Should India adopt Conditional Cash Transfers?

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-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.

Current scenario

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.​ ​For​​e.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 enhances​s the efficiency​ ​of​ ​welfare​ ​schemes. Fourth, the​ ​provision​ ​of​ ​cash​ ​rather​ ​than​ ​donations​ ​in​ ​kind​ ​reduces​ ​the​logistics 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 was​increased​ ​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.

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