18 JUN, 2011, 02.

10AM IST, SAMEER SHARMA,

Delivering subsidies through DCT

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Read more on Social Protection Network|PETI|Nanadan Nilekani committee|Mobile banking|Health and Education|GPS|GPRS|direct cash transfers|DCT|Andreas Faludi

Three challenges - to bring about convergence among public programmes, identify and deliver cash to the "real" beneficiaries and meet general and specific goals of governments at different scales - confront the Nanadan Nilekani committee deliberating on delivering subsidies through direct cash transfers (DCT). The cash transfer programme is based on Sen's entitlement theory - that lack of access to food (goods and services), rather than failure in food supply leads to famines. An India-centric doctrine, in the sense used by Andreas Faludi , with DCT as the central core (e.g., paying Rs 500 to all the poor) surrounded by alterable conditionalities (e.g., additional Rs 300 for children regularly attending school), is useful to collapse all development programmes into an India-specific development doctrine. The core of the doctrine consists of DCT surrounded by conditionalities to take care of specific objectives, such as - (1) reducing specific types of poverty and disadvantage; (2) dealing with different types of risk; (3) incentivising desirable types of consumption and promoting positive spending; (4) developing markets for products and services; (5) removing social, market, and administrative discrimination that prevent the poor to engage more fully in development processes; and (6) achieving goals emanating from wider public interests. The advantages of a central core consisting of DCT are welldocumented. First, apprehensions about outflow of capital from productive activities to meet domestic shocks and stresses (e.g., serious health ailments) are reduced. Second, multiplier effects on agriculture and livelihoods are likely to increase demand for local goods and services. Moreover, the flexible and fungible nature of money facilitates engagement of the poor in productive enterprises.

Third, DCT is less costly to administer, less prone to corruption, and potentially cost-efficient if appropriate contextual conditionalities are established. Fourth, DCT makes the life of the poor dignified - they no longer have to stand as supplicants before development administrators. Additionally, women and the aged are empowered if the cash transfer is made in their favour. Finally, cash transfer increases choices available to the poor and accounts for variations in preferences for goods and services from poor to poor (e.g. family decides how much to spend on food and education). Shifting the bedrock of all development programmes to DCT with conditional cash transfers as add-ons to address specific vulnerabilities of the poor is supported by empirical evidence. Some of the most intensively examined cash transfer programmes are - Oportunidades (Mexico), Social Protection Network (Nicaragua), Bolsa Escola and PETI (Brazil), Family Assignment Program (PRAF - Honduras), Chile Solidario (Chile), and Program of Advancement through Health and Education (Jamaica). The Mexican government started the Oportunidades in 1997 (then called Progresa) to replace traditional supply-side subventions with demand-side interventions through direct cash transfer to poorest families with conditionalities, such as enrolment of children in schools and participation in health check-ups. Evaluation of the Mexican programme has showed that most important reductions in poverty took place among the poorest households. Additionally, efficiency of conditionalities was assessed by Coady and Parker (2001), who compared subsidising education by bringing the poor to the educational system, through conditional cash transfer vs. bringing education to the poor through extensive expansion of the educational system. The cost-effectiveness ratio of extensive expansion of school system was nearly 7.3 times greater. Later, Coady and Harris (2004) found substantial general equilibrium welfare impacts by switching to a better targeted direct cash transfer scheme. Brazil has a bunch of cash transfer programmes. The BPC is a continuous cash benefit programme that transfers cash, unconditionally, to the extremely poor with disabilities; the PETI transfers cash to eradicate child labour from hazardous and dangerous activities; the Bolsa Familia is the main conditional cash transfer programme targeting poor families with income less than $40; the Bolsa Escola targets children between 6 and 15 years of age; the Bolsa Alimentacao fights infant mortality; the Auxilo Gas compensated poor families after ending food subsidies in 2001; and the Cartao Alimentacaowas created to provide food security to the poor in 2003. A UNDP (2006) evaluation found favourable impacts of the BPC and Bolsa Familia on equality - the Gini inequality coefficient had fallen by 28% during 1995 and 2004. The execution challenge - selection of the poor and delivery of cash - requires some out-ofthe- box solutions, again. Simple and transparent targeting is best achieved through a referendum at the gram or area sabha level, with a yes/no option against each beneficiary to determine their eligibility. We trust the local community and if they feel that a family requires help, perhaps that is the best decision. Moreover, beneficiary verification and cash transfer is possible through the ubiquitous mobile phone. Preloaded programmes on the mobiles backed by GPS and GPRS can be used to photograph

beneficiary identities; additionally, deliver money through mobile banking - some useful models are Gcash (Philippines), M-PESA (Kenya), and Wizzit (South Africa). In short, a development doctrine with DCT at the core and contextual conditionalities to meet varying needs of diverse communities and unique characteristics of local areas combined with the use of mobile phone for banking and reliability check on beneficiary identities holds much promise to reduce the vulnerability of the poor, increase choices available to them, and address a common complaint made against development programmes that they follow a one-size-fits-all approach.