Wednesday, September 15, 2010

Direct Cash Transfers for Rural Development

(As part of my RDI course project, my group chose an intervention to solve a development problem in rural India. The intervention was direct cash transfers. What is published below is the concept note submitted to the instructor. Though the feedback was positive, the real work begins now.Any suggestions, links are welcome)
There are few countries where the state and the policy and the intellectual community have been as committed to poverty reduction as India-both in terms of rhetoric and through a range of subsidies and an array of targeted poverty reduction programmes (Kapur, Mukhopadhyay and Subramanian 2008).The irony is that inspite of hundreds of schemes and thousands of crores of rupees being spent on poverty alleviation, the number of poor people in India is extremely high. Certainly, something has not worked.
While the State has exited several sectors of the economy after 1991, the delivery mechanism used for channelling welfare scheme benefits to the beneficiaries is still in the hands of the State. These delivery channels are controlled by the bureaucratic system and are seen as clogged pipes which have several attendant problems. There are several reports which point out the colossal waste of money in implementing the schemes. This is because most of the benefits do not reach the poor and also because administrative cost is very high .
Our intervention is simple yet radical in nature: Direct (or unconditional) cash transfers to the “beneficiaries” of various schemes of the government. We state that hard cash be handed out to the poor and let them decide what to do with it. We consider it to be one of the most extreme form of “bottom up approach” –an oft quoted word by policy makers who then go on to design “top down” programmes which never involve the poor.
The Objectives of the project is as follows:
1.Understand the current delivery mechanisms of various schemes in the Government and critically analyse them.
2.Build an argument for direct cash transfers. This is to answer those who see direct cash transfer as an idea which reflects great intellectual, policy and political eenui. See (Shah 2008) .
3.Compare direct cash transfers with conditional cash transfers and other similar schemes which seek to cut down leakages, corruption and other problems which plague the current scheme.
4.Analyse cases where direct cash transfers have been used.
5.Present the drawbacks of the intervention.

The methodology would include a comprehensive literature survey regarding the proposed intervention and several of its variants.

Jhabvala, Renana, and Guy Standing. “Targeting to the 'Poor':Clogged Pipes and Bureaucratic Blinkers.” Economic and Political Weekly, 26 June 2010: 239-245.

Kapur, Devesh, Partha Mukhopadhyay, and Arvind Subramanian. “The case for direct cash transfers to the Poor.” Economic & Political Weekly, 12 April 2008: 37-43.

Ministry of Finance, Govt. Of India. Economic Survey 2009-10. Annual Survey, New Delhi: Ministry of Finance, Govt. Of India, 2010.

Shah, Mihir. “Direct Cash Transfers:No Magic Bullet.” Economic & Political Weekly, 23 August 2008: 77-79.


  1. Direct cash transfer can be propgated through channels of Antyodaya Anna Yojana (AAY). Food and direct cash at same time will help poors to have frame their own economic planning rather than living for day to day. Opening of bank or postoffice account of each family involved in scheme will do much wonder...

    That is my suggestion, please comment on drawbacks of myine opinion.

  2. The AAY is for the "poorest of the poor" under PDS.PDS is a huge scam! too many leakages and corruption.the purpose of DCT is to dismantle such channels. In fact PDS is sought to be eliminated by food vouchers. The economic adviser to PM, Kaushik Basu is a big proponent of food vouchers
    Banks and post office seems to be feasible.I am still reading stuff on the disadvantages of conditional cash transfers...ELiminating the options before i suggest the operational details of DCT.

  3. The basic question remains, how do you identify the needy ? Same bureacracy will come again in distribution of money. Government try to monitor creates one more layer of bureacracy than direct transfer of funds.

  4. The direct cash transfers cannot be applicable for all sorts of interventions.One needs to identify the interventions where this can work.Take health. You have set up PHCs in all village panchayats and yet private doctors rule the roost. Same is the case with schooling.
    But u have rightly pointed out that "identifying" the needy is a major problem.
    I have also written about it in an earlier post. Unfortunately the only solution that is there for the "identification" is universalism. But given our fiscal constraints, it cannot be adhered to for all interventions. I think someone who can devise a fool proof solution for identifying poor deserves a noble peace prize! And I guess Nilekani, if he gets it right with his UID programme, will be a sure shot winner!!

  5. I hope this article by Jean Dreze would bring some