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New DBT paradigm in the Budget

Sameer Sharma
24 Jan 2017

By transferring cash directly to beneficiaries a paradigm shift can be brought about in the development programs of the Government. This will completely change the game of development and bring rapid benefits for the people. Direct Benefit Transfer (DBT) will include direct, cash transfer, conditional cash transfer, vouchers and cash for work. The implementation challenge is to transform existing programs of the governments to DBT. This can be done in the following steps. First, Rs. 1000 every month can be given to 8 crore poor beneficiaries identified in the socio-economic survey dataset. The Health Ministry is already using this list of 8 crore beneficiaries to roll-out their health assurance scheme. This direct cash transfer is likely to cost Rs.98,000 crore every year and the money will be transferred directly to the Jan Dhan Yojana accounts, preferably to the accounts of women.

The other programs will be top-ups on this direct cash transfer. The top-ups can take the following three forms – conditional cash transfer, giving vouchers and cash for work. Wherever specific needs have to be met, conditional cash transfer can substitute for the programs. For example, in the Anganwadi scheme take home rations are given to pregnant and lactating mothers, children (0-3 years) and to adolescent girls not going to schools. These can be replaced with direct cash transfer and simple conditions prescribed. Some of the conditions could be maintenance of weight, blood iron levels of pregnant mothers, timely vaccintation of children and acquisition of elementary literacy and life skills by adolscent girls.

The third way is to give vouchers wherever there is scarcity of a commodity or a service or beneficiaries have to protected against inflation. For example, parents can be given vouchers for school going children and parents can chose the government/private school they want their children to go to. Or food stamps can be given to people (e.g. elderly, widows) who have to be protected against food inflation. Fourth, if particular community works are required, then, cash for work is the preferred choice. An example is the Rural Employment Guarantee Scheme.

Generally, programmes aim to achieve specific objectives, such as – (1) reducing specific types of poverty and disadvantage (e.g. scholarships); (2) dealing with different types of risk (e.g. pucca housing for all, institutional deliveries); (3) incentivizing desirable types of consumption and promoting positive spending (e.g. nutrition of pregnant women, schooling for girls); (4) developing markets for products and services (e.g. prompting sale of khadi); and (5) achieving goals emanating from wider public interests (e.g. digitalization of transactions). All these are amenable to DBT.

One common refrain is that this may lead to misuse of the cash transferred by beneficiaries. Let us see some empirical evidence. Paul Niehaus and Michael Faye started GiveDirectly in 2008 while they were doing scholarly work in Harvard. During their graduate research they had found that direct cash transfer was a particularly effective method to alleviate poverty. Unable to find nonprofits practicing direct cash transfer, they launched their own. GiveDirectly has evaluated the approach using quasi-experimental methods. During randomized trials they have used a lottery system similar to medical trials and compared development outcomes of households who have received direct funding vs. those who haven’t. Results show that no-strings attached cash transfer has improved health and led to downstream financial benefits, also. Beneficiaries who are living on less than 65 cents a day, invested in several items: food for starving children, long-term assets, such as land, livestock and housing. There is counterintuitive evidence too: money spent on alcohol or cigarettes remained the same or increased in the same proportion as other expenses (nearly 2-3 percent).   In the new paradigm all assistance programs will be benchmarked against cash transfer and only those programs will be continued that are able to demonstrate that they are doing a better job, than the poor could do for themselves through cash transfers. Success of the paradigm shift will depend on matching the existing programs with the right form of cash transfer by the Ministries and Departments. Ultimately, this will lead to reduction in expenditure due to rationalization of programmes and prevention of leakage and pilferage.

(Author is a civil servant. Views are personal)

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