Lecture Note (Session 9) Direct Cash Transfers to the Poor: Can it be a Solution to Improve the Efficiency of Government Welfare Spending? Theme of the Lecture: There is overwhelming evidence that a major part of the resources spent by the governments’ in India through subsidies and welfare programmes fail to reach their intended beneficiaries due to targeting inefficiency, inefficient execution of schemes, leakages, and large administrative costs. The question which has been asked is: Is there a better way to spend the enormous government welfare funds? One alternative mechanism of public welfare spending which has been gaining currency in recent times is the system of Direct Cash Transfers (DCT). The Government of India has been mulling over experimenting this idea for quite some time now. Finally, the government has taken the first “baby step” towards a DCT regime on February 14, 2011 by way of setting up a task force headed by Nandan Nilekani, Chairman, UIDAI to suggest a suitable mechanism of direct transfer of fuel and fertilizer subsidy to the consumers. The Task Force has submitted the interim report in July 2011. Many Latin American countries have used DCT as a major element of poverty reduction strategies. Of these, Brazil has largest cash transfer programme to the poor in the world and its experience was successful. In this context, this lecture primarily focuses on the concept of DCT, its working, benefits, limitations, and Brazil’s successful experience with the scheme. 1. The Issue: There are few countries where the state and the policy and intellectual community have been as committed to poverty eradication as India – both in terms of rhetoric and through a range of subsidies and an array of targeted poverty reduction programmes. In 2007-08, the total expenditure by the central government on subsidies and the various poverty alleviation schemes (through centrally-sponsored schemes [CSS]) exceeded Rs 1,78,765 crore. However, there is overwhelming evidence that a major part of the resources spent through subsidies and welfare programmes fail to reach their intended beneficiaries due to, in varying degrees, targeting inefficiency/inefficient execution of schemes (inability to reach the poor), leakages (to the nonpoor), and large administrative costs. For example, Guhan (1994) estimated that for a budgetary expenditure of Rs 100, the final transfer to the poor was just Rs 21.6 through the Maharashtra Employment Guarantee Scheme, where the poor self-selected themselves by choosing to do manual labour on public works, and a paltry Rs 11.2 under the PDS. More recently, in 2005, the Planning Commission estimated that the government spends Rs 3.65 to transfer Re 1 worth of food, suggesting leakage of about 70 per cent. This reality known to everyone – government, bureaucracy, policy analysts, NGOs, and international donars. Indeed, the Prime Minister Dr. Manmohan Singh himself in a recent speech reiterated, “we spend far too much money funding subsidies in the name of equity, with neither equity objectives nor efficiency objectives being met”. The government’s own assessments, conducted variously by the Comptroller and Auditor General (CAG), Planning Commission and other agencies, show that the CSS have been process-driven, with little emphasis on measuring outcomes. In 2001, a working group of the Planning Commission had stated; “Accountability in the monitoring process is very weak. The fear of adverse remarks has prevented officials from reporting poor performances. Concealment of shortcomings and manipulation of data have been resorted to, to cover poor performances. Due to concealment of weaknesses in programmes, 1
appropriate corrective actions are not taken. Monitoring units tend to shift responsibilities for poor performances to line departments. Monitoring units and the departments furnishing data and reports are not held accountable for false pictures created by them.” The principal reasons for this...
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