ExplainSpeaking | Nrega, Nyay and PM-Kisan: Why do politicians rush to give direct benefits (cash) to the poor?

Congress’s 2019 manifesto had promised that NYAY would be provided to the poorest 20% of Indian families (roughly 5 crore families out of a total of 25 crore; assuming 5 people per household). Nyay was to include a guaranteed payment of Rs 72,000 to each eligible family.

Around the same time, in 2018, the incumbent government, led by Prime Minister Modi, had rolled out a similar scheme called PM-KISAN (Pradhan Mantri – Kisan Samman Nidhi). It was billed as the world’s largest direct benefit (read cash) transfer (or DBT) scheme for farmers and involved “an income support of 6,000/- per year in three equal installments will be provided to all land holding farmer families” in India.

Even though the Congress failed to woo voters in 2019, despite promising a substantially larger sum, its Rajasthan government, led by then Chief Minister Ashok Gehlot, rolled out a similar direct benefit scheme in 2023 in the run-up to the state Assembly election. The details of that scheme can be read here.

There are several questions here: What is the charm of such schemes? Are they the same as Universal Basic Income? Aren’t such cash transfers counter-productive to poverty alleviation? Aren’t they doles or freebies or revadis? Have they worked elsewhere? Can a country such as India afford them? Wouldn’t it be better to put some conditions on such transfers?

Why are Nyay/PM-Kisan not UBI?

While these schemes resemble UBI, the first thing to note is that they are not exactly the roll out of Universal Basic Income (UBI).

Under a UBI, the government gives a “basic” income to every citizen in the country — from the richest person to the poorest one, regardless of whether they work or not. But there is a flip side to UBI: The government also rolls back all types of subsidies — from food to fertiliser to train tickets to medical bills.

The idea is simple: Just give everyone a minimum income amount, cut down the bureaucratic costs involved in running scores of welfare programmes, and simply tax everyone in such a manner as to fund the UBI. The truly needy people will get a minimum help while anyone who doesn’t actually need the UBI help will find it taxed away.

As should be evident, such schemes — be it the proposed Nyay or the existing PM-KISAN — are different in all three aspects.

For one, they are not accompanied by removal of all the existing subsidies. It is not as if the poor or the farmers will be deprived of other social welfare schemes if they enjoy the DBT.

Secondly, the amount is much smaller than what anyone can consider to be the minimum or basic income that everyone needs to have to live a decent life. Lastly, the scope of the schemes is limited to a section of Indians; these are targeted schemes, not universal ones.

Why has UBI not been rolled out?

Even though UBI has captured the imagination of people on both the left and right of the economic ideological spectrum, the hard fact is that no country can afford it.

In rich countries such as Switzerland (which considered and refused to adopt UBI) the UBI amount is quite a lot even though the population may be small. In relatively poorer countries, the population is too large even if the UBI amount may be smaller.

Either way, sheer affordability itself is a massive stumbling block.

The other problem is the reduction of existing subsidies, not to mention the likely raising of taxes to fund the UBI. Announcing the removal of existing subsidies is almost certain to create a political backlash — big enough to end political careers.

Then, why do politicians persist with direct benefit (or cash) transfers?

In the recent past, the Congress party has tried to push for targeted welfare schemes. In particular, during the 10 years of UPA rule, it put in place laws to provide income support via the National Rural Employment Guarantee Act (NREGA) and subsidised food via the National Food Security Act (NFSA). The BJP under PM Modi came to power berating these policies of the Congress and labelling them as politics of dole.

And yet, far from repealing either of them, the Modi government has repeatedly leaned on these very schemes to alleviate economic distress — be it during the demonetisation episode or during the Covid pandemic. In fact, the roll out of PM-Kisan — a scheme which involved nothing but directly providing money to the beneficiaries — saw PM Modi taking NREGA and NFSA to its logical extension.

And yet, in popular discourse, both political parties spar over the populism and disbursal of freebies. The economic arguments for providing direct cash are rather counter-intuitive.

Comprehending them becomes even more difficult when one views this issue from a partisan political lens. But if one puts aside one’s political opinions — and it is best that one does so in order to understand why politicians across party lines are queuing up to implement such direct benefit transfers — it becomes clear that politicians rubbishing each other’s schemes is quite pointless since the fact is that both parties are trying to do the same thing.

Traditional thinking with regard to helping the poor is captured by the following well known saying: “If you give a man a fish, you feed him for a day. If you teach a man to fish, you feed him for a lifetime.”

This is all very fine until one examines and questions the assumptions. What if the man is too hungry on the first day to learn anything? What if he is so weak and feeble that he needs to be fed for a few days before he can summon up enough strength to learn? What if the choice is not between feeding him a fish and teaching him to fish? What if the choice is between feeding him a fish today (and ensuring he lives for another day to learn fishing) and risking his life (and ability to learn fishing tomorrow)?

What would you do then?

Perhaps the answer would change in favour of giving the man a fish before insisting that he learns how to fish. This switch is likely to be based on two key realisations.

One, that a feeble man can’t really learn much on an empty stomach.

Two, that the concerned man doesn’t have to be lectured on the usefulness of learning how to fish, and is motivated enough to learn provided he is in a situation to learn.

A radical policy solution: Give a man a fish

In 2010, Joseph Hanlon (Open University, Milton Keynes), Armando Barrientos and David Hulme (University of Manchester) wrote an insightful book with a provocative title — ‘Just Give Money to the Poor: The Development Revolution from the Global South’.

In it they detailed the four paradigm shifts in thinking about the poor and about the well-being of the vulnerable. Each of these stages built on its predecessor.

1> In I6th-century England, a government for the first time accepted the collective responsibility for ensuring subsistence for all.

2> In late-19th-century Europe, government social spending increased, and pensions and sickness and old-age insurance were introduced.

3> In the mid-20th century, an adequate standard of living became a human right and a government responsibility, and the rich North accepted a responsibility toward the poorer South.

4> At the beginning of the 21st century, countries of the Global South took the lead in construing cash transfers as a right and in using them as a way to end poverty and promote development.

Simply put, the authors argue that “simply giving money to the poor — no strings, no conditions, no kidding — may be the most promising approach not just for avoiding hardship and reducing poverty, but for long-term development as well.”

To buttress their claim they provide examples from developing countries — Mexico, South Africa, Namibia, Brazil, Indonesia, and India (NREGA) — across the planet where governments were trying out this radical solution.

“Instead of maintaining a huge aid industry to find ways to ‘help the poor,’ it is better to give money to poor people directly so that they can find effective ways to escape from poverty…(these examples) point to a little-understood reality of the developing world: The biggest problem for those below the poverty line is a basic lack of cash. Many people have so little money that they cannot afford small expenditures on better food, sending children to school, or searching for work. It is not a lack of motivation: people with little money spend their days actively trying to find a way out of poverty. It is not a lack of knowledge; they know what they need and manage their money extremely well,” write the authors.

Moreover, such transfers can create a virtuous development cycle in a country. “Families with an assured, though small, income begin to take small risks by investing in their future: buying better seeds to try to increase farm production, purchasing goods that can be resold locally, or even spending more time looking for better jobs. In impoverished communities, it is hardly worth starting a business because no one has money to buy. When they have a bit of extra income, most families spend the money locally, buying food, clothing, and inputs. This stimulates the local economy, because local people sell more, earn more, and buy more from their neighbors, creating the rising spiral,” argue the authors.

Wouldn’t giving cash make people lazy?

The Table alongside, also sourced from the same book, shows that before the turn of the century, the majority of Indians surveyed felt that those struggling with poverty were victims of an unfair society. It can be argued that perhaps this balance has shifted in the last decade towards laziness.

Credit: ‘Just give money to the poor: The Development Revolution from the Global South’ by Joseph Hanlon (Open University, Milton Keynes), Armando Barrientos and David Hulme (University of Manchester)

However, elsewhere in the book the authors point out the following:

“A quiet revolution is taking place based on the realization that you cannot pull yourself up by your bootstraps if you have no boots. And giving ‘boots’ to people with little money does not make them lazy or reluctant to work; rather, just the opposite happens. A small guaranteed income provides a foundation that enables people to transform their own lives. In development jargon, this is the ‘poverty trap’ model-many people are trapped in poverty because they have so little money that they cannot buy things they know they need, such as medicines or schoolbooks or food or fertilizer. They are in a hole with no way to climb out; cash transfers provide a ladder.”

This also answers why providing such DBTs doesn’t imply that governments can forget about providing other services such as health care or education.

To be sure, developed countries have been routinely providing cash transfers, be it in the shape of child support, housing benefits, winter fuel payments etc.

Why did people reject the offer of much higher cash transfers from Congress in 2019?

There are no clear cut answers here but it helps to understand that even such a simple and straightforward policy intervention requires effective implementation to have the desired effect.

The authors provide five guiding principles: “Such programs should be fair; assured; practical (Are the civil service and banking infrastructures sufficient to administer the program?); not pennies (Are the cash payments large enough to make a difference?); and popular (Are the programs politically acceptable?).”

Do you think directly transferring benefits (be it subsidised food, or guaranteed daily income or minimum cash) is the valid policy choice?

Share your views and queries at udit.misra@expressindia.com

Until next time,

Udit