Conditional Cash Transfers in India

Written by  //  September 27, 2010  //  Economic & Social Policy  //  4 Comments

Conditional cash transfers [“CCT”] are loosely defined as welfare-oriented, state-sponsored programs that give indigent families cash conditional on specific, verifiable actions. They are usually directed towards gender empowerment and the nutritional and educational needs of children. CCTs are an integral part of the World Bank’s ‘safety net’ policy, and have allegedly enjoyed considerable success in several countries. Over the past decade, the Indian state has begun to use CCTs in many sectors as a part of its wealth-redistribution, poverty reduction programs.  For example, in March 2008, “Dhanalakshmi” – a CCT scheme for female children for insurance cover – was introduced in Andhra Pradesh, Uttar Pradesh, Bihar, Orissa, Jharkhand, Chhattisgarh and Punjab. Similarly, the Delhi and Haryana state governments recently launched the ‘ladli’ scheme to benefit the girl child. Recently, there have been proposals to increase the number and profile of CCT programs in India and extend its benefits to all vulnerable ad marginalised groups in India. In this blog post, I try to make sense of the scope and applicability of CCT programs in India. More simply put, I try to answer the following question – is it a good idea for the Indian state to improve welfare by distributing cash conditional on the actions and changed behavioural patterns of  intended beneficiaries?

At the outset, I admit that I have a very limited training in economics. However, some advantages of CCTs are obvious. Giving indigent families cash conditional on specified actions provides a strong incentive to change behaviour. It can be argued that CCTs might be more successful than past governmental incentive systems – like the mid-day meal scheme to incentivize education – as it gets to the core of the problem. Children aren’t sent to school because they work to make money; mothers don’t access pre and post natal care because they can’t afford it. Similarly, it appears as though CCTs allow the state to precisely target the group/ policy it wants to. If successful, CCTs can ensure something as specific as better immunisation records for dalit children in Andhra Pradesh. People have also argued that the benefits of CCTs have a better chance of reaching intended beneficiaries than other government welfare schemes like subsidies. And finally, there is the most obvious reason: as CCTs are a part of the World Bank’s scheme of things, there is a greater chance of attracting aid for CCT-based human development projects.

However, this is only one side of the story, and some disadvantages of CCT-based programs are equally obvious in the Indian context.

First, and most patently, there is the problem of corruption. An advantage of in-kind benefits (such as food grains and mid-day meals) is that the chance of the benefit getting siphoned off to corrupt officers is lower than if the benefit in question is cash. Second, CCTs require a lot of infrastructure to be successful. Beneficiaries need to be documented, correctly identified, need to have bank accounts and easily accessible biometric data. Much of this is unavailable in India. Third, the ultimate success of CCTs depends on the quality of service providers available. If cash transfers are made conditional on children going to bad schools or visiting bad hospitals, the CCT program would have failed. Sadly, rural education and health care in India is far from adequate. Four, monitoring and evaluation is crucial to the success of CCT programs. There is virtually no effort in this area in the Indian context to my knowledge. If anyone reading this piece has information on the monitoring and evaluation of social welfare programs in India, I’d be grateful if you brought it to my notice. Five, monetary incentives will not help to alleviate all the problems faced by marginalised communities in India. Caste-based inequality and skewed gender ratios, for example, aren’t sourced in monetary considerations as much as years of entrenched prejudice and discrimination. Therefore, proving cash-based incentives to remedy these problems may not meet with much success.

My intention in this post is not to be unduly critical. CCTs may well represent a novel and useful method to ensure social welfare and protect the interests of minority groups in India. However, it is important to pursue such programs with caution and only after the pre-requisites for success are in place.

4 Comments on "Conditional Cash Transfers in India"

  1. M.S.Sundararajan September 28, 2010 at 3:20 am · Reply

    My biggest objection ,in principle,to CCT is this:
    The State and hence the party in power has a definite responsibility in seeing that the benefits of any legislation,be it grains,or other materials or cash envisaged reach the targeted population in toto and in time.They cannot shirk this responsibility by resorting to CCT and washing their hands off the matter.We should not allow them to do so.This will make them leave their irresponsible attitude and make the ministers corrupt-free which in turn will make the staff corrupt-free

  2. Anisha September 28, 2010 at 2:20 pm · Reply

    Hi Sanhita. Thanks for a very thought-provoking piece. My open two-paisa input on your objections to the CCT concept:

    I’d say that points 1 and 2 are chronic problems with any level of government expenditure (look at the PDS). Points 3 and 5 are, perhaps, implicitly caputured in the programme design. If service is dreadful then the transfer will have to be that much larger to encourage families to subject themselves to public hospitals. Similarly, if gender discrimination is so entrenched, then the transfer will have to be that much higher to encourage a very conservative family to send its daughter to school. Point 4 could be really important…depending on what it is that the government is trying to achieve.

    Let me explain this last point further. If the government is trying to align individual preferences with social preferences (change behaviour, as you put it), then it is pretty easy to make a case for why such a programme can have immense pay-offs. Investment on child health and education, as an example, tends to be lumpy and pays a return only in the long run. A CCT could reduce the short-term costs of this investment to the individual.

    If it is intended as a tool of redistribution of income (benefits extend only to families with less than x level of income or y size of landholding), then it’s a bit harder to make a strong case for a CCT. A lot depends on the design of the programme: does it extend to the right people, is the size of the transfer sufficient incentive to induce uptake of the programme, are families gaming the system by taking up the programme and reducing discretionary expenditure on similar overheads (eg: feeding a girl less at home because she gets a meal at school)? And this is where point 4 suddenly makes a lot of sense.

    In reality, most CCTs try to achieve both objectives of increasing consumption on socially important ends as well as a measure of redistribution. To avoid throwing a lot of public money down a great big black hole with no idea as to its impact, programme design and evaluation is really important. The government usually pilots its programmes, evaluates them, and then decides whether or not to roll them out. We can only hope that the quality of this evaluation is any good and not just driven by political considerations.

  3. Sanhita September 29, 2010 at 1:53 am · Reply

    Anisha, your comments are spot on and I could not agree with you more. A lot of economic and social policy in India – most definitely and particularly CCT programs – would benefit enormously if they were evaluated well at the outset and then scrupulously monitored.

    However, I’m not sure whether transfers of any amount could tackle points (3) and (5). If the avowed aim of a CCT program is to ensure that all children in region x receive a minimal level of education, then despite the quantum of monetary incentive offered the program would not receive its objective if the educational services in region x are awful. And primary education in many regions in India is reasonably awful. So implementing a CCT program of this nature before ensuring the quality of services available may be pre-mature. The same argument would apply to health services in many parts of the country as well.

    • Anisha September 30, 2010 at 5:56 pm · Reply

      I suppose you could argue that some education is better than none. And if the problem is that individuals just don’t value education enough then some transfer might go towards changing that behaviour. But my arguments would certainly go out the window if the government decides that with a CCT in place they dont need to care so much about improving the quality of education. Which I think is the point that Sundararajan is trying to make.

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