Cash and carry

Is Chandrababu Naidu’s cash transfer idea just populism?

Written by Dhiraj Nayyar | Published:March 9, 2009 1:00 am

The lack of a big theme or campaign message from any of the major nationwide alliances with general elections just a month away is somewhat surprising. The current economic scenario would charge an election campaign almost anywhere in the world — it did in the US. One wonders why there aren’t a slew of proposals and heated debates between political parties with an election just weeks away.

Except,perhaps,in one state where things are beginning to shape up nicely,and where new ideas are being floated as a precursor to a mighty electoral scrap — Andhra Pradesh. Some of the extra bite in the campaign there might have to simply do with the fact that there is a simultaneous poll for both the Lok Sabha and the state legislature — so there are two prizes at stake. Also,the contest is three-way — Congress vs TDP-TRS-Left vs Praja Rajyam,a contest that has both new combinations and fresh faces.

But the importance of the 42 Lok Sabha seats in Andhra should not be underestimated either. Remember that Andhra played a major role in sweeping the UPA to power in 2004 — the Congress won more than 30 seats out of its total 145 in Andhra alone. Before that,in 1999,the TDP’s sweeping victory helped Chandrababu Naidu support and influence the NDA government for almost five years. So one expects a tough fight — and that always makes for an interesting campaign.

It helps also that Andhra politics has a fascinating and colourful history. It is the one state where populism has been a recurrent and dominant feature of almost every campaign in recent times. The presence of prominent film personalities and celebrities,from the rise of the mercurial N.T. Rama Rao in the 1980s to the wild-card Chiranjeevi this time round,adds an air of unpredictability and excitement. That aside,there is almost always a frantic showering of promises about a number of populist schemes — to name just two,the Congress offered free electricity to all last time and the TDP had earlier offered rice at Rs 2 per kg. And these played no small part in their election victories. This time around the competitive populism has again begun in earnest — the TDP is offering free colour TVs,and the Congress is promising to continue with free power.

The problem,of course,with a lot of such schemes is that they are not well targeted — why should rich farmers get free power? Why should the government be giving away televisions? Also,there is a lot of leakage and corruption in subsidised food schemes. And even when you add them all up,poverty remains persistent,farmers still commit suicide. So,in terms of impact,we need something much better.

In this context,one proposal,floated by Naidu this time round,could overcome many of these general shortcomings: directly transferring cash transfer to the poor.

Now,there is nothing original about the idea,but it’s never found much traction in India,where we have tended to prefer more indirect programmes like NREGA,which pay the poor in cash or food,but only if they work. Again,the impact of such programmes on poverty has typically been slow,uneven and ridden with leakages. The direct cash transfer,therefore,may just be the big improvement we need.

Consider the most successful example of a cash transfer programme from Brazil,from which Naidu drew his inspiration — the bolsa familia programme. The programme initiated by the government of President Lula Da Silva during his first term in office makes a provision of a direct cash transfer to poor families every month but conditional on their sending their children to school and getting their children vaccinated. In this way,it tries to alleviate the problem of short-term poverty with a longer term of goal of lifting people permanently out of poverty through the provision of good education and health. The programme is designed to try and minimise leakage — families are given a smart card,usually in the name of the oldest female member,which they use to withdraw money from an automated machine.

The concept aside,the impact of the scheme has been phenomenally good — the programme reduced poverty by nearly 30 per cent during Lula’s first term. It played a significant part in his re-election,so it made for good politics. It also enabled the government to continue to implement market-based reforms of the Brazilian economy — with a good social safety net a market economy’s ups and downs are more acceptable to the people at large. The success of the programme has also caused less distress to Brazil’s poorest people during this current downturn. Put simply,the bolsa familia programme shows that it is perfectly possible to combine good economics with good politics and that economic reforms (read liberalisation) can be sold to the electorate as long as there are good social security nets.

A similar programme is run by the World Bank in Mexico,another country which has sustained market-based reform with popular support. It’s time that politicians in India at least began to debate this idea which could do more to alleviate poverty quickly than even the NREGA.

Poverty alleviation aside,the programme may be good from a macroeconomic point of view,primarily because it will boost spending — the poor have the highest marginal propensity to consume and they will spend all the money that is transferred to them — which will then have a multiplier effect on our sagging economy. Barack Obama’s trying similar things to boost the US economy and to insure people against distress; cash transfers are not simply developing country remedies any more.

One has to then believe that such a programme has the highest potential to marry good economics and good politics in India,just like it has in Brazil and Mexico. Unfortunately,Indian politicians have never been convinced of the synergy between good economics and good politics. In this time of economic crisis,this is precisely the combination we desperately need. And a cash transfer programme may be the right catalyst for change.

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