Bite this: Survey proves cash transfer critics wrong

first published in firstpost.com: http://www.firstpost.com/economy/bite-this-survey-proves-cash-transfer-critics-wrong-829793.html

Cash transfers to the poor, so the cynics would have us believe, are a bad idea because they will be misused. Men will divert money for food, education and health to alcohol and tobacco consumption. Don’t think, they say, that giving money to the woman in the household will check this. She doesn’t take decisions in the family and she won’t have the power to check the man. But a survey based on two pilot projects on cash transfers in nine Madhya Pradesh villages from June 2011 to January 2012, jointly conducted by trade union body SEWA Bharat and UNICEF, rebuts almost every charge that the cash transfer pessimists throw at this alternative method of delivering welfare benefits to the poor. 

Bite this. Cash transfers did not increase spending on the ‘private bads’ in the project villages. On the contrary, ‘good’ spending increased across a range of expenditure heads – education, health, food and sanitation.

And chew on this. The proportion of underweight children came down; incidence of illnesses came down; the number of children working as wage labour fell; wage labour among adults too declined and self-employment increased; and indebtedness reduced. 

“Cash has a transformative effect by unlocking constraints to development,” Guy Standing, of the School of Oriental and African Studies, University of London, who led the survey said while presenting the preliminary findings at a conference in New Delhi.

The first pilot, Madhya Pradesh Unconditional Cash Transfer (MPUCT), covered eight villages, while the second, Tribal Village Unconditional Cash Transfer (TVUC), was conducted in one tribal village. In both pilots, the behaviour of the beneficiaries was compared to that of people in other villages (12 in the case of the first pilot and one in the case of the second) who did not get any cash handouts. The cash transfers were unconditional and universal. That is, every single person (a total of 6,000) in the pilot villages around Indore were given monthly cash grants – Rs 300 per adult and Rs 150 per child – without any conditions about how they were to spend it. They were free to use it in any way they wished. “Conditions,” noted Renana Jhabvala, president of SEWA Bharat (part of the SEWA family), “lead to corruption and harassment.” 

Freed from any nanny-like supervision, people who got cash handouts showed they could be quite responsible in spending it. Education got top priority, with those in the cash transfer villages spending 40 percent more on schooling than non-cash transfer villages. Though only 40.2 percent of households in the cash transfer villages had a school within one km distance of their homes, the children spent less time in commuting as compared to those in non-cash transfer villages, where 48.3 percent of households had a school within 1 km distance. The fact that those in the cash transfer villages were spending more on transport to send their children to school is evident from the 10 percent difference in transport spend between the two sets of villages. That is probably why, though there was no significant difference in enrolment in cash transfer and non-cash transfer villages in the baseline study, the final evaluation study showed a 11 percent increase in enrolment in the former set of villages. There was also an increase in spending on uniforms, books and stationery. 

People also started spending more on foods higher in the value chain, with 52.6 percent buying more fresh vegetables and 63.9 per cent buying more milk than before. In the tribal villages, households reporting sufficiency of food increased from 51 percent to 82 percent between the baseline and final evaluation survey. With better nutrition and better basic living standards (31 percent of cash transfer villages spent on changing their toilets, and more people switched to electricity and gas for lighting and cooking), health indicators also went up. In the cash transfer villages, 47.4 percent households reported no illnesses in three months prior to the survey against only 34. 6 percent in the non-cash transfer villages. 

With women getting money in their individual capacities, there was a 33 percent increase in them getting medical treatment for illnesses. Women also took medicines more regularly, whereas earlier there were spikes in medicine intake depending on the availability of money. More importantly, the physically disabled in homes got better treatment. The survey showed 48 per cent disabled individuals in the cash transfer villages was hospitalised for treatment against only 2 per cent in the non-cash transfer villages. There was also an increase in resort to private healthcare, showing that cash grants gave people more choice. 

Another criticism against cash transfers as an income support measure is that it discourages people from working. (It’s another matter that they don’t subject the National Rural Employment Guarantee Scheme to the same criticism.) The survey showed that wage labour accounted for 40 percent employment in cash transfer villages against over 50 per cent in non-cash transfer villages. The proportion of self-employment was higher in the former against the latter. Many families, the survey showed, used cash grants to buy tools (ranging from sewing machines to seeds and fertilisers) or livestock to increase production. 

Does this mean that the debate over cash transfers has been definitively decided in its favour? Not quite. These findings need some caveats. As NC Saxena, member of the National Advisory Council, pointed out at the conference, the cash transfer in the project was an additional sum that people got and was not a substitute for subsidised government schemes. So it gave people extra cash, which made it easier for them to make choices. Would that same effect have been possible if the cash transfer had been accompanied by a withdrawal of a public service, whether it is ration shops or government clinics or schools? 

The area around Indore was also more prosperous and developed, increasing the chances of positive findings. Sonalde Desai of the National Council of Applied Economic Research, who gave the expert response on the findings, noted that the survey results should take into account the bias factor in the perception-based responses – people would tend to paint a rosy picture when quizzed on the benefits of any cash support. 

But the value of the pilots and the survey is that this is the first-ever attempt to cut through the ideology-driven posturing on cash transfers and pave the way for policy making based on hard empirical evidence. And that is a big, big step forward.

I subsequently wrote a more detailed piece on this for Forbes India. Here is the link to that.http://forbesindia.com/article/real-issue/direct-cash-transfers-what-money-can-buy/35525/1