By Vinod Thomas
Cash transfers to the poor gained respectability worldwide as a way of reducing poverty when programmes, in recent decades, targeted the extreme poor and made transfers conditional on beneficiaries meeting education and health requirements.
Compared to these conditional cash transfer (CCT) programmes, Congress’ Nyuntam Aay Yojana (NYAY) proposes a guaranteed minimum income in India. It stands out not only for its scale, scope and vision, but also for the gap to be filled in identifying India’s extreme poor and establishing conditions necessary to make the transfers effective.
Sound targeting of the extreme poor will vastly lower the fiscal cost of NYAY. And well-set conditions for receiving transfers will help it turn the cash transfers into investments in people. Requirements in CCT schemes have included regular school attendance and health check-ups for children and expectant mothers. India can draw on global experience, particularly from Mexico and Brazil, the first countries to use the scheme.
Both were under pressure to reduce unacceptably high inequality in income, basic education, public healthcare and social protection, urgent issues for India as well. Their programmes envisioned that social protection could be designed to promote investment in the human capital of the poor, a huge priority for Indian states.
Mexico’s Oportunidades programme, founded in 2002 and now rebranded as Prospera, covers some six million families (17% of the total) and Brazil’s Bolsa Família, 14 million families (20%). Over 40 countries have introduced their versions of CCT, including middle-income ones like Chile, Indonesia, South Africa and Turkey.
CCT schemes have helped increase schooling — although learning outcomes remain a serious deficit — and helped improve aspects of basic health. With school access expanding under Right to Education in India, the big gaps are learning quality and secondary education. In the 10 years since Bolsa Família was launched, the percentage of Brazilians in extreme poverty fell from 9.7% to 4.3%.
The Brazilian CCT approach is to provide a certain basic support and a variable part to all who fall below the extreme poverty line. If there is a shortfall even after the cash transfer, the family is eligible for an additional amount to reach the extreme poverty line. In Chile, the basic cash transfer follows a similar logic and is equivalent to 85% of the distance between the poverty line and the actual income of each family. But the Philippines has a fixed amount per child for a maximum of three children, or about $360 per family.
Compared with a UBI, the fiscal cost of Brazil’s Bolsa Família is limited by addressing only the gap between the poverty line and people’s incomes, rather than giving a certain transfer to all poor. The Brazilian programme benefits some 50 million people. At an annual cash outlay of $264 per person, the total outlay is 0.6% of GDP, similar to the 0.5% in the Philippines, and typically much less than NYAY.
To determine people’s eligibility, Brazil established a central registry for 40% of Brazilian households (some 80 million people), income and living space. The allowance is given through ‘citizen cards’ mailed to the families. Such detailed accounting is daunting, especially as people move in and out of poverty over time. But India’s progress on identification of citizens is enormously helpful. It would be difficult to give a payment of the size of its poverty line — that is, if the poorest 20% of Indian households are to receive Rs 72,000 ($,1050) annually as part of the scheme.
If 50 million families were to directly benefit, NYAY could cost $52 billion, or 2% of GDP (while currently existing consumer subsidy schemes are 3% of GDP).
This cost can be cut through tight targeting to comply with the income criteria, and switching to topping up to bring actual incomes to the poverty line. That would also address the dilemma of the income plus transfer for the poor, in cases exceeding the income of the non-poor.
Equally important for an Indian programme would be to build in value for money, by tying the disbursements from the scheme to evidence collected of household spending in basic education and basic health. Simple, but rigorous, criteria can be laid out on visits to clinics, check-ups and vaccinations, as well as school attendance and school completions for a family’s eligibility.
The two sides of the same coin that can make income transfers to India’s poor a sound proposition are the targeting of beneficiaries to contain costs, and ensuring that conditions for receiving transfers are met to get a developmental return on this investment. On both scores, the very promising thought behind NYAY needs careful work to ensure strong results on the ground.
The writer is former senior vice-president and country director for Brazil, World Bank.