Media365
Few ideas have gripped Indian politics in recent years as strongly as direct cash transfers. According to Crisil Intelligence, 17 of India’s 28 states and one Union Territory (Delhi) today are sending small monthly sums directly into the bank accounts of people, often women. The political logic of putting money in the hands of the poor with no strings attached is matched by solid evidence of its effectiveness. Studies done around the world — from Asia and Africa to Latin America — have shown that money-in-hand works.
But India has limited fiscal space — states spend nearly 80 per cent of their revenues on salaries, pensions, subsidies, and interest payments. It needs to take a closer look at designing cash transfer programmes so they function both as a safety net as well as a springboard for long-term productivity and dignified lives.
Direct transfers have emerged as a powerful poverty-fighting instrument because it gives households the freedom to decide what to do with the money. Giving people cash neither makes them lazy, nor does it lead to increased spending on alcohol, cigarettes, or other vices, as many fear. An analysis of over 115 studies across 32 countries found that unrestricted cash support improved food security, increased income and savings, boosted spending, and enhanced psychological well-being.
And yet, research suggests poverty’s multidimensional nature makes a one-size-fits-all approach counterproductive. An individual who doesn’t get enough nutritious food and lives in unsanitary conditions is also at high risk of falling sick. Holding on to a job and having a steady income can become difficult. India’s ambition to become a developed nation by 2047 will succeed only if those at the margins are part of this journey. For that, cash grants can be complemented with programmes that help build sustainable livelihoods.
The Government of India is responding to this reality now, blending access to capital with skill-building, especially for the poorest of the poor. India’s Ministry of Rural Development launched the Samaveshi Aajevika Yojana under Deendayal Antyodaya Yojana–National Rural Livelihoods Mission (DAY-NRLM), drawing inspiration from Bihar’s Satat Jeevikoparjan Yojana (SJY) — a livelihoods programme for women that has reached 200,000 of the state’s most vulnerable households since 2018. These programmes are based on NGO BRAC’s Graduation Approach model that combines direct transfers with a comprehensive livelihoods support package for up to two years. It includes a productive asset such as livestock or small items for trading, training to run the enterprise, and mentorship to handle personal finances and healthcare needs.
The Graduation Approach is premised on the theory that the poorest of the poor need a “big push” to successfully and permanently move out of poverty. A study in Uganda by Innovations for Poverty Action researchers found that the model outperformed unconditional cash transfers for people living in extreme poverty.
The model offers an important lesson for social protection: Cash transfer programmes should be tailored to the specific needs and constraints of different groups. This requires careful evaluation and research to identify what types of cash transfers work best, and for whom.
The effectiveness of cash transfers depends also on the timing, frequency, and conditions attached to them as much as the money itself, the recently launched Handbook of Social Protection notes. Research shows that cash transfers deliver larger gains in human capital accumulation when people receive them in their early years rather than later in life. Graduation Approach’s global success shows that a lump-sum amount can have a transformative and sustained impact on people’s lives. Monthly payments help families manage daily needs, but sizable one-time transfers can help build a stable future.
In Bihar, the package of support helped women turn themselves into entrepreneurs. Though modest — mostly shops selling groceries and food — these businesses gave women a shot at a secure future, dignity, and self-confidence. Many made day-to-day business decisions independently. They also reported feeling much more comfortable engaging with the wider community.
There is a strong moral and ethical case for money transfers in a country like India where 20 crore people are still living in multidimensional poverty. And an impressive digital public infrastructure has made direct cash deposits both feasible and efficient. But as Bihar’s experience shows, even the poorest of the poor are capable of becoming active contributors to India’s growth. India’s policy planners need to inject some creativity into designing cash transfer programmes so they lead to long-term economic gains. They must see social welfare programmes as trampolines (to borrow an idea from Singapore President Tharman Shanmugaratnam) that not only protect people from poverty but also empower them to thrive.
Dutta is former Senior Communications Manager at J-PAL South Asia and Chowdhry is Associate Director, Policy, at J-PAL South Asia
