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The case against cash transfers

If the system doesn’t work, don’t fix it, just dismantle it, the government appears to be saying in the matter of cash transfers in lieu of subsidies, writes Sachin Kumar Jain

Public distribution system (PDS)

Since 2005, the government has indicated a preference for a policy of cash transfers in lieu of  subsidies it provides to people under various welfare schemes (health, education, agriculture, food rations, etc). The Delhi government has initiated a cash-for-food pilot in two urban slums. Their logic is that people are then free to ‘buy’ these services in the open market.

Therein hangs a tale. The World Bank and United Nations Development Programme (UNDP) are  key organisations pushing cash transfer policies in India, arguing that people do not receive their entitlements and benefits related to basic services, and so it is time to adopt alternatives, the best one being to transfer cash instead of providing services and substance.

 In a paper on the issue, the UNDP argues: “Cash transfer schemes are also being advocated in the Indian context as a measure of enhancing the efficiency of delivery of government programmes. It is well known that the administrative cost of delivery of services in the country is high, there are substantial leakages, and inter-sectoral coordination is not optimal. It has been argued by some that the amount of Rs 2,000 billion that is spent annually on food, fuel and fertiliser subsidies may be better utilised by providing cash directly to the beneficiaries or to the gram panchayats (locally elected village councils) that in turn can implement schemes for the poor… CCT (conditional cash transfer) schemes have been observed to promote more regular health check-ups among pregnant women and children in countries with a good and functioning health infrastructure.” (http://www.undp.org.in/content/cct/CCT_DP.pdf)

The UNDP paper further advocates conditional cash transfers to improve education levels, health indicators and social wellbeing. It says: “Conditional cash transfers are different from unconditional cash transfers -- grants to vulnerable persons/groups on the basis of certain predetermined eligibility criteria. Social transfers such as pensions to senior citizens, the physically challenged, children, etc, are the most common unconditional cash transfers. The main difference as compared to CCT schemes is that they are unconditional programmes and do not attempt to influence individual/household consumption preferences. They recognise the vulnerability of those whom the scheme addresses and make provision of a cash grant to enable individual/group coping mechanisms, often in response to guaranteed human rights. These constitute protective social security measures.” Still, the UNDP has provided funding of $10 million, in four phases, to the Delhi government to pilot cash-for-food, which will replace food from the public distribution system (PDS).

In a survey conducted by the National Federation of Indian Women (NFIW) and the Right to Food Campaign, in Delhi’s slum settlements in May-June 2011, a mere 201 out of the 4,005 BPL (below the poverty line) women interviewed stated that they preferred cash transfers; 91% of BPL families wanted the distribution of subsidised foodgrain to continue. Of course, they looked forward to structural improvements in the PDS.

During documentation of a series of case studies on food insecurity and hunger among tribals in Madhya Pradesh, by Vikas Samvad, it was found that people from tribal communities overwhelmingly prefer food, for various practical reasons.

Seventy-year-old Puswa Mawasi of Madulihai village in Madhya Pradesh’s Satna district possesses a BPL ration card. But he has never received more than 20 kg of foodgrain, that too of inferior quality. Often, he visits the ration shop only to find it shut. Sukvariya, a 68-year-old woman tells a similar story.

Anjanwada is a village in Sondhwa tehsil of Alirajpur district that has been affected by the Sardar Sarovar Project. The dam has submerged the livelihood resources of 60 of the 63 families residing in the village, yet all these families have been allotted APL (above the poverty line) ration cards. If a villager falls ill, it’s inevitably life-threatening as it takes three hours by boat to navigate the reservoir waters to the nearest primary health centre (which is almost always shut). No public transport system has been set up either by the Narmada Valley Development Authority or the state government.

During our field survey, we asked Puswa Mawasi whether people would be willing to accept cash transfers as an alternative to foodgrain rationing, considering the dismal state of the public distribution system. He thought for a while before replying: “Then we would have to go to Majgawan tehsil headquarters to get our rations from the private dealer.” After a pause, he added: “The cost of foodgrain keeps going up day by day. That would be the end of us, and we would all die of hunger… Our government took more than 12 years to increase the old age pension amount. No, we only want food.”

Sukvariya Bai chipped in: “Cash? No, never. Even today, the liquor contractors spell death for us. If cash flows in place of food, it would not go towards foodgrain but be spent on liquor and gambling. The young seek new pleasures every day. Every rupee we get will be splurged on such frivolous pastimes. Just reform the ration shops and their staff. That’s enough for us.”

The adivasis of Anjanwada speak with one voice. “Will we be cured if cash comes into our hands? The hospital staff already fleece us. Things would get even more difficult with private healthcare. No, we don’t want cash. Just give us foodgrain and healthcare,” they say.

The Nandi Foundation, which supports the idea of cash transfers and putting an end to government involvement in social welfare administration, conducted a survey in 12 districts of Madhya Pradesh in 2010, to assess the opinion of beneficiaries about the policy change. It found that 95% of women opposed the idea of dismantling the public distribution system and replacing it with cash transfers. Women firmly believe that the cash will never come into their hands because, in most families, control of money is in the hands of men who do not always spend it on basic necessities.

Forty economists from around the world (working in internationally renowned universities like Harvard, LSE, D-School, IGIDR, ISI, Princeton, Columbia, Warwick, etc) have written (http://articles.economictimes.indiatimes.com/2011-06-01/news/29608448_1_pds-) to the prime minister urging universalisation of the public distribution system. They have also appealed against cash transfers replacing foodgrain rationing. Acting on the appeal of these learned economists, an intensive study of 1,227 households was undertaken in March-June 2011, in 100 randomly selected villages of nine districts, covering Andhra Pradesh, Bihar, Chhattisgarh, Himachal Pradesh, Jharkhand, Orissa, Rajasthan, Tamil Nadu, and Uttar Pradesh, under the leadership of Indian researchers Professor Jean Dreze and Ritika Khera. (http://infochangeindia.org/a-pds-that-works-is-better-than-cash-transfers.html)

The study showed that 91% of people in Andhra Pradesh, 88% in Orissa, 90% in Chhattisgarh, and 81% in Himachal Pradesh want only foodgrain. Only 11% in Tamil Nadu, 15% in Rajasthan, and 22% in Jharkhand prefer cash. It is revealing to note that among those giving priority to cash, most are males.

The people surveyed pointed out that there are no other shops besides the government ration shop, in most habitations. So where would they go with their cash? At least at present, foodgrain was available and was being distributed equally. With cash there would be no such equity.

Votaries of cash transfers

K Seethaprabhu, senior assistant country director in India for the United Nations Development Programme, in her paper titled ‘Can Conditional Cash Transfers Work in Rural India?’ writes: “The Indian government is seriously studying the implications of introducing such programmes to address India’s nutritional challenges. In March 2008, ‘Dhanalakshmi’ -- a CCT for female children with insurance cover -- was introduced on an experimental basis in 11 educationally backward blocks across Andhra Pradesh, Uttar Pradesh, Bihar, Orissa, Jharkhand, Chhattisgarh and Punjab. The programme provides for cash transfers to the family of a female child on their fulfilling specific conditions: birth and registration of the child, immunisation, enrolment and retention in school. If the girl remains unmarried until the age of 18, insurance cover of Rs 100,000 will be given to her. Several state governments have launched variations of CCT programmes, providing incentives to promote the birth, survival, and education of girls. For example, the Ladli scheme of the governments of Delhi and Haryana puts money in the bank at various stages; the full amount is provided to the girl when she turns 18.”

This approach leaves the question of inequality unanswered. While advocating conditional cash transfers, institutions like the UNDP combine it with unconditional cash transfers, further complicating the issue. They also emphasise the need to strengthen public service institutions like schools, hospitals and the public distribution system.

The World Bank, in its report ‘Social Protection for a Changing India’, launched in May 2011, said: “No country in the world has a well-functioning PDS system. India is no exception. India’s public distribution system has limited benefits due to huge leakage and wastage.” It recommends cash transfers as an alternative to providing subsidised food for the poor. Quoted here is part of a news report (based on the abovementioned World Bank report) on the World Bank’s recommendation, which says: “Leakages and diversion of grains are high. Only 41% of the grain released by the government reaches households, according to 2004-05 NSS (the latest data available), with some states doing much worse. In 2001, the Planning Commission has estimated this leakage of BPL grain at 58% nationally.”

The report, prepared at the request of the Government of India, shows that India’s policymakers and the World Bank are travelling in the same boat and do not believe in drastic reforms in the PDS. Instead of reforms, they are ready to dismantle the system. They don’t want to accept the argument that the PDS is fundamentally necessary to protect food producer farmers, offset price fluctuations and ensure food security to the country at large. They forget that India is not a country with an 85% urban population or 5% poor population -- where cash transfers have worked to some extent. It is still a rural economy-based country where 77% of the population survives by spending just Rs 20 ($ 0.44) a day. India will have to retain control over production and public service delivery mechanisms to ensure equality and the availability of essential services which we demand as entitlements.

Government is shrugging off responsibility

It is now an accepted fact that the government system is so corrupt and disorganised that it cannot deliver basic services to the citizens of this country. Any direct government hand in administering foodgrain, healthcare, education and social security would mean the breakdown and ruin of these services. That’s why it’s being said that it is better that people begin to accept a system of receiving cash relief, in accordance with certain eligibility norms.

In financial year 2010-11, the central and state governments spent a total of Rs 3.69 lakh crore on the social welfare sector (education, healthcare, livelihoods, social security, etc). The total amount of subsidy on the social sector, in 2011-12, is Rs 1.62 lakh crore, which is about Rs 20,000 crore more than in the previous year. Public expenditure on the social sector is declining; the cash transfer policy will contribute further to this decline.

The Planning Commission sees benefits in adopting cash transfers, asserting that the government should not have a direct administrative role in the social sector. It advocates that the government should either shut down its ration shops, hospitals and welfare programmes, or adopt a policy of direct cash transfers in lieu of these services in order to enable the private sector to develop. In a paper titled ‘Introducing Conditional Cash Transfers in India: A Proposal for Five CCTs’ (2010), the Planning Commission said what the World Bank wanted to hear. “India has had a long history of untargeted or poorly targeted subsidies, which are in need of replacement, especially because the fiscal burden of these subsidies has become increasingly unbearable after the multiple fiscal stimuli post-2008 economic crisis.” The Department of Food and Civil Supplies in 2008 asked for a Rs 242 crore budget to provide food coupons instead of foodgrain and allow people to use them as cheques to buy food from the open market. Once it is properly set in place, the public distribution system will be shut down.

This year, while reading his budget speech in Parliament, Finance Minister Pranab Mukherjee stated that instead of distributing subsidised kerosene and foodgrain the government would directly deposit cash payments into the accounts of beneficiaries. When it was pointed out that cash transfers would prove inadequate if the prices of kerosene and foodgrain rose (once official controls were withdrawn) the government had no answer.

The only refrain was that since subsidies provided under various welfare programmes seldom reached the beneficiaries, the only real solution was to directly transfer cash to them. And that this would offer them the freedom to choose whichever alternative service or commodity they desired that was available in the open market.

The version of the National Food Security Bill approved by the ruling government’s Cabinet committee has a provision to gradually transfer cash amounts in place of foodgrain rationing. While dealing with the question of reforms in the PDS, the proposed NFSA (draft approved by Cabinet), makes clear its intentions on cash transfers. Chapter 13, Section 3(g) of the Bill says: “Introducing scheme for cash transfer to the targeted beneficiaries in lieu of their foodgrain entitlements… in areas and manner to be prescribed by the central government.”

It costs Rs 3.65 for every rupee of development funding to percolate down to the beneficiaries. If the relief meant for poor families in the 150-odd central and state government-run programmes is provided in cash, it would mean that every poor and vulnerable family would receive Rs 2,140 a month, raising them above the poverty line. Will this suffice to provide them access to foodgrain, healthcare and education at the prevailing open market rates?

Until now, the poor have been receiving services directly from the government, which, to some extent, limits the scope for corruption. Once people begin receiving cash amounts, instances of fraud will increase.

Where cash transfers can work

Today, 42 crore of India’s most destitute are able to survive because the public distribution system provides them 35% of the foodgrain they require. The sad fact is that there is no true assessment of poverty in the country. As much as 39% of India’s poor population does not even have a ration card; they get no government welfare relief whatsoever.

The government system cannot be made accountable or free of corruption, so the alternative proposed is not to reform it but to divest it of its purpose and functions and let the people repose their trust in the market.

India is moving towards a system of cash transfers in accordance with certain eligibility criteria. Whether it is foodgrain payments or health services payments, the government will make cash transfers available only to those it accepts as poor. According to present official criteria, a poor family in a village is a family that spends less than Rs 15 per day per capita; the amount in urban areas is Rs 20 per capita. Such exercising of government discretion in transferring money raises the basic fear that the system may no longer remain public or open.

The Indian initiative appears to be influenced by the cash transfer programmes prevalent in South American countries. These are countries where urbanisation has been taking place for the past 200-300 years, and 80% of their populations live in cities. Gender discrimination is comparatively low, as is corruption.

Our Planning Commission fails to see that these countries have developed stable welfare services. They have provisions to extend economic help to families with school-going children, and the programmes are successful because the school system works well. They also have hospitals and other services, making cash transfers a meaningful exercise. In India, the infrastructure for basic welfare services is collapsing; any policy of cash transfers could have disastrous results.

The cash transfer systems of Brazil and Mexico are touted as examples to be followed. But it should be understood that only 5% of the populations of both these countries are below the poverty line, whereas the Indian figure is 46%. This means they require a system of cash transfers catering to only small numbers of beneficiaries, a model that’s unlikely to be viable in India. Similarly, there is a difference between using cash transfers as an alternative to providing basic services, and using them to promote infant care and nutrition in maternal security programmes. Should we really be telling pregnant women to accept Rs 1,400 and get their deliveries done wherever they wish? Or should we be strengthening our healthcare infrastructure and network?

We need, therefore, to be clear about the consequences before deciding to operationalise any system of conditional cash transfers. Seventy per cent of India’s population still lives in villages where few banking institutions are available. As many as 26,000 rural banks have downed their shutters since 1992, and commercial banks have shown no interest in social welfare schemes. That’s why it’s difficult to reach cash to village populations.

We have seen cash disbursals being made to promote maternal security and pension schemes, but even in these cases many beneficiaries do not receive their entitlements because of corruption. This proves that cash transfers do not put an end to corruption, as is claimed by proponents of such a course of action. Eventually, we need to reform and strengthen our infrastructure and systems and make them more accountable.

What’s more, it is important to note that the Supreme Court has defined food, nutrition, and social security as basic human rights. These rights cannot be compromised or curtailed by BPL eligibility and other conditions. Conditional cash transfers limit basic rights. They have only been successful where government systems are capable and influential. In India, the government system is weak and helpless. In such a scenario, the monopoly of the private sector could prove dangerous.

It is being said these days that India is now a developed economy and public distribution programmes only sully the country’s image by suggesting backwardness. That’s why such programmes need to be discontinued. But what intellectuals fail to realise is that the government buys 4-6 crore tonnes of foodgrain every year, at its minimum support price, to run the public distribution system. If foodgrain were not distributed through the public distribution system, the government would buy less from farmers, who would then no longer have the luxury of being able to sell their produce within a radius of 10 km from their villages. This would increase their dependence on companies like ITC and Cargill, leading to a situation where multinational companies, not the government, determine the price of foodgrain.

The public distribution system plays an important role in India, providing security to farmers, controlling price, and providing emergency supplies and foodgrain in areas/states facing scarcity. A system of cash transfers would end this role and destabilise the foodgrain market. Farmers are also participants in the public distribution system; they need to be consulted.

Equally important, the government should introspect on its reluctance to strengthen the infrastructure and working of the public distribution, healthcare and education systems. Is the government implementing such policies merely to benefit the corporate-capitalist forces? If that is so, we need to put a stop to such anti-people policies.

(Sachin Kumar Jain is a right to food activist and freelance journalist based in Madhya Pradesh)

Infochange News & Features, September 2011

Endnotes

2 http://articles.economictimes.indiatimes.com/2011-06-01/news/29608448_1_pds-shops-public-distribution-system-national-food-security-act
3 http://infochangeindia.org/agriculture/features/a-pds-that-works-is-better-than-cash-transfers.html