Cash transfers are valuable; they are not a substitute for jobs

Paper: GS – III, Subject: Indian Economy, Topic: Government policies, Issue: Cash Transfer impact on Indian Economy.

Context:

Cash transfer schemes have gained prominence in India, especially during election cycles, as a direct welfare measure aimed at empowering vulnerable groups, particularly women.

Key Highlights:

Analysis of Cash Transfer Schemes:

Prevalence and Scale:

• Cash transfer schemes are gaining popularity, especially during election periods.
• Approximately 12 states are currently implementing such schemes, with a total expenditure of around Rs 1.7 lakh crore, equivalent to 0.5% of India’s GDP.
• The amount transferred varies across states, ranging from Rs 1,000 to Rs 2,500 per month per woman in a family

Key Issues for Discussion:

• Direct Economic and Social Benefit: Do these transfers provide tangible economic and social advantages to the recipients?
• Fiscal Impact: Do these schemes strain state finances and potentially disrupt fiscal discipline?
• Role of the State: What is the appropriate role of the state in providing welfare measures and ensuring fair distribution of resources?

Impact on Fiscal Responsibility:

• The Fiscal Responsibility and Budget Management (FRBM) Act sets rules for state borrowing, ensuring fiscal discipline.
• The central question is whether unconditional cash transfers are a more effective use of resources compared to infrastructure projects, considering that both contribute to spending and growth.
• States sometimes reduce capital expenditure to meet fiscal targets, which can be seen as the cost of supporting the less privileged.

The Role of the State:

• The state has a responsibility to ensure fair distribution of resources.
• Cash transfers are a direct way to improve living standards, similar to the benefits provided by the free food scheme.
• States continue to allocate funds for capital expenditure, but these allocations are sometimes reduced to meet fiscal targets.

Limitations of Cash Transfers:

• While cash transfer schemes serve the general good, they are not a long-term solution.
• Job creation is essential for sustained economic well-being and cannot be replaced by cash transfers.

Cash transfer schemes can be valuable tools for poverty alleviation and women empowerment. However, they should not be viewed as a substitute for job creation. A balanced approach that combines direct welfare measures with investments in infrastructure and employment opportunities is necessary for long-term economic development and social progress.

https://indianexpress.com/article/opinion/columns/in-bihar-and-beyond-dont-dismiss-cash-transfers-they-serve-the-general-good-10355929

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