Social Innovation: India Gives Cash Directly to the Poor

In January 2013, India will start the world’s biggest social innovation programme: giving cash directly to its poorest citizens in a bid to reduce its very large problem of corruption that stops subsidised goods and welfare benefits from reaching those who really need them. This initiative will affect at least 720 million people—a population almost the size of Europe!

The scheme is open to families who live below or just above the government-set poverty line. The Indian government expects to transfer up to 40,000 rupees ($720) a year to each poor household. Cash handouts will replace the money the government currently spends on subsidies on goods such as fuel, food and fertilizer. India plans to launch this ambitious social innovation program from 1 January, covering 18 states by April and the whole country by the end of 2013.

Several other countries have also introduced conditional cash transfers to the poor. One of the most successful cash transfer social innovation programs has been Brazil’s ‘Bolsa Família’. It contributed significantly to the drop in poverty in Brazil during 2000. Other countries that have implemented similar schemes include the Philippines, Turkey, Chile, Mexico, Indonesia and South Africa. Some development economists believe giving poor people cash rather than subsidized services cuts down corruption as there’s no opportunity for underhanded dealings.

Moreover, because the poor get the money directly it helps to empower them because they decide how best to spend the cash to improve their daily lives. This is a far more effective way than governments deciding what people need. Some economists think that if this social innovation program is successful in India, then more cash in the hands of people could lead to a higher demand for goods, spurring manufacturing and eventually boosting economic growth.

The cash transfer in India will be enabled through ‘Aadhaar,’ a numerical biometric identification that is currently being given to all Indians living in the country and is voluntary. This ID plan is officially called the ‘Unique Identity Authority of India project’ (UIDAI) and will help people access services like banking and benefits. However, according to the UIDAI itself there are an estimated 300 million people in India’s population of 1.2 billion who have no official identification documents! This prevents them from opening bank accounts or getting work and could actually be one of the main challenges for the success of this social innovation cash project.

Photo Credit: babasteve on Flickr