Column : Cash and carry on

Written by Meghnad Desai | Updated: Dec 3 2012, 07:24am hrs
The real merit of the cash transfer will be if it completely replaces all the redistributive transfer schemes

Radical ideas used to be a monopoly of the Left. Indeed, the words radical or progressive and Left used to be interchangeable. The Left was egalitarian and dynamic. The Right was old-fashioned and believed to be a defender of privilege. Then things changed some time in the 1960s. The radical ideas began to come from the Right as the Left became part of the conventional wisdom.

One such idea was regarding the mechanics of redistribution. If you had to redistribute, how was it best done The Left is paternalistic on this issue. It does not trust the recipients to know what they want. They have to be given thingsfood, housing, clothing in measured doses directly as physical things. Giving them money is dangerous because you know they will dissipate the money on drink and other vices.

It was Milton Friedman who challenged this idea. Economists may be guilty of many things but they have never been paternalistic or patronising. They assume everyone is rational. Many people believe this is absurd but it treats everyone as capable of knowing their self interest, rather than saying that some people are too culturally trapped to be rational so they need the guidance of the very visible hand of bureaucracy. Once you trust the people to know what is good for them, then a cash transfer dominates the strategy of distributing goods directly.

My own ideas on this changed around 20 years ago when I began to rethink the nature of the modern welfare state. The idea of a basic income guarantee or citizens income is a very radical one in which everyone, not just the deserving poor, receives a direct income entitlement as a citizen. The idea originates from Friedmans radical proposal of a negative income tax. Citizens incomes can go to people who are not even in the labour market such as housewives as well as the unemployed and the employed. There is no need to lie or moonlight.

It is easy to extend this idea to development aid. I argued 10 years ago in a House of Lords debate on development that the official development assistance (ODA) of $50 billion should be divided among the billion poor people as $50 per year, cutting out all the intervening bureaucracy. Since the poor were defined as living below $1 a day, this would mean, at the very least, an increase of 14%-plus in each poor persons income. The minister in charge of the Department for International Development (DFID), Baroness Valerie Amos, was shocked at that time because no one had prepared her for that issue when she came to reply to the debate. But someone wrote up the idea in a journal article called (I say so modestly) The Desai Solution!

The UPA has, at last, stumbled upon this idea and threatens to take this most radical step. In the context of the paternalistic tradition of both ancient and colonial models of governance in India, the mai-baap sarkar has turned revolutionary and let her children get pocket money as a right! The Left is predictably opposed to this, but it is remarkable that the Left within the Congress and the NAC crowd have been persuaded that this is the winning strategy.

It should have happened ages ago. This solution as the correct answer to Rajiv Gandhis concern about the lack of trickle-down in the governments anti-poverty programme. But then the tools were lacking. Now we have the possibility of electronic transfer, and with Aadhar (or any reliable password technology) the possibility of reaching the money to the entitled recipient.

There is a dignity to receiving a transfer as of right rather than having to resort to PDS shops and provide proofs of BPL status to get the 30 kg of rice or wheat. It is astonishing that the so-called progressive people do not see this. It is a new contract with the people. No doubt things will not go smoothly at first, delighting the detractors on the Left, but eventually the scheme must work as it has done in Brazil and elsewhere. The scale of the programme in India is also massive compared to any other country, but so is the experience and the ingenuity of the providers. After all, the UK abandoned its plan to give everyone an identity number as being too expensive and impossible. India has managed it smoothly.

The real merit of the cash transfer will be if it completely replaces all the redistributive transfer schemesfoodgrains and kerosene and so on. The danger, of course, is that the cash transfer will be launched but the other schemes will not be withdrawn. If that happens, the budget will be unable to bear the burden. The UPA is bold in launching cash transfer but it has to be bolder in cutting out all the other transfers.

The author is a prominent economist and Labour peer