direct cash transfers

Giving direct cash transfers to the poorest sections of the society is a reality which finally seems to be taking place in India. This will most likely begin from January 2013 and is expected reduce corruption that prevents subsidized goods and welfare benefits from reaching those who need them. The program will first cover 18 states by April 2013 and the whole country by December 2013.

These cash handouts would replace the money that the government currently spends on subsidies on goods such as fuel, fertilizers and food. The idea is that it is best for poor families to decide what they want to do with the money they receive rather than the government telling them what to do. This is also most likely to eliminate middlemen and other intermediate layers in the system which has become a breeding ground for corruption when it comes to doling out subsidies. Thus, the government expects to transfer up to Rs 40,000 (approx. US$ 720) a year to each poor household. The government's spending on welfare programs, however, will remain unchanged overall at around US$ 71.9 bn a year.

While there is no doubt that direct transfers have benefits, questions have been raised whether India is not rushing into the same. Are direct cash transfers the only solution to improve the fortunes of the poor? Certainly not. This is because the implementation of this scheme has to be backed by an able support system. This means that assuming the money reaches the poor, they still need to be given proper access to goods required to improve their situation. Transportation has to be ramped up and even banking systems need to be overhauled.

There is no doubt that the direct cash transfer system will play an important role in eliminating the disease of corruption and hazy practices of middlemen. But how effectively the government is able to put support systems in place remains to be seen. (by J Mulraj)