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Subsidies or Cash Transfers?
- In the 2011-12, the FM made announcement for replacing some subsidies on goods with cash transfers
- Cash transfers can be conditional or unconditional; targeted or universal.
- The purpose of cash transfer schemes is to provide poor people with money and give them the freedom to choose what to do with it.
- Problems
- Who get the transfers? How much do they get?
- If they are universal, the money is usually spread around rather thinly, so they account for very little
- If they are targeted, then the familiar problems of targeting (unfair exclusion, unjustified inclusion, large administration costs, possibilities of leakage) all become significant.
- For cash transfers to be effective, they have to be
- Assured
- Relatively easy to deliver and monitor
- Large enough to affect household income
- Progressive redistributive transfers are desirable
- The question is not whether or not to oppose cash transfer in general, but rather what specific importance to give them in an overall strategy of development and poverty reduction
- Cash transfers should not replace the public provision of essential goods and services but rather supplement them.
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