Subsidies or Cash Transfers?

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.