Study a boost to UPA’s move to shift to direct transfers, set to be a campaign plank in next general election
First Published: Thu, May 30 2013. 11 42 PM IST
Opening bank accounts and their “seeding” with Aadhaar number has been one of the roadblocks to a faster roll-out of the direct benefits transfer scheme. Photo: Hemant Mishra/Mint
Updated: Fri, May 31 2013. 12 19 AM IST
New Delhi: The United Progressive Alliance (UPA) government’s move to shift to direct cash transfers from subsidies, set to be a campaign plank in the next general election, received a boost from a study released on Thursday that showed such an initiative led to an improvement in savings, and spending on education and health.
“The results should assist those trying to reach a balanced judgement on whether or not, and if so how, cash grants could be incorporated into Indian social protection...policy,” said the report, belying the notion that cash transfers would lead to wasteful spending.
The report was based on the “basic income grant” experiment carried out by SEWA Bharat and the United Nations Children’s Fund in 22 villages of Madhya Pradesh between June 2011 and December 2012. SEWA Bharat is All India Federation of Self-Employed Women’s Associations.
The government’s cash transfer pilot scheme, which is being rolled out across the country, is aimed at making sure that subsidies and funds meant for public welfare programmes reach the intended beneficiaries, preventing leakages and cutting out middlemen.
If the scheme succeeds, it could be the policy victory that the Congress-led UPA, under pressure over allegations of corruption and maladministration, needs to showcase during national election due in 2014.
The pilot study included nine villages where grants were made to every woman, man and child, and 13 similar villages where grants were not made. One in each group of villages was tribal-dominated.
Monthly account transfers of Rs.200 to all adults and Rs.100 to all minors were made, reaching about 6,000 individuals in the nine villages. The transfer was Rs.300 and Rs.150, respectively, in the tribal village and was raised to this level in all villages after one year.
The grants were unconditional, with no preconditions being set for spending or use of the grant.
Experts said that while the findings were preliminary and needed further work, they were important and relevant to the question whether the government should move to direct cash transfers in place of subsidized foodgrains or cooking gas.
The study found that cash transfer recipients were more likely to spend more on varied food items, school essentials such as stationery and shoes, and private healthcare and private tuition.
Individuals getting grants saved more and were more than twice as likely to reduce debt than those who did not get them, the study noted as a preliminary finding.
The grants did not lead to a significant rise in spending on alcohol and tobacco, and were associated with an increase in labour and a shift to work in owned farms, especially among the tribal workers, it said.
The data set from the study needs to be worked on further by scholars, said University of Bath economics professor Guy Standing, the lead researcher of the study.
The study noted that opening bank accounts was the most challenging aspect of transferring benefits and had to be done by SEWA’s own officials.
This mirrors the challenge being faced by the government in rolling out its direct benefits transfer programme. Opening bank accounts and their “seeding” with Aadhaar number has been one of the roadblocks to a faster roll-out. The cash transfer programme works in conjunction with Aadhaar, or the unique identity number supplied by the government enrolment agency, the Unique Identification Authority of India.
Planning Commission deputy chairman Montek Singh Ahluwalia said the findings of the study showed that cash transfers were feasible and it was not true that money given directly to people is simply wasted.
“The study tells you what people do with the cash, establishing that they are at least as good a judge of what is the best use of money as the government,” he said.
More analysis and debate is needed on whether government schemes should provide benefits—such as cooking gas or foodgrains—in cash or kind, and whether they should be universal or targeted at beneficiaries, Ahluwalia said.
“If we ever shift to a cash-based system, it would not mean dismantling of the public distribution system (PDS),” he said. “The fair-price shops will sell grains at the economic cost and procurement will still continue, with the person getting the money in her or his bank account.”
The findings were in line with the international experience on the positive effects of cash transfers, said Sher Verick, a senior employment specialist at the International Labour Organization.
“To build on their results, the authors should also compare the differences for both test and control households, because some of the differences in outcomes between the two groups of villages could be a result of differences other than those induced by the cash transfer and not addressed by the random allocation of cash grants,” Verick said.
In May 2012, SEWA Bharat had conducted another study to compare the impact of cash transfers substituting for PDS in west Delhi’s Raghubir Nagar neighbourhood. That study recommended providing a choice to households to switch between benefits in cash and kind, instead of advocating any one system.
