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Cash Transfer Revolution
Context: The Haryana cabinet’s recent approval of the Deen Dayal Laado Laxmi Yojana, promising ₹2,100 per month to women, is part of a significant national trend where India has witnessed a remarkable surge in cash transfer programs targeted at women, growing from virtually nothing in 2018 to schemes now reaching over 130 million women and costing 0.6% of GDP.
What are cash transfers?
Cash transfers are direct, regular payments of money provided by the government or other institutions to eligible individuals or households. They are a form of social protection designed to reduce poverty and vulnerability. These transfers can be:
- Unconditional: Provided without any requirements for how the money is spent (e.g., Haryana’s Deen Dayal Laado Laxmi Yojana).
- Conditional: Require recipients to meet certain conditions, such as ensuring children attend school or get regular health check-ups (e.g., Pradhan Mantri Matru Vandana Yojana has certain conditions).
- Targeted: Aimed at specific demographic groups, such as women, farmers, or the elderly.
Why are cash transfers significant in India?
- Women’s Empowerment: Transferring money directly into women’s bank accounts increases their financial autonomy and decision-making power within the household.
- A new study by the National Bureau of Economic Research (NBER) found that direct transfers to new mothers led to a 9.6–15.5% increase in their calorie intake, reduced intra-household gender disparities in food consumption, and improved children’s functional development.
- Poverty Alleviation: They provide a basic income floor, helping poor families smooth consumption, meet immediate needs, and reduce hunger and malnutrition.
- Leakage Reduction: Direct Benefit Transfer (DBT) architecture transfers funds directly to Aadhaar-linked bank accounts, minimising leakages, eliminating intermediaries, and reducing corruption associated with in-kind benefits (like subsidised grain).
- Administrative Efficiency: DBT is often more efficient than managing complex supply chains for physical goods (e.g., Public Distribution System for food grains).
- Political Salience: As seen with the proliferation of state schemes, cash transfers have become a powerful tool for political parties to fulfill promises and connect with voters, particularly women.
What are the major challenges of cash transfer schemes in India?
- Exclusion Errors: Imperfect databases and outdated targeting mechanisms (like Socio-Economic Caste Census data) can exclude genuinely poor and eligible beneficiaries from receiving benefits.
- Limited Impact on Development Outcomes: As the NBER study highlights, cash alone may not improve critical long-term outcomes like child stunting and wasting (anthropometrics), which are also influenced by factors like sanitation, healthcare, and hygiene practices.
- Inflationary Pressures: A large-scale injection of cash into a localised economy can potentially drive up prices of essential goods, negating the real value of the transfer for recipients.
- Infrastructural Barriers: Lack of banking infrastructure, poor internet connectivity in rural areas, and problems with Aadhaar seeding and authentication can prevent beneficiaries from accessing their funds.
- Fiscal Sustainability: The combined cost of central and state-level schemes represents a substantial and recurring fiscal burden, raising questions about long-term financial viability.
- Moral Hazard: A theoretical concern is that unconditional transfers could disincentivise work, though empirical evidence for this in the context of low-value transfers in India is limited.
What measures can be taken to address the same?
- Improve Targeting: Regularly update beneficiary databases through transparent and participatory verification exercises to minimise exclusion errors.
- Complement with Public Goods: Cash transfers must be complemented with robust investments in public health, nutrition (ICDS), sanitation (Swachh Bharat), and education.
- Behavioural Change Communication: Integrate information campaigns (as done in the NBER study) that encourage recipients to spend on high-impact areas like nutritious food and education, enhancing the developmental impact.
- Strengthen Infrastructure: Expand banking correspondent (BC) networks and improve digital literacy and connectivity in rural areas to ensure last-mile delivery.
- Consolidate Schemes: Rationalise and consolidate multiple small schemes into fewer, larger transfers to reduce administrative costs and complexity for beneficiaries.
- Rigorous Monitoring and Evaluation: Institute independent, third-party evaluations to assess the socio-economic impact of schemes continuously and make evidence-based policy corrections.
