Cash Transfer Scheme

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Cash Transfers to end poverty – Over-ambitious economic policy or a welcome change to eliminate corruption in the Public Distribution System? A study of the benefits of the Cash Transfer scheme to India’s poorest and its economic viability

Shrinidhi Rao
210063
Word Count – 3501 [including footnotes]

Introduction –
From January 1st, 2013, hundreds of thousands of India’s poor across 20 districts will benefit from the logical end of signing on to the Government’s Aadhar scheme. What was the most ambitious product of the Planning Commission of India in 2009 stopped in its tracks after about 20% of the population successfully applied to receive their 12-digit Universal Identification (UID). Now, those with an Aadhar UID and below the poverty line will receive subsidies from the Government in the form of cash. The Direct Benefits Transfer scheme will serve to, as name suggests, directly transfer benefits and subsidies to those requiring it by eliminating the middleman. The idea was initially to be found in the Government of India’s Economic Survey for the year 2010-2011 and was re-affirmed with the Finance Minister making reference to forwarding a policy of replacing some subsidies on certain goods with direct cash being given instead. Eminent scholars have since remarked that while this may seem like an obviously simple solution to the complex problem of poverty and crippling under-development in parts of the country, i.e. to put poor people on a better bargaining position by making up the disparity by giving them additional cash, the realities of this is not so black and white. The abstract benefits to merely doling out money to the poor could be that they do not need to dip into their savings for basic amenities – food, water, sanitation etc. Allowing them to use their savings to work on improving their own job skills - be it learning of new agricultural procedures, buying seeds, learning a vocational skill, to funding their children’s education, to getting them to adapt to changing technological processes and eventually serve to bring up national income averages. Through the course of this paper, a brief overview of the birth of the concept of Cash Transfers will be made. Once the concept is introduced, a theoretical study of its economic impact will be tied into looking at the ground realities of implementation and successful execution. That is to say, the specific factors found in India that could affect the success of the scheme. The origin and development of the cash and conditional transfer scheme - Some form of cash transfers and related schemes have been in place and successfully so in other parts of the world. The reasons for mooting this scheme in India can be largely due to the inefficiency and largely bureaucratic nature of the public distribution system (PDS). The natural question that one asks here is whether eliminating the middlemen in the system will alleviate the situation. The answer to this, theoretically, is yes. Because the cash transfer operates on biometric identification to prevent fraudulent transfers etc. it is in some respects “safer” than the pre-existing subsidies on goods and services. For example, it is common knowledge that a large portion of grain allocated for the PDS to deliver to the poor and needy makes its way to the open market. Unfortunately the prevalence of such practice has been factually proven. The solution is naturally one that espouses transparency, which is where the Aadhar system is useful in providing. With this platform of transparency with which to work on, to directly transfer benefits is a step forward in the right direction. Principally, poverty alleviation is of utmost importance to any nation striving to achieve growth and industrial advancement. Socio-economic safety nets are “constructed”, so to speak, as a compendium of different strategies to reduce poverty - to achieve equity and stable incomes...
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