Last week the government’s chief economic advisor Arvind Subramanian described the direct benefit transfer scheme as a “game changer". The Pahal scheme, under which cooking gas consumers receive subsidy in their bank accounts, is one of the ways the government is trying to improve the efficiency of its welfare programmes using the so-called the JAM trinity (Jan Dhan, Aadhar and mobile phones).

Such cash transfer schemes receive a leg-up from a recent World Bank study which says that such programmes are a more efficient way of providing social safety in comparison to other methods.

Across the world, the share of cash transfers, both unconditional and conditional, have increased. While the share of such programmes increases with the income level of countries, the World Bank has also highlighted the rapid improvement in the number of African countries with unconditional cash transfers, which doubled from 20 to 40 between 2010 and 2014. The number of countries providing conditional cash transfers increased to 64 from a paltry two between 1998 and 2014.

This increase is not without reason. There is emerging evidence from impact assessment studies pointing that cash transfers have a positive and significant impact on health and education indicators. Conditional cash transfers seem to work particularly well since they ensure that the poorest subsets of the population receive a relatively greater share in total transfers.

According to World Bank data, in conditional transfers, the poorest 20% of the population get around 40% of the benefits. This compares well with schemes such as unconditional cash transfers, social pensions and public works where the poorest one-fifth receives only 25% of the benefits.

That doesn’t mean that all conditional cash transfers are equally well targeted. Significant variations in targeting efficiency exist across nations. High income nations typically do better. Moreover, low income countries often do not transfer enough cash to cover the needs of the poor population.

The World Bank’s thumbs up to cash transfers is likely to boost the calls for routing of all subsidies through the cash-transfer route in India.

But two points need to be kept in mind.

One, winding up or reducing food procurement to make way for direct cash transfers to provide food security can have a large-scale repercussion on the food economy.

Two, there is enough evidence on inadequacy of cash transfers to cover consumption needs in several poor countries. Such transfers would especially be insufficient if they do not match high inflation typical in such countries.

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