Sunday, Feb 05, 2023

Give cash some credit

Some objections to cash transfers seem to say that the poor are not as rational as us,the policymakers. That’s patronising.

It would be sad if the potential of cash transfers was lost as a result of hasty posturing by those on various sides of the debate. The fact is that,in India today,poverty and economic insecurity remain endemic in spite of fantastic economic growth. The existing system has failed to arrest the growing number in poverty,despite substantial government spending ostensibly designed to reduce poverty.

Could cash transfers help? A first need is to ensure sensible discussion,and to avoid presenting proponents as straw men. Nobody favouring them should imagine they would be a panacea or that they should replace everything now in place.

There are several types of cash transfer. In the public debate,there has been a tendency to generalise from a criticism of one type,as if that negated all types. There are three dimensions to take into account. First,should cash transfers be targeted on the poor or be universal? The idea is to ensure that everybody has some money so as to move out of poverty. But that could be done by targeting transfers only on the designated poor or by providing everybody with a transfer and taxing back from the non-poor. Internationally,economists are realising that the second option is not just feasible but more efficient and equitable.

A second issue is selectivity. The argument is that some groups “deserve” transfers more than others. Usually singled out are poor mothers and the elderly. The selection is not as easy as many assume. But the evidence is strong that unconditional cash transfers to the elderly benefits children as well as the elderly,and transfers to mothers benefits children as well as the women.

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A third issue is conditionality. In his Indian Express article Jean Dreze focused on conditional cash transfers or CCTs (‘The cash mantra’,IE,May 11). Having observed the development of transfers in Brazil,I do not recognise his characterisation of what happened. He says that in Latin America “a large majority” is covered by social insurance. This is not so. Then he says CCTs were used only for “a fringe of marginalised households”. Well,it is a very large fringe. Today,over 50 million Brazilians receive monthly transfers under the bolsa familia scheme,well over a quarter of the population and rising. And there is a law committing government to an unconditional cash transfer for all. The minister responsible for the policy has told me that he has always wanted to phase out conditionality. Quite right too. Conditionality is paternalistic and sets up arbitrary criteria for inclusion and exclusion. It would be folly if India were to go down that road.

Now reflect on the potential of unconditional cash transfers. It is not good enough to say they might be useful “sometime in the future”. If they are desirable,work on them should start now.

Cash transfers are not a panacea. But we have found in Africa,for instance,that in the absence of adequate infrastructure they can have a wide range of beneficial effects,whereas bureaucratic systems of subsidised food and other commodities are replete with corruption,inefficiency and inequity. These are precisely the failings in the Indian system. In a recent study in Gujarat,we found that the existing system is both chronically inefficient and inequitable,reaching the non-poor almost as much as the poor,and not reaching many of the latter at all.


It is easy to say the poor prefer food to money,and to suggest asking them,“Would you prefer food or cash?” That is Jean Dreze’s proposal. The problem is that not only do many people not receive food but that the value of the food received is only a fraction of the expenditure on the PDS. A fair question would have to be in terms of food actually provided and the equivalent in cash to what is spent on the system. So,you might have the food you receive now,which on average might be worth Rs 200 or you could have Rs 600 in cash. I doubt the critics of cash would like to see that question being posed. My guess is that the poor are as shrewd as anybody else and would opt for the cash.

Policymaking is an art. People tend to give a higher value to something they fear losing than to something that might take its place even if the latter has greater monetary value. But if the rationale for cash transfers is sound,experience should lead to a conversion of attitudes. When the bolsa escola was mooted in Brazil in the 1990s,academics scoffed. It started experimentally. I recall a city mayor saying she was attacked initially. But once operationalised,criticism faded.

It was similar with President Lula. He had to be persuaded to support cash transfers in 2001. In 2010,he told us in a private meeting that they would never go now they were established,and that increased economic growth,reduction of inequality and his own re-election had been primarily because of them.


Let me conclude by appealing to Jean Dreze,a man with fine values and deep concern for the poor. Let this be a period of policy experimentation,where pilot schemes are tried without any of us posturing or using phrases such as “remarkably dangerous”.

Several years ago,we designed a pilot in villages in Africa,providing every villager with an unconditional monthly transfer worth about 40 per cent of subsistence. Within months,child nutrition improved,school attendance and performance improved,economic output rose,women’s economic status improved,income inequality declined (taking account of the transfer),and treatment of serious illnesses increased (because patients could take medicine,having more food). Poor people had worked out what to do themselves. They did not need some bureaucrat treating them like children by giving them food benevolently. They started buying it or growing it themselves.

What works in one place may not work elsewhere. But people are rational everywhere. The poor are just as rational as anybody else. It is prejudice to imagine they would dissipate cash on alcohol or become indolent. A few might. But we should surely suppose that the vast majority would purchase better food for their families,or buy and look after medicines and clothes. They may grow more food,rather than depend on ration stores that have no goods or have such poor quality items that nobody would purchase them if they had a choice. Policymakers should not be patronising. Cash transfers are not a substitute for public services. But they could be a base of economic security.

The writer is a professor at the University of Bath,and co-president of the Basic Income Earth Network

First published on: 28-05-2011 at 02:09 IST
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