In my opinion India is not yet ready for the single minded pursuit of the cash transfers which the current government has high on its agenda for social policies and subsidies.
It’s not about the inflation worries which is bothering me- the popular media thinks cash transfers would increase the money supply in the market. Enough papers have been written by leading economists debunking the myth, I have different reasons stated below
- Unconditional cash transfers need technology and the digital infrastructure to handle it, which many parts of India are devoid of, the work is underway but needs a longtime before it is fully operational and people are empowered to use it. Mobile payments could be used, as we have near about penetration but not without its share of problems.
- Say we use the mobile payments or even if technological challenges are fixed, the bigger challenge is the problem of identifying the beneficiaries correctly. Aadhar has a problem of duplicate beneficiaries and leaves out a large section of poor. So a credible mechanism has to be established.
- Providing the cash transfer may lead to wasteful consumption (like alcohol and other luxury goods which poor may not afford), though the point looks like being judgmental about the poor’s spending habits, but the social conditions and numbers doesn’t let me trust them.
- Most people cite the success of the cash transfer schemes of Brazil and other Latin American countries, but the countries are largely urban, while we are rural, and the rural markets for essentials such as food markets are imperfect there by making the case for kind-tranfers instead of cash.
- Most of our subsidy is fertilizer and food subsidy by procuring at MSP and then distributing at lower prices through PDS. If the state support is withdrawn then it may affect the food security of the nation necessitating the imports.
We might need a detailed analysis, surveys and reliable data to plug in the above points discussed before going ahead with cash transfers for food, fertilizers and others.