India: Cash for the poor, no strings attached

Indian residents from the state of Rajasthan protesting a government plan that would transform India's corruption-ridden welfare system by replacing subsidies with direct cash transfers, New Delhi, Dec. 13, 2012.</p>

Indian residents from the state of Rajasthan protesting a government plan that would transform India's corruption-ridden welfare system by replacing subsidies with direct cash transfers, New Delhi, Dec. 13, 2012.

NEW DELHI, India — India wants to overhaul its massive, creaking welfare system, replacing subsidies with cash. The idea is to circumvent corruption, streamline the process, and ultimately provide 720 million welfare-recipients with more of the benefit they were originally intended.

At least that's the idea.

Critics from across the political spectrum have voiced their concern. They worry the government is underestimating the challenges involved. Or, worse, simply floating a feel-good policy that promises to please both reform-minded economists and the massive voting block represented by the poor.

“It's made out to be a magic bullet to control corruption, because the money will go directly into bank accounts,” said Reetika Khera, a development economist from the Indian Institute of Technology (Delhi).

Currently, most recipients get a reduced price on goods like rice or kerosene if they have a ration card proving their income puts them below the poverty line. And they receive monetary benefits like scholarships and pensions through universities or local government offices, rather than direct payments.

“But there are problems associated with cash,” Khera added.

The stakes are high.

India spends up to 14 percent of its gross domestic product on various welfare programs. As of now, much of that money is wasted on administrative costs or stolen by corrupt officials. Rich and poor alike frequently complain that only one cent out of every dollar that India spends on its poor reaches the target. Though that is an exaggeration, it's not so far off the mark.

“Direct cash transfers, which are now becoming possible through the innovative use of technology and the spread of modern banking across the country, open the doors for eliminating waste, cutting down leakages and targeting beneficiaries better,” Prime Minister Manmohan Singh said at the end of November.

Finance Minister P. Chidambaram clarified recently that the government will convert 34 out of 42 welfare schemes to cash transfers across 43 districts starting Jan. 1.

That said, India's most costly welfare program, and the one where economists and activists are most concerned or excited about the conversion to cash, is the food subsidy – where new “right to food” legislation promises to expand coverage to more than 60 percent of the population. But the only programs that have been mentioned by name for conversion to cash transfers are scholarships, pensions and subsidized cooking gas. And leaders have reportedly decided to hold off on the most important programs — food, fertilizer and kerosene — according to India's Business Standard newspaper.

“I don't think anyone knows what is going on, or what is intended to go on,” said Bibek Debroy, an economist with the New Delhi-based Center for Policy Research, an independent think-tank.

The power of cash

The experts may be wary, but at least one below-poverty-line couple, Ramesh Kumar and his wife, Amarthi Bhen, is watching the calendar in anticipation.

In 2011, when a nonprofit offered 55-year-old Amarti Bhen and her husband the chance to receive about $20 in cash every month instead of their usual rations of food and kerosene, the couple leapt at the chance.

Slum dwellers who eke out a perilous existence collecting, repairing and then selling second-hand clothes, Bhen and her husband had actually been receiving their allotment of 15 kilograms of wheat, 5 kilograms of sugar and 6 kilograms of rice — unlike millions of destitute families.

But there was no telling when the supplies would arrive, so they wasted hours tramping to the shop to see if the sugar or wheat had come in. And the quality of the grain was so poor that they practically had to thresh it themselves — wasting valuable hours they could otherwise have spent sewing.

Once they began receiving their benefits in cash — as part of a pilot program set up by the nonprofit Self-Employed Women's Association and the Indian government — they saved time by buying their supplies at the local market. They also were able to use part of the money to buy nutrient-rich foods, such as chickpeas and lentils, instead of only wheat and rice.

“When we were getting cash, we got all the money at once and could buy all our supplies at the same time,” said Kumar. “We could also buy other things we needed more than rice and wheat, like dal and tea and detergent [which they use for washing the clothes they sell].”

Conditional vs. unconditional

It is that proposal to allow the poor to decide how to spend their welfare benefits that makes the Indian scheme particularly bold — and controversial.

Until now, the largest cash transfer schemes, implemented with dramatic success in Brazil and Mexico, among other countries, were based on so-called conditional payments, issued to encourage the poor to take advantage of government services, rather than grants allowing them to shop on the open market. (Under Brazil's Bolsa Família or “family allowance” program, for instance, poor families receive payments from the government in exchange for enrolling their children in school or getting them vaccinated against contagious diseases).

In contrast, India appears poised to give the poor cash with no strings attached. Many in the development sector — and many of the poor themselves — fear that freedom of choice will allow men to take cash intended for food, cooking gas or school fees from their wives and spend it on liquor.

“Last year we did a survey in nine states where we asked what the people would prefer and why,” said Khera. Two-thirds of the poor opposed the changeover, citing worries about inflation, concerns about the distance to banks and markets, and fears about how they themselves might manage the money.

“Those who argue for cash say we shouldn't be patronizing, we should let the people decide,” Khera said. “But when we went and asked these 1,200 households, they all said they want food ... The men we were talking to [about getting cash instead of rations] said, 'No, no. We'll drink it up.'”

Some say the new scheme only addresses part of the problem.

Consider the food grain program. The government buys massive amounts of rice and wheat from farmers at a minimum support price (usually higher than market rates) to protect them from market fluctuations. Then it sells grain at below-market rates to the poor. So giving the poor cash instead of vouchers could change the dynamics of supply and demand — as happened in one pilot program in which residents of rural Rajasthan were given cash instead of kerosene.

It's also possible that cash transfers could accelerate a tilt toward the idea, already popular with a section of the elite, that privatization is the panacea for all of India's problems. Paying the poor instead of guaranteeing them services, for instance, might speed the wholesale abandonment of public education and health care that is already underway. (The public education system is already so terrible that the state is now compelling private institutions to provide scholarships to the poor — who are fighting desegregation-era-style impediments to entry, seemingly on a daily basis).

“In Brazil, they had public health centers, they had public schools, and people were not using them, so this was a way to get them to come,” said Khera. “Here, they want to say we'll give you money, and you just go and find your own [schools and hospitals].”

Don't believe the hype?

The prime minister may be right about technology opening doors. But walking through them will be easier said than done.

Despite a massive, ongoing government effort, only around 13 percent of rural households are connected to the banking system. A huge project to provide every Indian with a biometric-based ID number, called Aadhar, is progressing at a snail's pace. And the government has made no attempt whatsoever to cross-reference its paltry list of ID numbers with an income survey that would identify those living near or below the poverty line. (Currently, the list is in such a shambles that development economists like Delhi University's Jean Dreze argue that subsidized grain should be made available to anyone who wants it).

“I think they've just got their facts wrong — even on what linking with Aadhar can do and cannot do,” said Khera. “They've been told again and again about the sorts of issues that biometrics can and cannot deal with, and yet somehow the penny doesn't seem to drop.”

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For all the hype, nobody has endeavored to figure out how much of the so-called “leakage” from welfare systems stems from fictitious recipients on the below-poverty-line rolls — the area where biometric identification could have an impact. But experts like Khera suspect that accounts for a small part of the losses.

That isn't the only reasons for skepticism. The announcement at the end of November that a sea change in policy will begin in January suggests a plan concocted in the world of fantasy, rather than messy old India. And the vagueness of the scheme — with only three out of a proposed 29 programs announced to the public — give it the distinct whiff of campaign rhetoric or a populist bid for voters' allegiance in 2014.

"The scheme reflects sympathy of [United Progressive Alliance] (UPA), Congress and the Delhi government for the poorest section of people on the issue of food security," Congress Party President Sonia Gandhi said last week.

Meanwhile, her son, Rahul Gandhi, likely candidate for prime minister in the next election, laid out the stakes for Congress Party workers.

“If we get this program right, we will win the next two general elections," Rahul reportedly told a meeting of Congress Party leaders from the districts where benefits are slated to be converted to cash in the first phase.

Booze and blankets have long been a staple of India's get-out-the-vote drives, after all. Direct deposits of cash money, facilitated by the miracle of technology, would save everybody a lot of trouble.