Sunday, August 17, 2014

Cash Transfer Scheme

Government is so agile to implement e-governance solutions for improving its tax collection system, but prefers neolithic methods for cash disbursal decisive and purposeful governance.  The government’s budget is a mess. Subsidies have been overdone and not properly targeted. In the current year, total subsidies will be over 2.8 trillion rupees. Instead of making the direct cash transfer, all of the welfare scheme has been turned into a giant procurement exercise. That is why, Reserve Bank of India governor Raghuram Rajan made a strong pitch for direct cash transfers to the poor, saying this would help reduce corruption by breaking the "cycle of dependence".

A cash transfer is a development project stripped of any active management costs, and its performance tracks the success or failure of the individual recipient. Cash Transfers are examples of certain transfer payments include welfare (financial aid), social security, and government making subsidies for certain businesses (firms)  into the bank accounts of beneficiaries, cutting out intermediaries. Cash Transfers: Sorting Through the Hype puts a balanced light on the whole exercise.

There are pros and cons attached with Cash transfers. The popular myth that “the poor people don't know what is good for them”. That, in my opinion, is derogatory. We should stop worrying that the poor are going to spend (or “waste”) their transfer income on alcohol and tobacco. They aren’t. They might buy some chocolate, though. A proper study can has been done : Do the Poor Waste Transfers on Booze and Cigarettes? No. The cash transfer is taking away discretion of government officials on taxpayers money spent in the name of welfare. Financial cost of social justice and and their concerns that the poor can't be taken without economic freedom. See more at Whose money is it anyway? to understand another side of the debate on welfare state and individual freedom.

There are two major school of thoughts under Direct Cash Transfer (DCT) - CCT and UCT.  Unconditional Cash Transfer (UCTs) consist of cash grants with means testing to ensure funds go to the intended recipients, but without extra requirements on recipient behavior. The downside of unconditional cash transfer (UCT) is in distributing money without increasing the productivity and skills of labour force in rural india. But we can see the partial benefit of Economic Freedom associated with the “distributor of welfare funds”  through cash transfer. The economic freedom to utilize funds in an unique and distinct way by each beneficiary is an important aspect of building better markets.

CCT always have strings attached of a certain criteria to be fulfilled.  The advocates of CCT pitch for skill transfer with money as sustainable economic growth cannot be created by simply distributing money or as some economists like to put it by “dropping money from a helicopter”. Both CCTs and UCTs require the beneficiaries to be linked to bank and can access financial services. But there are reports that the government’s much-hyped Direct Benefit Transfer programme has hit a roadblock. In the current situation, the current electronic system and incentives are structured, the agent has not been incentivized to offer financial services.

Only government can offer reach to the poor that is effective nature of state. while market will always go for person with better information and resources for efficiency. The social transfers together with the wages and pensions form the Government- to -person (G2P) payments. Could this ecosystem of government-to-person (G2P) payments enable or lead to financial inclusion? Even working one year  in the field of development, the blatant  truth is, I don't have solid clue of what the poor need. Sometimes its cash, sometimes skills. As per me,  DCT can serve both purpose as a seed capital in a business for enterprising individual or as a social safety net of whole family

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