Show Me the Cash: Direct Cash Transfer in India

Abstract

India, according to the World Bank, accounts for one third of the poor in the world. Delivering benefits to the deserving recipients has been an old and major problem as well as a source of much corruption in India, since decades before former Prime Minister Rajiv Gandhi‘s famous observation of only 15% of government outlay actually reaching the poor. India is not unique in this respect; most developing countries have struggled with such distributional issues. In recent years direct cash transfer schemes have become a much experimented vehicle of distribution of benefits in much of the developing world, mostly with encouraging results. India has also embarked upon this path with characteristic hesitation and arguments. Debate and skepticism equally dog the idea and the delivery mechanism, basically a unique ID based transfer system.

This chapter seeks to understand the nature and implications of the Direct Cash Transfer programs being considered and experimented with in India, particularly in light of the experience elsewhere. The chapter is structured in five distinct sections: the issues about direct cash transfers raised in the theoretical literature in the area of public finance; existing subsidy and ― kind transfer schemes; the experience with direct cash transfers around the world; the political and social impact; and finally the first hesitant steps of India in this direction.