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Tag Archives | direct cash transfers

‘Sahay’ – A Policy to Help Needy in India via Cash Transfers

Vikas Argod

To accelerate the poverty reduction process in India, I propose a reform initiative, ‘Sahay’. It is aimed at launching a comprehensive program via cash transfers to stimulate and accelerate poverty reduction in the country. Moving away from the paternalistic mentality, ‘Sahay’ would be an unconditional direct cash transfer. Proposal includes reallocating all the funds from NREGA, PDS and deregulation of kerosene prices in next three years. As the first step toward agricultural reform, fertiliser subsidies also will be replaced with conditional cash transfer to farmers. There are ideas to reduce the cost of production of fertilisers in India by achieving the savings. The transition is expected to take three to five years. Without any changes to the current tax structure and only with the reallocation, ‘Sahay’ can raise ` 89,000 crores per annum in the next three years. The policy has comprehensive recommendations towards every step of implementation of this cash transfer. A new department called “Ministry of Social Department” will be created while Fertilisers industry will see the closure.

‘Sahay’ will use the existing infrastructure in as many places as possible and is closely linked with Aadhar. The project has clear goals for the end of three years, which will be monitored at the end of every year. Usual problems of targeting, payment options will be met with modern IT infrastructure and by enabling existing databases. Completely electronic payment option will reduce the leakage to minimum. All the possible policy dilemmas have been discussed with solutions in the policy. Agricultural reforms as well as school voucher can be augmented once ‘Sahay’ is on a stable and consistent path. There will be serious roadblocks from powerful lobbies of PDS, Kerosene and NRGEA unions.

Vikas Argod actively volunteers at IndiaGoverns Research Institute, a Bangalore based public policy data analysis organization. He works for a business data analysis company in Pittsburgh, US. Views expressed here are personal.

(The above piece was written by Vikas in April 2012, as a student of The Takshashila Instution.)

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On Cash Transfers

Abhimanyu Sanghi

Introducing a sunset clause in all central government subsidies, and holding a large-scale two-year pilot program on direct cash transfers.

In the Financial Year 2012, the total central government subsidies accounted for INR 190,015 crore of government expenditure (approximately 2 percent of GDP). This is expenditure that is used for sustaining the country, and does not contribute to the development of the country. In addition, the amount borrowed for subsidies accrues interest, which is an additional amount that is taken away from the development of the country. Subsidies are not targeted, and therefore the middle class is a large unintended beneficiary of the subsidies. India’s current fiscal deficit at 5.9 percent does not allow us the leeway to continue with the high amount of non-targeted subsidies. Food and fuel subsidies account for 49 percent of total subsidies.

Therefore, my first proposal on subsidies is to introduce a sunset clause – a ten-year progressive decrease in subsidies to zero, that is, a reduction in subsidies of ten percentage points every year for the next ten years. This proposal is bound to face opposition. To offset this opposition and have a sustainable targeted safety net program in India, my second proposal is to hold a two-year large-scale pilot of direct cash transfers to the poor in multiple states.

Conditional cash transfers have been successful in poverty alleviation in countries in Latin America and Africa. What makes it challenging in India is the high population density and difficulty in tracking conditionality. On unconditional cash transfers, the sample data points are fewer in number and the available data is less convincing. However, both programs provide a more sustainable means of social welfare than untargeted subsidies.

Abhimanyu Sanghi is a Delhi-based investor and a classical liberal.

(The above piece was written by Abhimanyu in April 2012, as a student of The Takshashila Institution.)

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