Editorial: Cash transfers in new light

Published in The Hindu on March 26, 2009

Times of economic crisis provide the setting for states to reconfigure their roles in providing social safety nets. The Social Security Act of 1935 in the United States and the Beveridge Report in the United Kingdom (1942) are cases in point. While the global economic downturn threatens to push greater numbers of people into poverty in developing countries, a World Bank report shows that Latin American and Caribbean countries have improved the lot of their poor through well-targeted conditional cash transfers (CCTs) over the past decade. Reports by other multilateral agencies such as the United Nations Development Programme (UNDP) also throw new light on the subject. What is significant is that rather than look back at the 1930s when rich countries reshaped their economic policies, one can examine the current evidence from developing countries. Unlike in the 1940s, when full employment was an underlying assumption for the functioning of the British welfare state, for instance, the case for CCTs is drawn from the experience of the less developed nations.

The World Bank study finds that when cash transfers are subject to certain behavioural commitments that enhance individual and societal well-being — such as basic immunisation or commitment to keep children in school — they have substantial positive effects on consumption and poverty in the short run. Cash transfers are not new to India but leakages, policy vacillations, and faulty implementation have undermined any attempt at economic redistribution. The UNDP has suggested that conditionalities should be introduced in some of India’s welfare schemes, particularly in healthcare and childcare, for better results. The World Bank’s other conclusions, that CCTs do not seem to reduce adult labour supply and that they have actually reduced the supply of child labour, make the case for putting them to greater use as a tool to alleviate poverty. However, while cash transfers give a boost to an individual’s capacity to spend, and thereby create demand, the onus of providing the necessary infrastructure for economic development will continue to be on the state. A well-designed CCT programme that links child welfare to direct cash benefits for households, with implementation effectively monitored by local bodies, can make a real difference to citizens’ welfare. What is required in countries such as India is the political will to build a new, expanded, and functioning social security system.