07 January 2013

More on the Indian National Cash Transfer

Easterly announces the latest from the NYT with a "India finds cash grants to the poor are no panacea."

The article quotes Jean Drèze, a real Indian-social-policy expert, who notes
“An impression has been created that the government is about to launch an ambitious scheme of direct cash transfers to poor families,” Jean Drèze, an honorary professor at the Delhi School of Economics, wrote in an e-mail. “This is quite misleading. What the government is actually planning is an experiment to change the modalities of existing transfers — nothing more, nothing less.”
Now obviously far be it from me to disagree with Drèze, but the article also notes
“I think this is one of the biggest things to happen to India’s financial system in a decade,” Ms. Ananth [President of IFMR] said.
and
India spends almost $14 billion annually on this system, or nearly 1 percent of its gross domestic product, but the system is poorly managed and woefully inefficient ... Rajiv Gandhi, who served as prime minister for five years in the late 1980s before being assassinated in 1991 while running for office, once estimated that only 15 percent of the money spent on the poor actually reached them; his son Rahul Gandhi said recently that this level may now be as low as 5 percent.
Erm, if that is even close to correct, then getting an additional 85% of $14 billion into the hands of the poor is HUGE. And what kind of economist gives a damn about panaceas anyway? Aren't we supposed to celebrate marginal gains? Especially when those marginal gains could equate to billions of dollars getting into the hands of the poor.

And finally the criticism that this is just about vote-buying is the weakest of them all. If it is going to be a successful election strategy, it is because people value the transfers more than whatever they were getting before, and therefore it is a good policy idea. And if political parties are competing on who can provide the best social policy rather than caste or religion or whatever else, then that is fantastic. 

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