Cash transfer versus in-kind transfers: A conceptual framework and preliminary evidence

In the last few decades, there has been a growing interest in the use of cash transfer (CT) programmes as a policy tool to achieve a wide range of developmental goals, in contrast to directly provision by the government. Yet, the Indian government’s plan to replace some of the in-kind transfer (IKT) programmes – which also includes the public distribution system (PDS), with a CT programme has been fiercely debated within the country.

The proponents of the CT approach (eg. Kapur et al, 2008) argue that most IKTs have failed to deliver simply because their implementation requires active involvement of the public administration, which is generally unaccountable to people and is marked with weak capabilities at the local level. In addition, other criticisms against IKTs include various forms of corruption and leakage, supply of substandard quality, and to the extent local governments are involved, political bias in distribution. The supporters of IKTs, on the other hand, point out a large number of disadvantages inherent in a CT programme – misuse of money, price fluctuations in the underdeveloped rural markets, greater vulnerability of women and elderly – and argue that reforming the existing programme is a more sensible approach than replacing it completely with a CT programme (Khera, 2011; Ghosh, 2011; Shah 2008).

Unfortunately, the debate is becoming increasingly polarized, and the tendency to argue either for or against the cash transfers has diverted attention away from understanding the reasons as to why a particular transfer programme works or fails in a given context. This paper by Ghatak et al. attempts to fill some of the gaps in available evidence by studying the performance of a conditional cash transfer scheme in the Indian state of Bihar, called Mukhyamantri Cycle Yojna (Chief Minister’s Bicycle Programme), which provides money to purchase a bicycle to every student who is enrolled in standard nine of a government run/aided school.

Ghatak et al’s results show that although the bicycle programme has performed well in terms of coverage rate and curtailing direct forms of corruption, a large majority of the beneficiaries stated their preference in favour of receiving the benefits IKTs instead of cash transfers. The researchers then provide some empirical-based and theoretical explanations for why, despite the current programme’s success, beneficiaries would prefer IKTs.

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