CCT enthusiasm, however, is often based on a superficial reading of the Latin American experience. In Brazil, Mexico and other pioneers of this approach, CCTs were used to bring into the fold of health and education services a fringe of marginalised households, in a situation where a large majority of the population was already covered by extensive social insurance systems. CCT is basically an incentive and, predictably enough, it often works: if you pay people to do something that benefits them anyway, they tend to do it. It is the same principle as scholarships for disadvantaged children. Incidentally, there is no evidence that scholarships — that is, conditional cash transfers — work better than “conditional kind transfers” like school meals or free bicycles for girls who complete Class 8. In fact, I submit that the latter would win hands down in any sensible and sensitive evaluation of the two approaches. Be that as it may, I am not questioning the potential effectiveness of CCTs in their limited capacity of “incentive”.
Another contextual difference, mentioned earlier, is that Latin American countries tend to have highly developed social insurance systems, with wide coverage. “Targeting” CCTs to marginalised groups in such a situation makes some sense, because the bulk of the population is already covered and the rest is (relatively) easy to identify. In India, however, large sections of the population are in dire need of social support, and the experience with targeting is quite sobering. Indeed, every known method of identifying “BPL” (below poverty line) households involves large exclusion errors. This is an unresolved issue for any targeted CCT initiative in India.
Finally, there is a place for unconditional transfers in kind, such as the Public Distribution System (PDS).
A wholesale transition from the PDS to cash transfers in rural India would, in my view, be misguided and at the very least premature. For poor people, food entitlements have several advantages over cash transfers. First, they are inflation-proof, unlike cash transfers that can be eroded by local price increases, even if they are indexed to the general price level. Second, food tends to be consumed more wisely and sparingly; cash, on the other hand, can easily be misused. Third, food is shared equitably within the family, while cash can easily be cornered by selfish individuals. Fourth, the PDS network has a much wider reach than the banking system. In remote areas, where the need for social assistance is the greatest, banking facilities are simply not ready for a system of cash transfers (as it is, they are unable to cope with NREGA wage payments). Last but not least, cash transfers are likely to bring in their trail predatory commercial interests and exploitative elements, eager to sell alcohol, branded products, fake insurance policies or other items that would contribute very little to people’s nutrition or well-being.
The writer is an honorary professor at the Delhi School of Economics and a member of the National Advisory Council