Home >Politics >Policy >Why cash transfers in rural India are ineffective

Over the last few years, both central and state governments have experimented with replacing social programs, such as the Public Distribution System (PDS) with direct benefit transfers (DBT). New research, though, suggests that replacing the PDS with DBT could be problematic. In a new study published in the Economic and Political Weekly, Barun Kumar Barnwal and Mrityunjay Pandey analyze a pilot cash transfer project launched by the Jharkhand government in the Nagri block of Ranchi district in October 2017.

They conducted a survey of around 112 households from six villages between January to February 2018 to analyze DBT performance. The survey revealed several issues with DBT implementation. For a start, beneficiaries could not access banks and customer service centres (CSC) easily to collect their money. With every transfer, the beneficiary had to visit the bank to confirm credit of the DBT amount and then the CSC to collect the amount. This was a difficult process since there were not enough bank branches and, even where there were branches, they were far away.

Banks and CSCs were 6 km away for more than 20% of households which meant that they spent over 13 hours every month, on average, collecting their benefits. Consequently, around 13% of the households lost more than 5 working days in the entire process, forgoing wages greater than the subsidy amount itself.

As a result, the authors found that 94% of households preferred the old system of purchasing grains over the DBT. The authors conclude that without proper access to banking facilities, the introduction of DBT in Jharkhand, which already had a well-functioning PDS, has been troublesome for beneficiaries and added to hunger and poverty.

Also read: Troubles with Cash Food Subsidy

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