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India Experiments With Cash Assistance Program

India Experiments With Cash Assistance Program

With social programs across the world, corruption and inefficiency are always an issue. In India, the Public Distribution System, or PDS, is the largest network that provides food and other necessities to the 350 million who live below the poverty line. Economists have recently begun to formulate an experiment to get aid directly to the hands of recipients in the form of checks that they can spend as they choose.

PDS currently uses ration cards which allow people to buy grains at a cheaper price. However, there are quite a few middlemen and illegal happenings which can end up leaving anywhere from five percent to 15 percent of the original amount to the ration cardholder. With this new proposition, however, the government must deal with many theories and statistics of failure and the possibility of biting off more than they can chew.

The cash system would require recipients to open bank accounts. Only 40 percent of Indians currently have a bank account due to the impracticality of it for rural dwellers who either do not have close access to a bank or are not able to pay the fees required to have one. The idea of banking correspondents has been suggested to counter this issue. These correspondents can be explained as human ATMs who physically go to villages and customers, allowing them to withdraw money.

Reetika Khera, an economist from the Indian Institute of Technology conducted a survey asking PDS users their preference for food vs. cash. Although two-thirds said they preferred food, Paul Niehaus of GiveDirectly (an NPO that works to transfer donations electronically to poor Kenyans) warns that surveys are not the best way to test the theories. Most people who are a part of PDS have been living in a paternalistic system, as Indian economists say, where they have become comfortable and accustomed to the ration cards and are told how to spend their benefits.

These cash systems have been implemented in Mexico and Brazil where families must meet certain benchmarks and goals in order to receive their benefits. Although India’s population is significantly larger, certain states which have already put this new system to use have noticed an improvement in the distribution of funds and a decrease in corruption.

– Deena Dulgerian

Source: Co.EXIST, NY Times