Conditional Cash Transfer Schemes for Alleviating Human Poverty : Relevance for India

30 Apr 2009


An analysis of design and implementation of Conditional Cash Transfer (CCT) schemes, with special reference to Latin America, and a comparative analysis of similar schemes in India.

Conditional Cash Transfer (CCT) schemes provide cash directly to poor households in response to the household/individual fulfilling specific conditions such as minimum attendance of children in schools, and/or attendance at health clinics, participation in immunization and the like. The schemes create incentives for households to adjust their behaviour towards nationally accepted social goals. In technical terms, the objective of such programmes is ‘to correct for market failures associated with noninternalized positive externalities’ (Janvry and Sadoulet, 2004, p.1). In other words, they are used (a) to incentivize private behaviour to secure positive externalities such as enhanced consumption of merit goods like health and education (b) target vulnerable groups who are unable to access merit goods due to negative income effects caused by cyclical downturns and/or exogenous shocks. These schemes have typically been used to improve school attendance by children, boost attendance at health clinics and enhance participation in immunization programmes.

Conditional cash transfers are different from unconditional cash transfers — grants to vulnerable persons/groups on the basis of certain pre-determined eligibility criteria. Social transfers such as pensions to senior citizens, the physically challenged, children, etc., are the most common unconditional cash transfers. The main difference as compared to CCT schemes is that they are unconditional programmes and do not attempt to influence individual/household consumption preferences. They recognize the vulnerability of those whom the scheme addresses and make a provision of a cash grant to enable individual/group coping mechanisms, often in response to guaranteed human rights. These constitute protective social security measures.

The concept of CCT schemes originated in Latin American countries mainly in response to the macroeconomic crisis of the 1990s when the demand for social services such as education and health from poorer households was perceived to have declined, drastically. These programmes thus represent a shift in governmental approach that earlier focused on the supply-side delivery of basic services. Instead they focus on the demand-side, by protecting the consumption of merit goods. These programmes also represent a shift from general subsidies to more sharplytargeted programmes that aim to improve human capital formation and, thereby, increase efficiency in the long-run.

The multi-sectoral and integrated nature of most CCT schemes and the prospects of tackling short-term poverty while protecting the formation of human capital/ capabilities (and thereby addressing long-term poverty) have led governments in Africa and Asia to implement such schemes as a response to reducing the daunting deprivations in multiple dimensions of human development.

For these demand-side interventions to work, the conditions associated with cash transfers must demonstrate that the transfers protect the consumption of the chosen merit goods by households who receive them. This responds to the (largely middle class) concern that distributing cash to poor households would lead them to act ‘irresponsibly’ and spend ‘handouts’ on demerit goods (non-essentials like alcohol or ‘wasteful’ consumption). While this does reflect an element of paternalistic judgement about the relative ‘responsible’ behaviour of poor vs nonpoor households, it is ultimately the household that can choose to receive these transfers by ‘deciding’ to act in a socially ‘desirable’ way. In the Indian context, such schemes avoid the negative incentives associated with subsidies such as ‘free power’ to poor agricultural households.

Such subsidies may raise the overall household consumption possibility frontier but do not impact the slope of the frontier by increasing relative expenditure on merit goods. The increasing popularity of CCT initiatives as a policy instrument is also attributed by some observers to their conspicuous nature that allows governments to demonstrate pro-poor delivery of public resources.

CCT schemes have also been positioned as instruments that directly impact income and consumption. This is an important dimension in an era of widening inequalities and the growing realization that the response of poverty to economic growth is much lower in countries with a high degree of inequality. Since conditional transfers are instruments that compensate for market failures, a successful CCT programme can contribute to a reduction in inequality and enhance investment in human capabilities that in turn can halt or reverse the intergenerational transmission of poverty (de la Brier and Rawlings, 2006).

Such transfers are of particular contemporary policy relevance in India which despite its high growth performance lags with respect to alleviation of various dimensions of human poverty. The situation of people belonging to Scheduled Castes and Scheduled Tribes groups with respect to education, health and nutritional attainments is particularly low (see Table 1). The disparity among regions between rural and urban areas as well as between social groups is widely seen as a constraint in the achievement of Millennium Development Goals by the year 2015.

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