Can anyone guess the number of people below the poverty line in India? According to the Tendulkar Panel, they comprise 38% of the country?s population. The Plan Panel put the figure at 27.5% and the Saxena Committee at 50% of the population. The Centre subsidises 35 kg of foodgrains per month for 6.52 crore families. All the development work undertaken so far has been unsuccessful in eliminating poverty.
Kaushik Basu, in his book Prelude to Political Economy published in 2000, pointed out that to help the poor plod a bit faster out of deprivation, the government will have to spend about Rs 1.9 trillion on social services and rural development?including education, health and work schemes for the rural poor. The rising prices of food that the poor buy, according to Basu, have led to ?skewflation?, which refers to a lopsided rise in prices. We can cushion the poor from the vagaries of the market by regulating the prices of basic necessities. When market prices rise, the poor paradoxically get less subsidised grain because of diversion of the subsidised food. Basu, therefore, argues that it will be better to give the money directly to the poor?through food, fertiliser or fuel coupons that they could spend anywhere they please.
BPL families earn around Rs 3,000 per month. In recent times in India, however, though they remain poor in fixed assets, these families have grown rich in legal rights. The right to education between the ages of 6-14 is now guaranteed. The same will be the case with the right to health and right to minimum foodgrains when the Food Security Act becomes law. This is against the backdrop of the fact that 43% of Indian children under 5 years of age are malnourished and 35% children are illiterate. Over 20 million children are out of school. India?s abiding failure, said the economist, is its inability to provide aid and economic opportunities to millions of its impoverished citizens. As a recent remedial measure, the National Rural Employment Guarantees Act provides 100 days of work per year to the poor in rural India. It has provided work to over 47 million households. But there is no doubt that there are leakages and the entire budgeted amount does not reach the targeted beneficiaries.
Governments across the globe have tried many avenues to reach the poorer families. Food stamps are issued in the US to enable the poor to obtain free or subsidised food. School vouchers have also been tried. African countries have successfully tried cash transfer programmes for the upliftment of the poor. In Malavi and Zambia, the targeted beneficiaries have exhibited higher consumption levels, shorter hungry periods and improved nutritional indicators after participation in cash transfer programmes. Some surveys in Malavi have suggested that a majority of the beneficiaries would have preferred receiving food instead of cash because high food prices in the market have meant that the cash transfer brought less than the usual ration found in local ?food for work? programmes. Other evidence, however, has pointed to recipients of cash transfers benefiting in terms of food security.
Cash transfers can be used to address multiple needs while keeping absolute costs relatively low. The Zambian social cash transfer scheme has found positive multiplier effects for cash transfer distribution, which has stimulated the market through purchases of food and other goods as well as stimulated the labour market. This will be true elsewhere only if the cash transfer distribution is utilised for domestically produced output and not for imported grains. Vouchers for foodgrains and book coupons for children have all been successfully experimented with, in African countries. The US has, of course, implemented the system of direct transfers through electronic debit and ATM cards at grocery stores and the system helps 35 million people every month.
In India, Andhra Pradesh has issued ration cards with barcoded coupons and Bihar has provided monthly food coupons for BPL families. The Delhi government is debating direct cash payments to poor households for buying from the market. This year?s Economic Survey has advocated the use of vouchers to deliver food and subsidies. Such schemes are expected to reduce leakages and prevent illicit cornering of benefits. They may also help bring down the government?s subsidy bill.
But it is not the case that cash transfers and vouchers will always be successful. For one thing, coupons can be sold off so that the concerned goods end up with those who do not need the subsidy. Cash and coupons can be used by recipients to buy things other than food. Basu counters, ?If some people sell off the coupons, don?t try to set up an elaborate bureaucratic machinery to stop this. Even if the coupon gets sold, someone somewhere will use that to buy food and the poor household that sold it off at least gets money in exchange.?
No doubt there will be leakages, there will be administrative bottlenecks and there will also be abuse of the system, but direct cash transfers to the economically lower rungs of the population will radically alter the psychology of these people and provide an impetus for development. What better time can there be to implement this novel scheme. Basu is now the chief economic advisor to the Indian government.
?The author is a former chief commissioner of Income Tax and ex-member of the Income Tax Appellate Tribunal