Latin America, the poster child of bad economic policy in the 1980s and early 1990s, is leading the way in one rapidly evolving area of social development: conditional cash transfer (CCT) programmes.

These schemes provide cash payments to poor households that meet certain behavioural requirements, generally related to children’s healthcare and education. The idea here is to support minimal levels of consumption through income transfers, while encouraging long-term human development. The largest CCTs such as Brazil’s Bolsa Familia and Mexico’s Oportunidades support millions of people. In Chile, Turkey and Bangladesh, they have been used to support specifically targeted groups for specialized initiatives such as gender advancement. Brazil and Mexico have now become exemplars of good implementation of CCTs.

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Consider that CCT programmes have the same minimum requirements as other transfer programmes: (1) a means to establish the eligibility of citizens to participate in specific programmes; (2) a way to pay out the benefits.

The two components associated with most CCT programmes are education and health. A 2009 report authored by Ariel Fiszbein and Norbert Schady of the World Bank, analyses them in detail; it concludes that CCTs have generally been effective in reducing poverty and encouraging parents to invest in the health and education of their children. The report draws on a large number of carefully designed and conducted impact evaluations of these programmes. These evaluations are integral for policymakers to construct CCTs and have been useful in objectively studying their actual effect.

There’s a twist here, too. The interest in using cash—to incentivize parents to invest in schooling for their children—is actually spreading from developing countries to developed countries. The latter seem to want to replicate the success of CCT programmes, which many poorer countries initiated to reform their badly targeted subsidies and to upgrade the quality of safety nets.

Don’t get me wrong. Market-driven growth in free and fair competition is the best weapon for poverty reduction. Yet, safety net programmes have a role to play in a developing economy. At the very least, they provide a buffer against exogenous shocks and smoothen the inter-generational effects of poverty. But direct cash transfers have opportunity costs in terms of alternative government investments foregone. So they have to be designed with care and monitored to ensure that they are effective.

Why have they not been tried in India? In fact, they have. The Janani Suraksha Yojana (JYS), a programme under the National Rural Health Mission (NRHM) that seeks to promote institutional deliveries of babies, is one example. The ultimate objective of the programme is to reduce maternal and neonatal deaths. In just six years since it began in 2004 the programme had grown over 10-fold from 0.74 million to over eight million beneficiaries, making it, in terms of beneficiaries, the largest programme in the world.

JYS essentially provides 600-1400 for pregnant women who use institutional delivery and up to 600 for the formal healthcare worker who assists in this delivery. This worker is most typically an accredited social health activist (ASHA). The concept of a locally recruited and trained ASHA is central in NRHM, and shows the link between a specific CCT, in this case JYS, and the much broader NRHM programme in the country. In an independent study published this year in the respected British medical journal Lancet, Stephen Lim and others document the high odds of in-facility births among JSY beneficiaries. More importantly, this study showed a reduction of four perinatal (during delivery) and two neonatal (for a month after delivery) deaths per 1,000 live births as a result of JSY.

Various states are piloting several other programmes, with most focused on female foeticide and the declining child sex ratio. Dhanalakshmi is a government-funded pilot CCT scheme in seven states, started in March 2008, that provides insurance cover to the girl child with the goal of educating her.

There are many issues with implementing a successful CCT in India: precise targeting; inadequate infrastructure in getting payments to households without frictional loss; the quality and capability of the “conditional" health or education facility; the ability to conduct independent studies and perform mid-course corrections; and so on. But, as the success of the JSY programme shows, these issues can be overcome.

India will benefit greatly if poorly targeted, generalized subsidies are converted into more specifically targeted CCTs. For instance, the total size of the ill-targeted food and cooking gas subsidy in India is approximately 1.5% of the gross domestic product. While unwinding them will be complex, streamlining these subsidies will result in huge savings to the exchequer. And thanks to its emphasis on incentivizing households towards health and education, CCT will have a targeted benefit.

PS: To paraphrase an old Chinese proverb, “Give a man a fish and you feed him for a day. Teach his children to fish and you have fed the household for a generation."

Narayan Ramachandran is an investor and entrepreneur based in Bangalore. He writes on the interaction between society, government and markets. Comments are welcome at