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The Cash Transfer Debate

India Is Confronting a Cash Transfer Failure

In the second part of our series on cash transfers, we explore how opposition to an experiment made the Indian government confront the drawbacks and look for lessons for future interventions.

Written by Amruta Byatnal Published on Read time Approx. 4 minutes
A woman waits for her share of grain at a government-run ration shop in Delhi.ROBERTO SCHMIDT/AFP/Getty Images

On a hot afternoon this February, more than 1,000 people in the town of Nagri marched to protest against a newly introduced cash transfer program that replaced their monthly rice subsidies.

Since October last year, the state government has been depositing cash in the bank accounts of residents of the town in the northeastern Indian region of Jharkhand – and they are not happy.

Called direct benefit transfer (DBT), the program is being piloted in four states across the country to curb food insecurity and improve nutrition. If the residents of Nagri have anything to say about it, though, the trial won’t go any further.

As one protester, Mangri Devi, told the the Hindu, “Nagri was put through so much trouble to see if the DBT experiment works … If the chief minister listens to our terrible experience with DBT and scraps it, he can protect the rest of the state, and maybe even the country, from it.”

There is little evidence that cash transfers meant for nutrition have any impact, as Malnutrition Deeply explored in the first of our series on cash transfers last week. In India, the situation is even more complex.

The DBT program falls under the public distribution system (PDS), India’s massive in-kind food subsidy program mandated to supply food to poor households under the National Food Security Act. While it was introduced primarily to plug leaks in the distribution chain and lay the foundation for cashless transactions, residents, activists and economists alike have identified problems indicating that India might not be ready for a cash transfer overhaul. Before rolling out these programs, experts believe, the government should ensure people have access to the right infrastructure, functional markets and nutrition counseling in order to make the best use of cash.

Officials appear to be listening to the protesters, and lessons from the experiment may guide future cash transfer efforts. Hidden in the minutes of the Nutrition Council’s April meeting is a tacit acknowledgement of the program’s many drawbacks. The council has recommended soliciting expert advice for the formulation of guidelines for future cash transfer interventions “so that the pitfalls in DBT in PDS may be avoided.”

Cash vs Food

Under the old system, residents of Nagri were able to buy 2.2lb (1kg) of rice for one rupee, up to 70lb (32kg) every month. The DBT program substituted that straightforward approach with something far more complicated. The 32 rupees (50 cents) is first transferred into each household’s bank account, which they then have to withdraw in order to buy the 32kg of rice from the local ration dealer.

The system has been plagued by problems ranging from a lack of access to bank accounts to shortage of grain to regular glitches in the technology – all of which have resulted in delayed payments.

Another protester, Meena Uraon, reported to the Wire, “We were not told if the money would come to my account, my husband’s or my mother-in-law’s. The ration dealer also didn’t know. We had to keep going to all three banks to check.”

Sandip Sukhtankar, associate professor at the University of Virginia and an affiliate of the Abdul Latif Poverty Action Lab (J- PAL) – a global impact evaluation center,  believes the program is taking a toll on the supposed beneficiaries – particularly the poorest.

“People are waiting more, and if we monetize the time it takes and the number of unsuccessful trips to the bank, there is a small, but non-trivial, inconvenience cost to beneficiaries, particularly for the poorest,” he said.

Jean Dreze, an economist and activist in the Right to Food campaign, believes India is simply not yet equipped to handle large-scale cash transfer programs.

“The entire infrastructure of cash transfers is in disarray right now,” he told News Deeply. “This is hardly the time to replace food with cash transfers, especially in areas like rural Jharkhand, where the infrastructure is very weak and food insecurity remains widespread.”

What Could Work

As India plans to introduce more cash transfer schemes, experts said it is critical to take account of the conditions and contexts under which they do work – and don’t.

In-kind transfers, such as the rice distribution scheme, as opposed to cash transfers, can act as insurance against rising food prices, Sukhtankar and his fellow authors point out in a paper published in 2017. The paper shows that in-kind transfers can in fact increase caloric intake and help meet minimal caloric requirements while protecting the poor against price risk.

“You really can’t implement a cash transfer scheme in areas like Jharkhand that don’t have access to fully functional markets,” Kalyani Raghunathan, an associate research fellow at the International Food Policy Research Institute (IFPRI), said. Access to local markets where recipients can convert cash into nutritious food will be key in assessing whether a particular region is ready for cash transfers instead of food, she said.

Cash transfer interventions have successfully ensured services and guaranteed incentives in some parts of India. In the state of Odisha, for instance, a strong health system was responsible for delivering maternal health benefits. By making the transfer contingent on accessing antenatal services, the scheme improved nutritional outcomes for both mothers and their babies.

In the state of Bihar, too, the conditional cash transfer (CCT) program was successful as long as the conditions were simple and comprehensible. In the evaluation of both cases, researchers point to the need for a strong behavior change communication component and counseling to make sure the goals of the CCTs are met.

“It is necessary to think of what conditions will help you reach the target group but also not end up excluding the marginalized,” Raghunathan said.

The lessons of the Nagri pilot are not going to be ignored.

The social audit division of Jharkhand conducted a study last month to determine the program’s efficacy. While the results were not made public, an analysis of the pitfalls will inform a new pilot of CCTs in 11 districts. The CCT program will be designed to distribute cash instead of food to children aged 7 months to 3 years.

It’s unclear, though, whether Nagri and the other towns that are part of the current pilot will get their monthly 32kg of rice back.

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