Cash is no cure-all

Cash transfers seem to be the latest fad. With elections looming, the Prime Minister's National Committee on Direct Cash Transfers has been tasked with an ambitious mandate to provide vision and direction to enable direct cash transfers of subsidies under various government schemes and programmes to individuals to enhance efficiency. Certain activists warn against an ill-considered and hasty transition from food to cash. Others believe directly transferring the subsidy amount to citizens can offer beneficiaries more choice and allow the state to sidestep poor supply side management practices plaguing the public distribution of goods and services that result in leakage. Cash transfers have increasingly become synonymous with ideological contestation on the role of the state, making the debate on feasibility shriller.

Like most medicine, cash transfers are a cure, but not a cure-all. It helps to clarify which maladies can be solved by cash transfers, which cannot — and identify those cases where the side effects of introducing cash could be worse than the disease.

Over the years, studies of the PDS show that some states manage supply of in-kind transfers fairly well, while in a large number of cases, the pipeline connecting citizens to ration supplies is prone to leakage and corruption. Money at the top, spent by state treasuries for the distribution system, produces little food or fuel for PDS beneficiaries at the bottom. Such findings, in combination with fiscal stress, have bolstered the characterisation of the current delivery of in-kind transfers as inefficient. However, we need to consider three key issues when thinking of

using cash transfers as an antidote to inefficiencies within the public distribution channel.

First, if the only inefficiency within any public distribution system was that the costs of moving materials and getting the public sector to produce or procure goods and services were much higher relative to the overall gain, transparent and direct cash transfers would be a complete and comprehensive solution. The development of technologies such as biometrics and centralised fund-flow management systems have created new pipelines through which cash can flow cheaply and accurately to recipients.

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