India: Cash for the poor, no strings attached
12/24/2012 9:12:04 AM

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