Spending by the government to ease the burden on the country’s poor is undeniably desirable. But it’s high time it stopped hiding behind hollow expressions of concern on how ineffective that spending is—due to leakages and bad management. Will P. Chidambaram take the one step sorely needed to actually help the poor today? We refer to the widely and wisely advocated system of direct cash transfers to replace the maze of social spending schemes that inevitably fail to deliver, including his government’s ambitious employment guarantees, et al.
Thursday’s Economic Survey makes the standard platitudes about the need to improve governance and monitoring. It also points to a mandate for this government to target subsidies sharply. It reflects on how subsidies are still at a high of 8% of total expenditure even though they ignore the off-budget liabilities such as bonds to compensate oil marketing companies for keeping retail prices of fuels artificially low. There are no specific indications on spending reforms, except for a mention that states need to improve accountability in spending. But some hope lies in a special box on electronic smart cards. The idea is that these cards can ensure the intended audience actually benefits, and leakages are minimized. The survey suggests the use of these cards on an experimental basis in the existing public distribution and employment guarantee schemes, etc.
That won’t be radical enough. Chronic, perverse incentives across layers of government mean even here leakages will persist. The way out is to do away with these schemes and use the cards for direct transfers to the poor. Official estimates show how, to deliver Re1 to the poor by way of (just the) food or fuel subsidies, the government spends almost Rs4! It can’t be much different for the administrative spend alone on schools and health centres that don’t have facilities and/or teachers/doctors more often than not. And as Devesh Kapur, Partha Mukhopadhyay and Arvind Subramanian said last month in the Business Standard, if the Rs1.5 trillion spent each year on Central schemes plus subsidies “were allocated to 50 million poor households, each would get about Rs30,000 annually, enough to hurdle over the poverty line at one go!”
That’s the direction we need to take. And there are successful examples to learn from in Mexico and Brazil, too.
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