Stating that the introduction of direct cash transfer instead of food or other subsidies will be “a game changer” for the economy, World Bank chief economist Kaushik Basu said here on Wednesday that the money handed out must be “indexed” to adjust for increase in prices of commodities so that the buying power of the poor would remain unaffected.
“That is exactly the idea. When you switch over to direct cash transfer [from subsidies], you index it so that it does not erode with inflation, people have the same buying power and this is extremely important,” said Dr. Basu, former Chief Economic Advisor to the Ministry of Finance, when asked about how the scheme would account for the rising prices of commodities.
‘Give it to women’
Speaking to journalists on the sidelines of the India Finance Conference 2012 at the Indian Institute of Management (IIM) Calcutta, Dr. Basu said it would not fuel inflation but women must be given the money to ensure that it was spent well.
Asked about the other side-effects that may emerge from the scheme such as the poor spending the subsidy on gambling or alcohol instead of essentials, Dr. Basu advocated the idea of handing the money to women instead of men. Studies conducted in India as well as in the United Kingdom have shown that women spend money more judiciously, he said.
He said that when deciding on policy matters, “we cannot be endlessly paternalistic with the poor and say that we will take their decisions.”
“We have to rely on them a little bit by saying, ‘look, we are giving you benefits, you have to take your decision. And it is better to have the poor misuse the money than to have the intermediary steal the money and misuse it,” he said.