Press Release – Bicycles preferred to cash in Bihar

Despite the success of the cash-for-bikes programme in Bihar, more than half of recipient households would prefer to receive the bicycles outright.

The research, presented by Maitreesh Ghatak (London School of Economics) at the International Growth Centre’s South Asia Growth Conference 2013 argues that poorer beneficiaries of the Mukhyamantri Cycle Yojna (Bihar Chief Minister’s Bicycle Programme) would prefer to receive the bicycles outright rather than continue with the current cash-for-bicycles design because they may have needed to use their own savings to buy the bicycles. Those who live very far away from bicycle stores were also less likely to prefer cash over kind transfers, due to the logistical difficulties in purchasing the bicycles.

Under the current design of the scheme, which 90% of respondents claimed to be satisfied with, beneficiaries are supposed to submit the receipt for the purchase after receiving the money from their child’s school However, the survey shows that around 30% of beneficiaries had to submit receipts even before they received any money, meaning that these families had to either make the purchase using their own funds or arrange for fake receipts, which can be especially burdensome for the poorest. Given that 98% of beneficiaries had to pay on average an additional Rs 979 for their bicycles and the delays in reimbursing these costs for around half of beneficiaries by at least six months, it is not surprising that only 45% of respondents would prefer to receive cash rather than a bicycle itself.

Background

The Mukhyamantri Cycle Yojna scheme is one of the very few conditional cash transfer programmes in India, which provides money to purchase a bicycle to every student who is enrolled in standard nine of a government run/aided school in Bihar. This programme was launched in 2006 for all the girls enrolled in standard 9 in a government school. Under this scheme, the eligible students were provided Rs 2,000 in cash to buy a bicycle. In 2009-10, the boys were also included under the scheme and the money per student has been increased to Rs 2,500 from academic year 2011-12.

Key findings

  • The scheme has performed well in terms of coverage rate, curtailing direct forms of corruption and utilisation rate, with 90% of beneficiaries reporting they had no grievance with the programme and 98% confirming that the cash transfer had been used to purchase a bicycle.
  • However, only 45% would be happy for the scheme to continue as it is while more than half would prefer to receive the bicycles outright.
  • Implementation of the cash transfer programme could be improved to reduce the burden of households who supplement the transfer received to purchase the bicycles, but also reduce delays in reimbursement and explore alternatives to the current policy on submission of receipts.
  • 72% of beneficiaries used their own savings to supplement the cash transfer while 25% had to borrow money to afford the purchase.
  • Beneficiaries who belong to villages that are very far from a bicycle store were less likely to prefer cash over in-kind transfers.

Policy implications

These results suggest that even a well-functioning cash transfer programme would affect beneficiaries differently. An ideal cash transfer programme should take into account the varied needs of households e.g. so that poor households should receive more money under this programme so that they don’t have to borrow the additional money required to purchase a new bicycle from market. Similarly, households who live in remote villages should be compensated for the relatively high transportation cost they incur to purchase a bicycle.

However, this creation of exceptions increases possibilities for implementing officials to misuse power and funds. Such exceptions could also confuse beneficiaries or create divisions between them. Therefore there is a trade-off between making a transfer programme responsive to the needs of the beneficiaries and the level of leakage and corruption.

Research aim

The aim of this research was to determine the beneficiaries’ preference between different forms of transfers—unconditional cash transfers, conditional cash transfers, and in-kind transfers—for different types of goods and services to identify factors that play an important role in shaping their preference regarding the form in which they would like to receive benefits from the government. This information would be very useful in designing transfer programmes in a way that responds to people’s need.

Research method

The primary survey was conducted in 36 villages, spread across six districts of Bihar, during September-October, 2012. Multistage sampling technique was adopted to select the districts, villages and households. 840 beneficiary households were then surveyed to ascertain their preferences with regards to the scheme.

Researchers

Maitreesh Ghatak is Professor of Economics and Political Science at the London School of Economics and Political Science.

Chinmaya Kumar is a Country Economist for the IGC’s Bihar programme and holds an MPhil degree in development studies from the University of Oxford.

Sandip Mitra is a researcher at the Indian Statistical Institute in Kolkata.

 

This statement was issued at the South Asia Growth Conference 2013, held in New Delhi, India.