A complement, not a substitute

There is a good deal of ill-informed enthusiasm about “conditional cash transfers” (CCT) among Indian policy makers, based on a superficial understanding of the Latin American experience. In Mexico, Brazil, and other pioneers of this approach, conditional cash transfers were developed to bring a fringe of poor households into the fold of health and education services, which were not being utilised by these households for various reasons.

Conditional cash transfers are basically an incentive. Surprisingly, it works: if you pay people to do something that benefits them, they do it. It works in the same way as scholarships for disadvantaged children do. But there is no evidence that cash scholarships, that is, conditional cash transfers, work better than conditional kind transfers like school meals or free bicycles for girls who complete class eight.

I am not questioning the potential effectiveness of CCTs in their limited capacity as an incentive. However, a note has to be taken of other features of CCT in Latin America. First, their programmes are aimed at a smaller chunk of the population, usually the rural sector which is excluded from education and health care. This section is easy to identify in Latin America. In India, though, a much larger chunk of the population is in dire need of social support, and the experience with “targeting” of poor households is quite sobering.

Second, CCTs in Latin America are seen as a complement, rather than a substitute, for public provisions of health, education and other basic services. The incentives work because the services are there in the first place. In India, basic services like health are still missing to a large extent, and CCTs are no substitute.

An illusion has developed in some quarters that CCTs can replace public facilities by enabling recipients to buy health and education services from private providers. This is not how conditional cash transfers work in Brazil or Mexico. Third, while CCTs have contributed to health and education, they have had limited applications in the field of food security.

A wholesale replacement of India’s Public Distribution System (PDS) by CCTs cannot be justified from available experience. A nuanced approach is required to the design of social security transfers. CCTs are useful in some circumstances, specially scholarships. In other situations, there is a case for unconditional cash transfers that include pensions for widows and the elderly. Conditional transfers in kind, like midday meals in primary schools, also have a role to play. Finally, there is a place for unconditional transfer in kind—the PDS.