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Direct Cash Transfers: No Magic Bullet

The reduction of poverty in India requires much more than solutions such as direct cash transfers.

DISCUSSIONEconomic & Political Weekly EPW august 23, 200877Direct Cash Transfers: No Magic BulletMihir ShahMihir Shah ( is with the Samaj Pragati Sahyog, an organisation that works among the adivasis of central India.The reduction of poverty in India requires much more than solutions such as direct cash transfers.There is an almost irresistible seduc-tiveness to the idea of direct cash transfers. It is also a reflection of great intellectual, policy and political ennui. The articulation of the idea by Kapur,Mukhopadhyay and Subramanian (April 12, 2008; henceforthKMS) is one of the best hitherto. As they say, putting together the current annual allocations for centrally-sponsored schemes with food, fertiliser and fuel subsidies, we get a figure of nearly Rs 2,00,000 crore. They ask: “Is this enormous expenditure throughcentralised mechanisms the best wayofimproving the welfare of India’s poor and achieving India’s development objectives?” (p 37). Why not instead transfer Rs 1 crore per annum to each of India’s gram panchayats? A mouth-watering figure, indeed!KMS suggest a twofold path for redirect-ing central expenditures: (a) outright transfers to individuals, and (b) transfers to local government. The expenditures they wish to cover in this way include (a) public distribution system (PDS) for food and fuel, (b) fertiliser subsidies, (c) rural housing (Indira Awas Yojana (IAY)), and (d) self-employment (Swarnajayanti Gram Swarojgar Yojana (SGSY)), which ac-count for more than Rs 70,000 crore in the 2008-09 budget. Of their two ideas, let us state at the outset that transfers to local government potentially contain much more merit than direct transfers to indi-viduals. But both proposals are instances of the fallacy of misplaced concreteness [Whitehead 1925].1The starkest way of illustrating the point is the IAY. KMS would have us believe thatIAY would work if direct cash trans-fers were to be adopted. But the IAY is already based on direct cash transfers. Obviously, houses are not being trans-ferred to the rural poor. Indeed, the failure of IAY best illustrates the fallacy of misplaced concreteness. The problem is not transfer of money. The problem is translation of that money into concrete assets, in this case, houses. Thoughtless policymaking has meant that the IAY continues to transfer crores of rupees to gram panchayats and below poverty line (BPL) families each year but these families routinely do not undertake quality housing with that money. One, because thatmoneyis just not sufficient to build houses.Two,because at times families have other needs that gain priority over housing.Three,because families do not have other inputs available that are re-quired for building a house (such as skilled masons, materials, etc). Of course, over and above all these reasons (all of which operate in tandem with each other) are the facts of faulty selection of beneficiaries and straightforward corruption by gram panchayat representatives.Even more serious is the case of SGSY. This is the descendant of the notorious Integrated Rural Development Programme (IRDP).2 Loans are provided to families for income-generating activities. Here again is an instance of mindless direct cash transfers, without in any way ascertaining whether the cash would truly generate incomes for families who receive these loans. Loans are made without ensuring the forward and backward linkages that would make this credit effective. In a typical bureaucratic drive to meet targets, little attention is paid to assessing whether families have access to technologies and markets that would ensure the loans work. The major consequence of the reck-less direct cash transfers under bothIRDP and SGSY has been the conversion of many of India’s poor into bank loan de-faulters, no longer able to access formal sector credit.MicrofinanceSGSY is a classic case study of mistaking microfinance to be a magic bullet. As in-numerable studies have shown [see Shah et al 2007 for an exhaustive review], microfinance works only under very spe-cific circumstances. The transfer of cash ishardly the constraint. There are so many concomitant conditions of success that

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DISCUSSIONEconomic Political Weekly EPW august 23, 200879distress, whether in the form of hunger (malnourished children, anaemic women) or farmers’ suicides. And this has hap-pened despite thousands of crores being spent in the name of rural development each year. A major part of the explana-tion for this lies in the very poor quality of implementation of these programmes (as KMS rightly point out). What KMS completely fail to note, however, is that these programmes continue to remain low quality because, unlike India’s corpo-rates, our rural poor do not have a voice in pushing for reforms that matter to them. Even left-leaning politicians across the political spectrum or civil society activists, all of whom claim to speak for the rural poor, have failed to make reforms in the rural public sector, a key ingredient of their political agenda. This has meant that rural Indians continue to have to cope with the same corrupt and insensi-tive bureaucracy that has ruled their lives since independence. Rural development desperately needs infusion of professional inputs. It is high time we gave up think-ing of rural development as routine ad-ministrative work or charity. At the same time, we need to build strong systems of transparency and accountability into an-ti-poverty programmes.4 Without these changes, a constant ref-erence toPRIs as the answer will only amount to buttressing abdication by the state of its responsibility for rural deve-lopment.5 A misplaced Gandhian over-emphasis on “voluntarism” will also end up only reinforcing this tendency of the state to withdraw. It is patently unfair to burdenPRIs with massive tasks of development without providing them the requisite support. Funds, functions and functionaries are all vital (as the PRI minister likes to say). But more than that a reformed, accountable, performing system is a must.ViewingNREGA as a mere cash transfer scheme, asKMS do, would actually guar-antee its failure. Ever since independence, rural development has largely been the monopoly of local contractors. Almost every aspect of these programmes, includ-ing the schedule of rates that is used to measure and value work done, has been tailor-made for these contractors, who in-variably tend to be local power brokers. They implement programmes in a top-down manner, run roughshod over basic human rights, pay workers a pittance and use labour-displacing machinery. The NREGATheNREGA is poised to change all that. It places a ban on contractors and their machines. It mandates payment of statutory minimum wages and provides various legal entitlements to workers. This is not an old-style famine relief kind of welfare pro-gramme. This is a development initiative providing crucial public investments, which can trigger private investment in the most backward regions of India.6 It visualises the involvement of local people in every decision – whether it be the selec-tion of works and worksites, the imple-mentation of projects or their social audit. All of this is obviously incompatible with programmes where the main goal was, in effect, the maximisation of profits of the contractor. But even after the enactment of NREGA, things have been slow to change on the ground. Displaying remarkable ingenuity, the old order is already finding ways to sidestep the radical provisions of the Act.7 Contractors deploy machines with impunity, even as forged muster rolls are filled up with fictitious names and thumb-marks of workers, to show as if the work was done by labour. The ostensible purpose is to overthrow the old contractor-raj but little has been done to offer an adequate replacement. Gram panchayats have been designated the chief implementing agency but they have not been provided with the support structure required to execute the programme. A new bottom-up, people-centred approach to planning of works and social audit is spoken of but the social mobilisers and technical personnel required to make this a reality have not been supplied.8 The schedules of rates remain the same that the con-tractor-raj used. They underpay labour and discriminate against women. If we view NREGA merely as a means of cash transfer, we will fail to attend to these critically important dimensions that need urgent change.9 Thus, anti-poverty programmes to succeed in India demand rather more than cash transfers (whatever be the degree of their directness). They require simulta-neously addressing many challenges – building people’s institutions, extension of appropriate technology, leveraging markets for the poor and skill deve-lopment, along with wise and adequate public investment. Only then can sustain-able livelihoods be generated and an end visualised to both poverty and anti-poverty programmes.Notes 1 What is called “reification” in the Marxist tradition.2 See Shah et al (2007) and Kabeer and Murthy (1999) for a review of the IRDP disaster that all but ruined public banking in India and set the stage for the rollback of formal sector lending in rural India after 1990. 3 Our argument is not very different here from the case against cash compensation being provided to persons displaced due to “development” projects. 4 Andhra Pradesh has set a shining example of this in its implementation of the NREGS. But this has hardly even been noticed, let alone being high-lighted. The smart cards advocated by KMS may already be an outdated expensive option, even before being tried. Apparently, rural India has leapfrogged into the era of mobile telephony! 5 See Shah (2007) for why the role of the state re-mains crucial in rural development in India. 6 For one of the earliest articulations of an employ-ment guarantee based on such a vision, see Shah et al (1998). 7 See Ambasta et al (2008) for an account of the problems of NREGA implementation.8 These are vital “development” inputs and must not be viewed derisively as “administrative costs” as the government does. 9 Ambasta et al (2008) provide an outline of the re-forms needed in NREGA implementation for it to realise its potential.ReferencesAmbasta, P, P S Vijay Shankar and M Shah (2008): ‘Two Years of NREGA: The Road Ahead’, Economic Political Weekly. Dichter, T (2004): Remarks to the Microfinance Club of New York.Kabeer, N and R K Murthy (1999): ‘Gender, Poverty and Institutional Exclusion’ in N Kabeer and R Subrahmanian (eds),Institutions, Relations and Outcomes, Kali for Women, New Delhi.Kapur, D, P Mukhopadhyay and A Subramanian (2008): ‘The Case for Direct Cash Transfers to the Poor’,Economic Political Weekly, April 12.Mahajan, V (2005): ‘From Microcredit to Livelihood Finance’,Economic Political Weekly, October 8.Shah, M (2007): ‘Employment Guarantee, Civil Society and Indian Democracy’,Economic Political Weekly, November 17.Shah, M, D Banerji, P S Vijay Shankar and P Ambasta (1998): India’s Drylands: Tribal Societies and Development through Environmental Regenera-tion, Oxford University Press, New Delhi.Shah, M, R Rao and P S Vijay Shankar (2007): ‘Rural Credit in 20th Century India: Overview of History and Perspectives’, Economic Political Weekly, April 14.Swaminathan, M (2004): Weakening Welfare: The Public Distribution of Food in India, Leftword, New Delhi.Whitehead, A N (1925): Science and the Modern World, Free Press, London.

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