Row over AAP’s cash transfer promises ahead of the Delhi election raises a question: Are these schemes effective welfare measures or born of a short-term transactional politics?
Jan 3, 2025 07:30 IST First published on: Jan 3, 2025 at 07:27 IST
The idea of cash transfers as part of larger social protection schemes is not new and has been used for different purposes in different countries. In most cases, this was meant to be a safety net for disadvantaged groups or to encourage better access and utilisation of health and educational services. In India, one of the oldest national cash transfer schemes is the National Social Assistance Programme (NSAP), which provides pensions to the elderly, widowed and disabled who are unable to participate in economic activities. But cash transfers have now become the new magic wand that can be used for any problem. For political parties, it is the go-to solution for anything from women empowerment to agrarian distress to unemployment to poverty alleviation. Whether these actually deliver on the issues at hand is hardly a consideration as long as they deliver on the political front. On this, incumbent governments, as well as opposition, seem convinced: This is the magic formula that delivers success. The assembly elections in October-November seem to have reconfirmed this unwavering belief in the power of cash transfers.
The success of incumbent parties in Maharashtra and Jharkhand appears to be the result of such cash-transfer schemes directed towards women. There are now more than 10 states that have either implemented or announced such schemes. In almost all cases, the schemes were initiated just before the elections and led to the incumbent governments returning to power in the state legislative elections. While women may have emerged as the new political constituency, the idea of throwing cash at problems that are difficult to resolve has become an accepted principle. This was successfully used by states such as Telangana and Odisha to deal with agrarian distress. It was then adopted by the central government by expanding the scheme to all farmers in the run-up to the 2019 general elections as PM-KISAN. States have now tried using cash transfers as a solution to the unemployment problem with several of them either promising or actually implementing schemes for the unemployed.
The temptation to use cash transfers as the one-size-fits-all solution for political parties is many. With universal access to financial services, these are easy-to-implement, tangible benefits for voters, directly delivered to beneficiaries. The success of the scheme is also due to the preference of beneficiaries for such cash transfers as they are fungible and unconditional. Most importantly, these bypass the notorious state and central bureaucracies and the local middlemen. In a way, these are the best way for politicians to connect to their electorates directly.
While the ease of implementation and direct tangible benefit to voters is what makes it politically successful, there is no evidence of whether they actually deliver on the purpose for which they are designed. On women empowerment, a study by J-PAL on 20 cash transfer schemes in Latin America found the evidence inconclusive. The same is true for cash transfers to farmers. The limited evidence available from multiple sources suggests that farmers’ income has declined in real terms after 2018-19. Farmers have increasingly been agitating for better and remunerative agricultural policies.
It may be too early to examine the impact of cash transfers in the short run. However, the issue is not the success of these individual schemes but the basic premise that cash transfers can resolve all problems. Such an approach trivialises the complexity of the issues at hand. Most reforms require policy interventions, which are unlikely to result in any tangible gain in the short run, and require consensus-building across stakeholders and carefully-designed interventions with active participation and investment from the government machinery. For governments with a short-time horizon between one election and the next, the effort is not worth the benefits that cash transfers deliver in the short run.
However, this is not to argue that all cash transfers are undesirable. Many, including the National Social Assistance Programme (NSAP), have been useful as essential social protection nets. Similarly, maternity-entitlement schemes or scholarships have helped households and communities to achieve better human-development outcomes. But in almost all cases, these are not substitutes for greater investments by the state in ensuring the availability and accessibility of essential services such as health, education and nutrition. Rather, these work as complimentary incentives for households/communities to access these services.
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On the contrary, it has led to a tendency towards competitive populism with political parties and governments vying with each other to increase the scale and scope of such transfers. One consequence of this has been the excessive fiscal strain on state and central government finances at the cost of essential spending on health, education, nutrition or basic infrastructure. While new cash transfers have been announced, spending on existing basic social protection such as the NSAP, Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) or the maternity-entitlement scheme remains frozen with decline in real terms. What is needed is a nuanced understanding of the role of cash transfers in supplementing and expanding the social safety nets rather than a quick-fix solution guaranteed to deliver political dividends. The costs of such profligacy in the long run are likely to be much more harmful than the short-term benefits they deliver.
The writer is associate professor, Centre for Economic Studies and Planning, School of Social Sciences, JNU, New Delhi
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