Putting cash transfer in its place

Putting cash transfer in its place

On 1 March, Bihar’s government approved the Chief Minister Food Security Scheme (CMFSS), meant to provide subsidized foodgrain to poor families that do not meet the Centre’s below poverty line (BPL) criteria. The scheme expands the number of BPL families eligible for food subsidy from 6.5 million to 14.5 million. This step towards a near universal coverage of the public distribution system (PDS) in the state will help provide food security to a large number of families, which faulty targeting and the Planning Commission’s arbitrary poverty caps have hitherto kept out of the ambit of the PDS.

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But the state government’s initiative is also important for a different reason. It shows the state’s intention not only to continue with the much-maligned PDS, but also to expand its coverage by more than double. This is at a time when votaries of cash transfers have been lauding a state programme to dole out cash for bicycles to girls who make it to class IX. In this, Bihar’s government has shown a nuanced understanding of the different roles played by different schemes in generating inclusive growth.

The question is not which of these schemes is better, but what purpose they serve. Are cash transfers a substitute for the state’s role in providing essential services such as health, education and nutrition, or are they complements? A look at the success stories of Brazil (Bolsa Familia) and Mexico (Oportunidades) can be useful. The accompanying chart shows some basic indicators related to health, education and nutrition, and the access to essential services that are crucial to achieving positive outcomes in these sectors.

We find that in Brazil and Mexico, access to essential services such as education (pupil-teacher ratio), health (doctors and hospital beds per 10,000 persons, access to improved sanitation) and basic infrastructure (access to electricity) is at near-saturation levels. That is, the section of the population for which these indicators are in deficit is very small, and in certain cases even negligible. More importantly, the outcomes in these dimensions (mean years of schooling, under-5 mortality rate, institutional child delivery, maternal mortality rate and number of underweight children) are superior in these countries than in India.

It is in this context—and not in the current large-scale deficit in provisioning of basic services — that the relative merits of conditional cash transfers should be measured. Such transfers are useful in creating demand for basic services by providing incentives to those who have not availed of them. But that can only work once these services have been provided universally and efficiently. In other words, the saturation in the supply of basic services is a precondition for cash transfers to work. Such transfers are neither a solution to nor a substitute for the lack of supply of essential services. Their role is to ensure access to basic services for those households that are unable to access them because of extraneous reasons.

This throws new light on the Bihar story. Hence, the success of the cash for bicycle scheme would not have been possible had there been no schools for children. What is generally missed out is that the scheme was preceded by the appointment of 300,000 teachers, the building of 100,000 classrooms, and a substantial increase in the expenditure on elementary education. But even with the basic infrastructure in place, girls were less likely to complete schooling because of social and cultural factors. The cash for bicycle scheme became an effective incentive to get girls to continue studying.

Along with the success of this scheme, there have also been cases such as the maternity benefit scheme, where in the absence of adequate basic services, cash transfers have not yielded desired results. This is unfortunate, because a programme that relies completely on cash transfers doubly punishes those households that have been left out of the subsidy ambit—they get neither the basic service nor the cash. On the other hand, states such as Kerala, Tamil Nadu and Himachal Pradesh have managed to enable access to these services without relying on cash transfers.

The case of the PDS is different, simply because the magnitude of the problem here is humongous. Hence, what is needed first is a thorough reform of the existing system—boosting participation in the programme by removing targeting errors either through expanded coverage or through administrative measures.

Even after doing all this, there will be some households that may not be able to reduce malnutrition —due to bad hygienic practices, lack of sanitation or other factors. This is where cash transfers can come in—to encourage these households to participate in the programme. But we need to realize that at high levels of malnutrition, cash transfers cannot substitute the essential role that the PDS plays. Unfortunately, we are far from a saturation in the supply of affordable nutrients that could have eradicated malnutrition among the poor, and laid the basis for future cash transfers to further the spread of wholesome food among the marginalized sections of our society.

Himanshu is assistant professor at Jawaharlal Nehru University and visiting fellow at Centre de Sciences Humaines, New Delhi.

Graphic by Ahmed Raza Khan/Mint

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