Active Stocks
Wed Sep 27 2023 15:59:55
  1. Tata Steel share price
  2. 128.15 -0.54%
  1. HDFC Bank share price
  2. 1,527.2 -0.68%
  1. Tata Motors share price
  2. 620.4 0.1%
  1. NTPC share price
  2. 239.35 -0.35%
  1. Infosys share price
  2. 1,467.55 0.51%
Business News/ Opinion / Making cash transfers work: Some options

Making cash transfers work: Some options

A one-size-fits-all plan to implement cash transfers is unlikely to work in India. Tailoring to local needs is the key

A file photo of Aadhaar launch in a village in Maharashtra. Photo: Abhijit Bhatlekar/MintPremium
A file photo of Aadhaar launch in a village in Maharashtra. Photo: Abhijit Bhatlekar/Mint

If cash transfers are to fulfil their promise of being a “game changer", then a paradigm shift has to occur from the supply-to-demand-side subventions. Top driven supply-side interventions get morphed beyond recognition as they pass through several implementation layers.

Nobel laureate Elinor Ostrom’s work in developing countries shows how this happens: in the unique culture of India, people rely more on locally crafted “rules in use", as opposed to drilled down “rules in form". And such transformation can be reduced by minimizing the distance between the rules in form and use. This can happen, for example, by giving greater choice to the poor to make the best use of money depending on situational rules in use.

The ecosystem contains several development programmes and substituting existing programmes with cash transfers will lead to a rapid switch-over. Moreover, three broad categories of cash transfer have been identified in development and humanitarian literature—total (direct cash transfer), restricted (conditional cash transfer and vouchers) and contrived (employment programmes). The trick is to match existing programmes with the right form of cash transfer. Different options are suited to different requirements. Direct, unconditional, cash transfer is the default option. This can be deployed to replace programmes where items citizens need are available in the market, the risk of inflation is low, those chronically poor are in need of repeated and continuing assistance and security of cash transfer is acceptable. Conditional transfers can substitute for programmes in which specific needs have to be met and larger sums have to be distributed to meet these needs. Alternatively, vouchers are useful if there is scarcity of a commodity or a service; there is a risk of inflation or there are security concerns about cash transfer; the programme aims to achieve a specific goal; enterprises or market in a particular commodity or services have to be developed and detailed monitoring data is required. Finally, if particular community works are required, equipment is available, individuals have the capacity to undertake the work and, thereafter, maintain the assets; then, cash for work is the preferred choice.

Making these guidelines operational will mean that programmes amenable to demand side intervention should be converted into the appropriate form of cash transfer. A good starting point is the report of the committee on restructuring of centrally sponsored schemes. The flagship, major sub-sectoral and sectoral umbrella schemes have to be re-assessed in terms of the normative guidelines given above and collapsed into the three categories. The practical principle is that all centrally sponsored schemes should be benchmarked against cash transfer, and only those programmes should be continued which are able to demonstrate that they are doing a better job, than the poor could do for themselves through cash transfers.

Another challenge is to deploy rules in use to make the Aadhaar number more acceptable by local communities. Here, the ubiquitous, easy-to-use mobile phone offers much promise. The Aadhaar data can be stored in the mobile phone, including biometrics. Software is available that permits users to record their biometric data: voice, facial features, or fingerprints on their personal gadgets, including mobile phones. Misuse would require stealing the device, finger and eye! An electronic Aadhaar card embedded in the mobile phone of the beneficiary will be cheaper, one of its kind and leverage on the considerable work already done in the Aadhaar project.

The mobile phone, also, has great potential to address the issue of low implementation capability of delivery systems and skewed bureaucratic incentives during the process of cash transfer. The method deployed by the non-profit GiveDirectly to achieve last mile cash distribution holds much promise. Paul Niehaus and Michael Faye started GiveDirectly in 2008 while they were doing scholarly work at Harvard University. During their graduate research they found that direct cash transfer was a particularly effective method to alleviate poverty. Unable to find non-profits practising direct cash transfer, they launched their own. Their frugal model rides on the highly acclaimed mobile-banking technology used in the M-Pesa programme to transfer 90% of the money directly to the poor. Only 10% is used on transfer fees and the cost of locating and relocating recipients.

Unlike pilots, GiveDirectly has evaluated the approach using quasi-experimental methods. During randomized trials they have used a lottery system similar to medical trials and compared development outcomes of households who have received direct funding vs. those who haven’t. Results show that no-strings attached cash transfer has improved health and led to downstream financial benefits, also. Beneficiaries who are living on less than 65 cents a day, invested in several items: food for starving children, long-term assets, such as land, livestock and housing. There is counterintuitive evidence too: money spent on alcohol or cigarettes remained the same or increased in the same proportion as other expenses (nearly 2-3%).

Sameer Sharma is a civil servant. These are his personal views.

"Exciting news! Mint is now on WhatsApp Channels 🚀 Subscribe today by clicking the link and stay updated with the latest financial insights!" Click here!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Updated: 21 May 2013, 05:54 PM IST
Next Story
Recommended For You
Switch to the Mint app for fast and personalized news - Get App