17 December 2012

The best news story of the year

In January 2013, India will start the world's biggest social innovation programme: giving cash directly to its poorest citizens in a bid to reduce its very large problem of corruption that stops subsidised goods and welfare benefits from reaching those who really need them. This initiative will affect at least 720 million people—a population almost the size of Europe!
The scheme is open to families who live below or just above the government-set poverty line. The Indian government expects to transfer up to 40,000 rupees ($720) a year to each poor household. Cash handouts will replace the money the government currently spends on subsidies on goods such as fuel, food and fertilizer. India plans to launch this ambitious social innovation program from 1 January, covering 18 states by April and the whole country by the end of 2013.

If this is to be believed, the consequences for human welfare are simply staggering. Nothing else even comes close.

Brazil's Bolsa Familia reaches 50 million people and has lifted 20 million out of poverty. India's programme could reach seven hundred and twenty million people.

Just wow. Sceptical comments to calm me down below please.


Kartik Akileswaran said...

Much obliged Lee. The following articles point to some of the problems:




I worry about the implementation, particularly given the overly ambitious timeline, delays in identifying the poor, and the fact that many intended beneficiaries don't have bank accounts or biometric IDs yet. Rushing into this may start the transfer off on the wrong foot, which could be difficult to rectify ex-post. The last article sums it up nicely: "Much of the current discussion on cash transfers is focused on what the state ought to do, without enough consideration of what the Indian state is capable of doing. Proponents of a cash-based approach assume the state has better ability to supply cash than the supply of physical goods."

Finally, don't forget that Bolsa Familia grew out of a combination of other transfer programs that had started small and had been operating for several years prior to the launch of Bolsa Familia--a gradual scale-up that now serves, as you said, 50 million people. Meanwhile, the Indian government wants its (brand new) cash transfer to serve nearly 15 times as many people by the end of next year.

Cynan said...

Program begins rollout; government phases out subsidies too quickly in spite of major unforeseen logistical challenges of identification and reach at that scale and lack of coverage, transaction processing system fails multiple times leading to delays in payments, undermining at an early stage trust in the system, prices for basics surge, riots, deaths. I'm sure they've thought of all this though.

Arvind Nair said...

Following up on Kartik's comment, there is also the issue of the amount that will be transferred and the inflation index that will be used in this regard. Rural inflation runs much higher than national inflation in India (and is badly measured) and thus indexing cash transfers to national or regional measures of inflation will lower the purchasing power over time. Further, without complementary inputs on improving access to markets in rural areas, the purchasing power of the cash transferred will likely be diminished even at the outset.

Some of these issues were present in the Kokrasim pilot in Alwar, where the switch to cash transfers for Kerosene subsidies reduced the aggregate subsidy burden, but most families were now unable to buy or afford kerosene in the open market.

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