Introducing Conditional Cash Transfers in India: A Proposal for Five CCTs

1. 1 Introducing Conditional Cash Transfers in India: A Proposal for Five CCTs Santosh.mehrotra@nic.in Director-General, Institute of Applied Manpower Research, Planning Commission

2. 2 Structure of Presentation Why we need CCTs 3 minimum requirements for CCTs to succeed Five types of CCTs proposed A minimum income guarantee A conditional maternity entitlement Converting SNP of ICDS into cash transfer Replacing food subsidy in PDS into cash A cash transfer to youth for skill development The cost and how to finance them

3. 3 MAJOR SUBSIDIES IN INDIA (Rs cr)

4. 4 Why we need CCTs? High cost of food, fertilizer and fuel subsidies (3Fs)� better ways to reach poor? Obj: diversion of subsidies going to non-poor to CCTs Number of poor not declined in 30 yrs, despite many decades of redistributive programmes (RD and 3Fs) explore alternatives (not substitutes) to redistr progs, while still trying to improve design of e.g. SGSY, Nrega, ICDS, PDS, etc) Despite largest no of poor in world, we have no soc ins (SI) or soc assistance (SA) � unique among developing cos Despite much larger share of unorganized sector in emp than LAC MICs and Asian tiger economies, no SI or v little SA Reliance upon redistributive progs alone has not served poor well

5. 5 3 requirements for CCTS to succeed CCTs shd target BPL, hence correct identification of poor is critical Biometric or at least photo identification system of poor Bank or PO account for all poor beneficiaries

6. 6 POSTAL SERVICES: Area Served per Sq. Km.

7. 7 CCT 1: A minimum income guarantee The Problem: of 90 mn farmer hholds, half are indebted. Small/marginal farmers (SMF) are 80% of indebted farmer hholds 1/3 of large farmer debt is to inst lenders; BUT � of SMF debt to moneylenders, two-thirds at rates >20%pa. Most debt for consumption purposes, hence they can never emerge out of debt On top, they suffer repeated exogenous shocks of flood, drought Hence, needed a minimum guarantee to ALL BPL � to emerge out of debt, build savings, thus build assets

8. 8 CCT 1: cash transfer of Rs 250pm (?) per hhold For 5 yrs for bottom quartile of BPL For 4 yrs for next quartile of BPL For 3 yrs for next quartile of BPL For 2 yrs for highest inc quartile of BPL CONDITIONALITY: in woman�s name; only 50% of it can be withdrawn in a yr (to help build savings), otherwise freedom to use for whatever purpose

9. 9 Must be accompanied by social insurance Cost of social insurance to be added Bill for Soc Secy for Unorganized Sector passed last Parliament: insurance shd cover life, accident, disability, and Assets: house, implements, livestock to cover loss in drought/flood RSBY health insurance to be universalized

10. 10 CCT2: Conditional maternity entitlement Already in 11th Plan; allocated Rs 9000cr Benefit: Rs 4500 total for starting prior to delivery, continuing for a few months after delivery Eligibility: pregnant and lactating mothers, for first 2 children only Pilots to start April 2010: pilots necessary for each CCT to fix design problems, ensure success

11. 11 CCT2: Objectives Wage compensation for pregnant/nursing mothers to give them rest Additional income to supplement nutritional needs Incentivise ANC, PNC, Breastfeeding (?), immunization � these are conditionalities � too many?

12. 12 CCT2: will health services be able to respond? In states with good public health services, supply impact may be to improve services In states with poor public health services, supply inefficiency may frustrate beneficiaries

13. 13 CCT3: Converting part of Supplementary Nutrition in ICDS to cash transfer The CCT would be part of a package of reform of ICDS � as CCT 2 is for health services ICDS Reform: shift health services to health providers, reduce AWW workload; focus ICDS on PSE and creche activities CCT3: Provision of food takes 2 forms: SNP THR (0-3) and Hot cooked meal (3-6 yrs); to be split, converting THR to cash (Rs 8000 cr in 2009/10 centre+st) MUST be accompanied with counselling about introduction of solid, mushy food at 6 mths, other advice for pregnant/lactating mother

14. 14 CCT 4: Cash to replace food subsidy (Targeted Public Distribution System) Food subsidy size in 2009/10 is Rs 43 000 cr Instead of allocating cereals and sugar under TPDS to BPL, convert food subsidy TO cash transfers Cash subsidy shd be first piloted in cities: have enough private shops & FPSs to ensure choice and competition Cash transfer no substitute for PDS reform � esp to ensure good availability of grain at stabilized prices in ALL states hence FCI operations at MSP to continue � a requirement for proposed National Food Security Bill to succeed

15. 15 CCT 5: Cash transfer to youth to raise skill development demand Skill Dev Mission to shift away from supply-driven strategies for SD to demand-driven Only 10% of workforce receives any trng, formal or informal; need to raise demand for trng � offset opportunity cost of wages foregone to school drop-outs Supply of infrastructure for VET set to be raised in 11th Plan

16. 16 CCT5: To fund SD of SC/ST/Minorities/BPL in two parts A monthly stipend to be paid to each trainee (to offset opportunity cost of lost wage earnings by entering lab mkt at low wages) Fee subsidisation at end of progr given to institute after placement. So incentive to inst as well

17. 17 Where will resources for CCTs come from? Four already funded: Mat benefit in 11th Plan; SNP in ICDS; Food subsidy in TPDS; SD in Skill Dev Mission CCT1: Minimum income guarantee can be funded from rationalizing fuel subsidy for LPG and Kerosene

18. 18 Subsidy on LPG and Kerosene to be restricted to BPL � 2 Reforms Needed LPG: all APL shd pay market price, but rural and urban BPL could receive 6 cylinders subsidised a yr � externalities in reduced pollution Kerosene for lighting and cooking distributed in 2 ltr polypacks packed before they reach refinery gate Resources released by 2 actions alone are Rs 15-18 000 cr = CCT1 cost

19. 19 CCTs: Component-wise