More on direct cash Transfers

Devesh Kapur ([email protected]) is with the Centre for the Advanced Study of India, University of Pennsylvania, US; Partha Mukhopadhyay ([email protected]) is at the Centre for Policy Research, New Delhi; Arvind Subramanian ([email protected]) is with the Perterson Institute for International Economics, the Centre for Global Development, and Johns Hopkins University, US. Continuing the debate on direct cash transfers, the authors of the article “The Case for Direct Cash Transfers to the Poor” (12 April 2008) respond to Mihir Shah’s criticism (23 August 2008). The six points of contestation by Mihir Shah – including those on the public distribution system and the National Rural Employment Guarantee Scheme – are refuted. The argument in essence is that seeing the problems with anti-poverty programmes as faulty design and limited availability of resources does not recognise the culture of immunity in public administration and the weak capabilities of local governments. In his response to our paper, Kapur, Mukhopadhyay and Subramanian (12 April 2008; pp 37-43, henceforth KMS), Mihir Shah (23 August 2008, pp 77-79, henceforth MS) makes several claims. One is that KMS is hitherto the best articulation of the idea of direct cash transfers (DCTs). This we can find no fault with! His other claims can be summarised as follows: (a) existing centrally-sponsored poverty programmes with DCT features such as the Indira Awas Yojana (IAY) and the Swarnajayanti Gram Swarozgar Yojana (SGSY) have not worked; (b) making DCT e ffective requires complementary inputs; (c) panchayati raj institutions (PRIs) are weak and need support; (d) the public distribution system (PDS) needs to be reformed instead of DCTs that help the poor to buy grain in the market; and finally, (e) viewing the National Rural Employment Guarantee Scheme (NREGS) as a cash transfer programme is a mistake. MS’ overall message is that DCTs are “no magic bullet”. Before we address each of these specific issues, we would make two broad observations. First, any DCT scheme of the sort that we proposed is, almost by definition, not intended to be a “development” project in the Amartya Sen sense of allowing people to attain a broad set of economic and other capabilities. It has a much narrower scope in providing the income to cross the (admittedly arbitrary) poverty threshold and is hence closer to a welfare scheme. Our main contention is that direct transfers deserve to be tried as an alternative way of meeting this objective given the demonstrated failure of so many poverty schemes to do so. Second, it is striking that while commentators such as Mihir Shah acknowledge the many failures of government efforts over long periods of time to provide the inputs required to generate sustainable development, they continue to want to rely on the same, likely deteriorating, state capacity to provide these inputs without offering any argument as to why future efforts are likely to succeed while past ones have failed. The case for DCTs is precisely to minimise on such capacity so that there is a better chance (than the failed status quo) of meeting the objective of helping poor people. The onus is very much on the critics of cash transfers to make the case for the continuation of numerous existing poverty programmes which have failed for nearly half-century or so.