Cash transfers make headlines during election cycles. The latest to grab attention are those announced for women in various states, normally just before the assembly elections or topped up if the schemes already exist. While some concerns have been voiced, such transfers may not be negative.
Studies show that 12 states are offering such schemes, amounting to around Rs 1.7 lakh crore – 0.5 per cent of GDP. The amounts given can range from Rs 1,000 a month per woman in a family in Chhattisgarh to Rs 2,500 in Jharkhand. Several other states are debating introducing such schemes. Interestingly, larger states such as UP, Gujarat and Rajasthan do not appear to be doing so. There are several positive consequences of “cash and kind” transfers. Remember that the free food scheme has helped to raise several families out of poverty and proves that direct interventions work. The same holds for benefits given to farmers either directly through cash or through subsidies.
Three issues need to be discussed. One, whether such transfers provide direct economic and social benefit. Two, whether they upset fiscal math. And three, the ideology of the role of the state.
These cash transfer schemes cover almost 100 million women. This has led to empowerment as they are less dependent on their spouses. It helps them spend money more meaningfully, which matters in lower-income groups. Schemes like free bus rides have helped increase mobility, easing access to educational and occupational institutions. Schemes which involve distribution of laptops, cycles or sewing machines help in social advancement either through better education or providing avenues for employment. Hence, “cash and kind” transfers are good if directed well. The broader question is whether this process can be sustained when governments spend more on such avenues and less on, say, infrastructure. Here, the Fiscal Responsibility and Budget Management Act ensures fiscal discipline. There are rules in place on how much a state can borrow. The issue is whether such unconditional transfers in cash or kind are better than, say, an infrastructure project, considering that even money transferred adds to spending and growth.
This leads us to the role of the state. It is to ensure fair distribution, and giving cash is a direct way of raising living standards, just like how the free food scheme has benefited society at large. States have been allocating funds for capex, too. But, at times, these have been pruned to meet fiscal targets. This can be considered the cost of keeping the less privileged in a society above the level of deprivation.
Schemes involving unconditional cash transfers do serve the general good. Though, arguably, in the long run, more jobs must be created. There is no substitute for that.
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