he Indian economy is not yet prepared to replace
physical delivery of state services with cash, given the large
population being covered and low levels of income of those who are
accessing the same.
The relentless focus on financial inclusion on the deposits side
leads to a logical implication that these accounts can be used to
transfer money from the government to the targeted recipient, making the
action seamless and free from manual intervention. This is the basis of
a direct benefit transfer where a wage or pension is transferred to the
account without the individual going to the office asking for it. The
corollary is the same can be used for other government programmes,
ranging from food subsidy to conditional transfers like the mid-day meal
programme for children. The examples of Brazil and Mexico have often
been given to buttress this argument. How can we evaluate this option?
Cash transfer works well when we are dealing with ‘direct cash’
rather than cash in lieu of a physical product. The UID-linked bank
account can be used to transfer MGNREGA wage or pensions of senior
citizens to ensure no manual intervention. The subsidy provided on LPG
also works fairly well, as the household pays the full cost of the
cylinder and is subsequently compensated the balance through a cash
transfer. But we may have to think harder in expanding the scope.
Translating the same concept for the delivery of other services
raises some ticklish issues that need to be addressed. The usual
argument provided against such transfers relates more to timing, when
certain sections get excluded because of the difference in time between
their having an account and the transfer actually taking place. But this
is more of a logistics issue, which in on the administrative side and
not ideological.
There are two major issues on cash transfers replacing current
government programmes. The first relates to the role of the state. Once
we move to cash transfers, the state frees itself from provision of
services that are vital for lower income groups. While the quality of
services provided by government-run hospitals or schools is abysmal,
they are still the only points of contact for the poor, especially in
far flung areas where access to private health or education facilities
is remote. And where it is available, either the quality is worse or the
cost prohibitive.
The larger issue is whether or not the government can withdraw from
such services? Governments all over the world play a role in creating
institutions for delivery of services. Once we move over to cash
transfers, the individual is left to choose the mode of use and the
state steps out of the picture. In a way, the government ceases to
provide services which are required for maintaining social standards.
Can we really think of around 375 million children below the age of 14
years getting education in private schools once a transfer is made to
their parents? Or, for that matter, health access for around a billion
people who still use public institutions. Therefore, the duty of the
state is to provide social services, of which food also becomes a part
of the package.
A lot has been written on replacing the PDS with cash, which sounds
good, given the success of the LPG transfer. The complex issue here is
one of pricing foodgrains where the price varies across regions. Based
on latest government data on retail prices, the price for rice varies
between R21 per kg and R38 per kg and that of wheat Rs 18-36 per kg
across the country. How then do we price the cash transfer? Further,
once the government steps back, consumers will have to buy grains from
the market where the prices would also tend to increase. Here
governments can tend to under-price and save on their own subsidies with
pressure coming from the budgetary side. With increasing pressure to
keep the deficit within the pre-stated norms for borrowing, subsidies
could be a useful head to lower the allocations. Today, with the PDS
system being the front-end and the procurement of the FCI being the
back-end, the system is well set to ensure a singular price for everyone
based on their categories. The system is inefficient, but the cash
transfer replacement will be even less efficient as the basic purpose of
the scheme would get lost.
Hence, while cash transfers are more efficient as a mode of delivery,
it becomes more nebulous when we are dealing with larger numbers of
beneficiaries and physical products. When taken to cover health and
education, the state could subtly withdraw from its responsibilities,
which may not be appropriate in a country like India where the number of
underprivileged households is so big.
The second issue is the end-use of the transfer. While it is okay for
the government to leave it as the prerogative of the beneficiary, it
becomes self-defeating in case the money is used for other purposes.
Different surveys carried out by economists/institutions show that the
rural poor actually prefer foodgrains to cash.
Foodgrains provided by PDS have to be consumed and cannot be resold,
given the quality and value. But a cash replacement will enable
households to spend the money on other priorities. The same holds for
the conditional transfer being spoken of to replace midday meal, which
has largely been successful but which also suffers from leakages as it
involves contracts being given to the providers of such meals. A cash
transfer will stop the child from being sent to school, which will
affect the future of the household.
Hence, it appears our economy is not yet prepared to replace physical
delivery of state services with cash, given the large population being
covered as well as the low levels of income of those who are accessing
the same. The success attained in transferring cash with cash transfers
should be judiciously extended to other services if we are to retain the
core values of helping the underprivileged. We need to strengthen our
institutions and not dilute them as once we do replace them, it would be
hard to reconstruct them. Besides, from an economic standpoint, when
services are being provided by state institutions, backward linkages are
created in employment, physical structures, networks and value chains
as natural by-products. Replacing the same with cash could weaken these
links.
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