India - Direct Cash Transfer no panacea by itself (V.G.Read)

Mihir Shah



Any anti-poverty programme will work only if it leads to an end to dependence on doles. To end this dependence, sustainable livelihoods must be created for the poor.






Anti-poverty programmes will work only if they lead to sustainable livelihoods and end dependence on doles. This requires stronger people’s institutions, appropriate technology, skill development, leveraging markets and adequate public investment.

Direct cash transfer (DCT) is the current buzzword on the development circuit. Economist Arvind Subramanian, in India to promote his new book, regards DCT as the “first best option” to address poverty in India (The Hindu, August 24, 2008). In a recent article in the Economic and Political Weekly (April 12, 2008), Subramanian joins Devesh Kapur and Partha Mukhopadhyay (KMS) to present a more elaborate case for DCT. As KMS say, putting together the current annual allocations for centrally sponsored schemes with food, fertilizer and fuel subsidies, we get a figure of nearly Rs. 2,00,000 crore. They ask: “Is this enormous expenditure through centralised mechanisms the best way of improving the welfare of India’s poor and achieving India’s development objectives?” Why not, instead, transfer Rs. 1 crore per annum to each gram panchayat? A mouth-watering figure, indeed!

No wonder, there is an almost irresistible seductiveness in the idea of DCT. But it is also a reflection of great intellectual, policy and political ennui. KMS suggest a two-fold path for redirecting central expenditures — outright transfers to individuals and transfers to local government. The expenditures they wish to cover this way include the Public Distribution System (PDS) for food and fuel, fertilizer subsidies, rural housing (Indira Awas Yojana) and the Swarnajayanti Gram Swarojgar Yojana (SGSY), which account for more than Rs. 70,000 crore in the 2008-09 budget.

But the Indira Awas Yojana (IAY) is already based on DCT. Obviously, houses are not being transferred to the rural poor. The problem is translation of cash into houses. Thoughtless policy-making has meant that the IAY transfers crores of rupees to gram panchayats and “poor” families each year but these families routinely do not undertake quality housing with that money. One, because that money is just not sufficient to build houses. Two, because at times families have other needs that gain priority over housing. Three, because families do not have other inputs required (skilled masons, materials, etc).

A reckless exercise


Even more serious is the case of the SGSY, under which loans are provided for income-generating activities. In a typical bureaucratic drive to meet targets, little attention is paid to assessing whether families have access to technologies and markets, which would ensure that the loans work. The major consequence of such reckless direct cash transfers under the SGSY has been the conversion of many of India’s poor into bank loan defaulters, no longer able to access formal sector credit.

No magic bullet


The SGSY is a classic case study of mistaking microfinance for a magic bullet. As innumerable studies have shown, microfinance works only under very specific circumstances. The transfer of cash is hardly the constraint. There are so many concomitant conditions of success that need to be present for credit to engender sustainable livelihoods. Any anti-poverty programme will work only if it leads to an end to dependence on doles (what in a more glorified term is called direct cash transfer). To end this dependence, sustainable livelihoods must be created for the poor. And this demands skills, markets, technology, material inputs, infrastructure and institutions.

KMS believe we should learn to trust the poor to use these resources better than the state. But it is not really a question of trust at all. For, even a completely trustworthy poor person will not be able to do much with the cash directly transferred to her unless the conditions required to translate this cash into enduring outcomes are present. The question is not merely one of placing trust in the entity concerned (the poor, the bureaucracy or even gram panchayats) and leaving the rest to fate, as it were. The issue is one of setting up systems and creation of an environment that facilitates enforcement of accountability by the gram sabha on whoever is made the “trustee” of public resources. The issue is not primarily of directness or otherwise of transfer. It is much more about ensuring effective utilisation of this cash, which needs both developmental inputs (markets, technologies, skills, materials) and political ones (social mobilisation to strengthen monitoring mechanisms and institutions).

PDS inequities


As for the PDS, it is not clear how cash transfers will allow the poor to buy grain from the open market at a time of steep inflation. The problem is that the PDS is characterised by a whole range of inequities — its coverage is the weakest in the neediest regions and it fails to cover crops grown and eaten by the poorest. The way forward is to reform the PDS and extend its reach to and density in the poorest parts, where need is the greatest.

The National Rural Employment Guarantee Scheme (NREGS) is upheld as a positive example of DCT. But viewing it as a mere cash transfer scheme would actually guarantee its failure. The NREGS is not an old-style famine relief kind of welfare programme. This is a development initiative providing crucial public investments, which can trigger private investment in the most backward regions. It visualises the involvement of local people in every decision — whether it be selection of works and worksites, implementation of projects or their social audit. This requires a new bottom-up, people-centred approach to planning of works and social audit. But so far the social mobilisers and technical personnel required to make this a reality have not been supplied. The Schedules of Rates remain the same that the contractor-raj used. They underpay labour and discriminate against women. If we view the NREGS merely as a means of cash transfer, we will fail to attend to these critically important dimensions that need urgent change.

Unfinished agenda


A final word of caution. It has become fashionable among scholars of rural India to wave Panchayat Raj Institutions (PRIs) as some kind of politically correct magic wand. A solution for all ills. We certainly see PRIs as critical to the success of programmes like the NREGS, even to the future of Indian democracy itself. But PRIs in large parts of India today are nothing more than work-in-progress. They have a very long way to go before they can become instruments of democracy and development at the grass roots. They need massive support from the state for them to be able to realise their potential. This is the whole unfinished agenda of reform of rural governance, the reform of the public sector in rural development.

Since the 1990s, India has been hailed as a great success story of reforms. India’s elevated rates of growth have been attributed to a new liberalised policy regime. It has also been acknowledged, at the same time, that this process has failed to draw into its ambit millions of rural Indians who have suffered unprecedented distress, whether in the form of hunger (malnourished children, anaemic women) or farmers’ suicide. And this has happened despite thousands of crores being spent in the name of rural development each year. A major part of the explanation for this lies in the very poor quality of implementation of these programmes. This persists because, unlike India’s corporates, our rural poor do not have a voice in pushing for reforms that matter to them. Even Left-leaning politicians across the political spectrum or civil society activists, all of whom claim to speak for the rural poor, have failed to make reforms in the rural public sector, a key ingredient of their political agenda. This means rural Indians have to continue to cope with the same corrupt and insensitive bureaucracy that has ruled their lives since independence. Rural development desperately needs infusion of professional inputs. It is high time we gave up thinking of rural development as routine administrative work. Or charity. At the same time, we need to build strong systems of transparency and accountability into anti-poverty programmes.

Without these changes, a constant reference to PRIs as the answer will only amount to buttressing abdication by the state of its responsibility for rural development. A misplaced Gandhian over-emphasis on “voluntarism” will also end up only reinforcing this tendency of the state to withdraw. It is patently unfair to burden PRIs with massive tasks of development without providing them the requisite support. Funds, functions and functionaries are all vital (as the PRI Minister likes to say). But more than that a reformed, accountable, performing system.

Thus, anti-poverty programmes to succeed demand more than cash transfers (whatever the degree of their directness). They require that simultaneously many challenges be addressed — strengthening people’s institutions, extension of appropriate technology, skill development, leveraging markets for the poor and wise and adequate public investment. Only then can sustainable livelihoods be generated and an end visualised to both poverty and anti-poverty programmes.

(An economist by training, the writer lives and works among the Adivasis of central India to help engender sustainable rural livelihoods.)