Direct Cash Transfers for Poverty Eradication

For several decades, India has been earnestly trying to eradicate poverty – both through public and private initiatives but given the lack of sustainable models and large-scale implementations, none of the efforts have yielded lasting outcomes. At best, they have been band-aid measures to dress badly oozing wounds. It is high time we attacked the root cause of the poverty problem, which is the grave disparity between the rich and the poor. India is not a poor nation but an enigmatic blend of the developed, emerging, developing, and deprived regions, encompassing the richest of rich to the poorest of poor within its fold.

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Clearly, poverty eradication will remain a distant dream unless we make the poor and deprived sections of our country an integral part of mainstream economic activity. To set the economy in motion, a significantly large population must participate in employment, entrepreneurship and market making, which means the participation of the poor is integral, given that they form the bulk of India’s population. To do so, they need immediate and direct monetary help today, such that they can contribute to tomorrow’s economic growth.

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The success of several self-help groups in the country, as also the tenets of ‘Poor Economics’, a seminal work of Nobel Prize winners Banerjee, Duflo, and Kremer, has highlighted the worth of evidence-based policymaking towards improving developmental outcomes in low-and-middle income countries like India. History is replete with instances where nations have made direct disbursements for immediate impact, whether China’s astute use of unskilled labour as the primary driving force of industrialization, or the recent monthly disbursements by the US government to help people cope with the devastation of the pandemic.? A study by ODI, an independent global think tank, analysed evidence from 165 studies of 56 cash transfer programs across 30 developing countries to conclude that cash transfers have a remarkable impact across spheres – from improved health and education levels to bustling local markets, and from enhanced social relationships to more asset acquisition, ensuring a better standard of living. Another study of Ecuador’s Human Development Bonus under the Bono de Desarrollo Humano (BDH) program has shown a direct co-relation between cash transfers and improved social mobility over the long term.

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Given our limited state capacity, constrained resources, as also the lack of commensurate and conscious collaboration between public and private enterprise, fixing developmental priorities based on evidence is absolutely critical for ensuring sustainable outcomes in India. Without direct cash transfers, it is impossible to expect a radical change at the grassroots, merely on the wishful thinking of long-term measures. A case in point is the problem of migrant workers in India. If they are promised welfare though the winding route of engagement, based on a flow of income that is yet to be earned, they won’t buy the argument and prefer to return home, which is what they did during the pandemic.

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The government should appoint a committee of economic and public policy experts to study various models and modes of direct cash transfers in line with the specific needs of India’s diverse issues across regions. Based on the study report, a pilot project can be implemented across say 1000 most vulnerable villages of India; the impact can be measured in terms of the quality and the sustainability of the outcomes. This effort will pave the way for needful tweaks and refinements, as also Pan-India large-scale implementation of direct cash transfer programs.

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Over the years, India has based its policy formulations and interventions based on presumed notions about the needs and sensibilities of the target audience. That the hungry and hapless have no agenda apart from satiating their hunger is a seriously flawed conjecture. If they have money at hand, the poor tend to crave for quality of life as much as their well-off counterparts, into buying the best of cell phones, TVs, and appliances, as also spending on health and well-being. With direct cash transfers, a significantly large population of the poor will move up the value chain of social and economic stature and contribute to the India growth narrative in a big way.