A year-and-a-half-long experiment with universal unconditional cash transfers by SEWA and UNICEF in 22 Madhya Pradesh villages has shown that the poor do use cash for better schooling, health and food. Cash transfer schemes can work accoding to this study.

Renana Jhabvala, president of SEWA Bharat, and Guy Standing, professor at the School of Oriental and African Studies, who worked on the study, presented the preliminary findings to an audience that included Planning Commission deputy chairman Montek Singh Ahluwalia last Thursday.

About the study: The field experiment, which began in January 2011, covered 20 villages in Indore district of which 8 received monthly cash grants and 12 did not, as well as an additional two tribal villages in which one received the cash transfer. It covered 15,000 people. Every individual in the family received a cash transfer – Rs 300 per adult and Rs 150 per child. At the end of the period of the experiment, researchers found that households receiving cash transfers were able to spend more on schooling, women were able to visit doctors and eat better food. There was no increase in spending on bad habits such as excessive alcohol consumption, for example.

As published in the Times of India, Mr. Ahluwalia has said that since the study did not involve the substitution of any existing government schemes with cash, it has not been able to show that cash is better than state-provided services. The study does not address the issue of whether this should mean a move away from the PDS. It only shows is that with slightly higher incomes, households spend on important things like schooling and health, and not alcohol.

According to Guy Standing, “SEWA and UNICEF have been implementing a cash transfer pilot scheme in which the cash provided has been a small top-up to existing subsidies. As a result, nobody in the villages is worse off than before. There have been teething problems associated with opening bank accounts and with learning how to use the cash. But these have taken place in an atmosphere of net gain for the recipients. As people have learned to adapt, support has grown not only for the idea of cash transfers but for substitution for rationed items. As a result, planners could now implement a substitution scheme in those villages that would be welcomed, would improve welfare and save government money.”