiaries. If the information provided by them at the time of enrolment was found to be incorrect, there were strict penalties besides barring such families from future benefits. The Mexico’s CCT of PROGRESA was found to be equally successful. The government found the CCT as win-win situation both for themselves as well as for the recipients. There was a positive behavioural change which was desirable. Moreover, the families could appreciate the intrinsic value of educating their children and keeping them fully immunized to tackle life threatening diseases. There is another successful model of Chile called Solidario, although slightly different from the previous two. In Chile, the CCT was found to be an incentive to motivate the social workers and families to commit themselves to various conditions of mandatory education and healthcare of children.
In Bangladesh, Pakistan, and Turkey, where school enrollment rates among girls were lower than among boys, CCTs have helped reduce this gender gap. Because CCTs provide a steady income, they have helped protect poor households from the worst effects of unemployment, catastrophic illness, and other sudden income shocks. Most recently, CCT pilot programs are being implemented in Sub-Saharan Africa to help alleviate the plight of millions of orphans in the wake of the continent’s devastating HIV/AIDS epidemic. CCTs are proven versatile programs, which largely explain why they have become so popular worldwide.
Case for India
The Direct Benefit Transfer scheme has just started in India in India in 2003 and is still very young and fledgling. In order to let the people understand and get used to such innovations, it is important that sufficient time may be given. The government also needs to assess the outcomes over a certain period of time. However, in India, where the Human Development Index (HDI) is very low as compared to rest of the developed and developing countries, the progression from Unconditional to Conditional Cash transfer will have to be made a reality in the future. The sooner it is accepted and rolled out, the better it would be. To start with, we can have pilot projects in some of the most backward districts of the country which have very low HDI in terms of education and health parameters. The recipient families need to be oriented towards the new system of cash transfers through social as well as government agencies. The point which needs to be driven home is that with the mandatory condition of school enrolment and immunization, it is they who will be winners all the way. Not only the socio-cultural and human health parameters will be improved, there will be assured finance flow to take care of family’s economic well being and status. Another important intervention which could be thought of in the new scheme of things is that the cash transfer is made to the bank account of the female head of the family which is currently being done in several others subsidy schemes. This step will assure the economic independence of the females in a family and their age old dependence on the men folk will be a thing of the past.
Learning from various successful models worldwide of conditional cash transfers, it is high time that we started taking positive and confident steps towards this type of subsidy distribution.