The concept aside, the impact of the scheme has been phenomenally good — the programme reduced poverty by nearly 30 per cent during Lula’s first term. It played a significant part in his re-election, so it made for good politics. It also enabled the government to continue to implement market-based reforms of the Brazilian economy — with a good social safety net a market economy’s ups and downs are more acceptable to the people at large. The success of the programme has also caused less distress to Brazil’s poorest people during this current downturn. Put simply, the bolsa familia programme shows that it is perfectly possible to combine good economics with good politics and that economic reforms (read liberalisation) can be sold to the electorate as long as there are good social security nets.

A similar programme is run by the World Bank in Mexico, another country which has sustained market-based reform with popular support. It’s time that politicians in India at least began to debate this idea which could do more to alleviate poverty quickly than even the NREGA.

Poverty alleviation aside, the programme may be good from a macroeconomic point of view, primarily because it will boost spending — the poor have the highest marginal propensity to consume and they will spend all the money that is transferred to them — which will then have a multiplier effect on our sagging economy. Barack Obama’s trying similar things to boost the US economy and to insure people against distress; cash transfers are not simply developing country remedies any more.

... contd.