Content

1. Cash Transfers are Valuable but Not a Substitute for Jobs
2. India Can Transform Global Development Finance

Cash Transfers are Valuable but Not a Substitute for Jobs

Why in News?

• Several states have recently announced or expanded direct cash transfer (DCT) schemes, especially for women, ahead of elections (e.g., Madhya Pradesh’s Ladli Behna Yojana, Chhattisgarh’s Mahtari Vandana Yojana, Jharkhand’s Savitri Bai Phule Kishori Samriddhi Yojana).
• Around 12 states now operate such schemes, covering nearly Rs 1.7 lakh crore annually (~0.5% of India’s GDP).
• Debate: While these programs aid welfare and empowerment, economists question their sustainability, fiscal impact, and substitution effect on job creation and infrastructure investment.

Relevance

• GS 2 (Governance): Welfare Schemes for Vulnerable Sections; Government Policies and Implementation Issues.
• GS 2 (Social Justice): Inclusive Growth, Poverty Reduction, Social Security Mechanisms.
• GS 3 (Economy): Fiscal Policy, Inclusive Growth, and Employment Generation.

Practice Question

• “Direct cash transfers can alleviate poverty but not eliminate structural unemployment.” Critically evaluate this statement in the Indian context.(250 Words)

Basic Concepts

What are Cash Transfers?

• Definition: Direct transfer of money from the government to beneficiaries’ bank accounts, eliminating intermediaries.
• Types:
• Unconditional Transfers: No requirement for specific behavior (e.g., PM-KISAN).
• Conditional Transfers: Linked to outcomes (e.g., Janani Suraksha Yojana for institutional delivery).

Why Governments Use Cash Transfers

• To reduce leakages and improve targeted delivery via DBT (Direct Benefit Transfer).
  Promote financial inclusion (through Jan Dhan, Aadhaar, Mobile trinity).
• Offer quick relief to vulnerable groups during crises (COVID-19, inflation spikes).

Current Scenario & Data

Examples:

• MP Ladli Behna Yojana: ₹1,250/month to ~1.3 crore women.
• PM-KISAN: ₹6,000/year to ~11 crore farmers.
• West Bengal Lakshmi Bhandar: ₹1,000/month to women heads of households.

Benefits (Positive Dimensions)

• Social Empowerment
  Transfers reduce dependency of women on male earners; improve autonomy in spending decisions.
  100 million+ women receive some form of cash assistance — enhances their social agency.
• Poverty Alleviation
  Studies (World Bank, 2023) show cash transfers reduce poverty by 10–15% in developing countries.
  Frees poor households from debt cycles and improves resilience against shocks.
• Economic Stimulus
  Raises aggregate demand, especially in rural areas — leading to local consumption multiplier effects.
  Helps informal workers, who often lack job-linked social security.
• Administrative Efficiency
  DBT framework minimizes leakages — savings of ₹2.7 lakh crore since 2014 (as per DBT Mission report, 2023).

Concerns & Criticisms

• Fiscal Stress
  Transfers increase revenue expenditure without corresponding productive asset creation.
  FRBM Act restricts fiscal deficit to 3% of GSDP — such schemes risk breaching state limits.
• Substitution Effect
  Overreliance on transfers may divert funds from infrastructure and job creation, which generate long-term growth.
  Example: Spending on schemes like free electricity or income transfers reduces capital expenditure on roads, schools, irrigation.
• Unsustainability
  Populist nature — often expanded before elections, with no permanent funding base.
  Once initiated, politically difficult to withdraw.
• Inflationary Pressure
  Increases demand without supply-side support → risk of rural inflation in essentials.
• Ideological Issue
  Debate on role of the State: Welfare vs Productivity . Should the state act as an enabler (creating jobs) or as a provider (giving direct income)?

Way Forward 

• Complement, Don’t Substitute Jobs
  Cash transfers should support livelihoods, not replace them.
  Combine with skill development, MGNREGA, and infrastructure investment.
• Targeted & Time-bound Schemes
  Prioritize poorest quintiles, use SECC data and Aadhaar-linked income mapping.
  Sunset clauses to prevent permanent fiscal burden.
• Fiscal Prudence
  Link transfers with revenue buoyancy and medium-term expenditure frameworks.
  Maintain capital expenditure above 2.5% of GSDP.
• Empowerment through Conditional Transfers
  Tie aid to outcomes: girls’ education, nutrition, or maternal health (like Kanyashree or Ladli Laxmi).
• Strengthen Job-creating Sectors
  Public investment in manufacturing, MSMEs, and rural infrastructure yields more durable employment.

Comparison

Takeaway

• Cash transfers improve welfare and empowerment, especially for women and small farmers, but cannot replace job-led growth.
• The goal should be productive inclusion — combining transfers with education, skilling, and infrastructure for sustainable development.
• As Author notes, cash ensures dignity, but jobs ensure stability — both must coexist for true socio-economic transformation.

India Can Transform Global Development Finance

Why in News?

• The article highlights India’s emerging leadership in global development finance, particularly in the context of the Global South.
• India is using platforms like G20, BRICS, SCO, and International Solar Alliance (ISA) to push sustainable development, green finance, and blue economy diplomacy.
• Amid US withdrawal from global climate and development funding, India is positioning itself as a bridge between developed and developing economies.

Relevance

• GS 2 (International Relations): Global South Diplomacy, India’s Multilateral Engagements, International Financial Institutions Reform.
• GS 3 (Economy & Environment): Sustainable Development, Climate Finance, Green and Blue Economy Initiatives.
   

Practice Question

• Critically assess how India’s initiatives such as the International Solar Alliance, CDRI, and Global Biofuel Alliance are redefining the global sustainability architecture.(250 Words)

Global Context – Shifting Geopolitical & Financial Landscape

• Decline of US-led Global Financial Order
  The post-World War II Bretton Woods architecture (IMF, World Bank) was dominated by Western powers.
  The US withdrawal from:
• UNFCCC (Paris Agreement),
• WHO, and
• SDG financing agenda
  has weakened its global developmental role.
  This has opened space for the Global South (India, China, Brazil) to shape new financial norms.

• Rise of the Global South
  Global South = Developing economies of Asia, Africa, and Latin America.
  Their combined GDP (BRICS+) exceeds 30% of global GDP and 40% of world population (IMF, 2024).
  Increasing demand for inclusive, equitable, and sustainable financing models outside OECD dominance.

Evolving Global Development Finance Architecture

India’s Strategic Approach

• Green and Blue Economy Diplomacy
  Green economy: Sustainable energy, low-carbon infrastructure, biodiversity protection.
  Blue economy: Ocean-based sustainable growth (fisheries, marine energy, coastal tourism).
  India integrates both through global partnerships and South–South cooperation.
• Promoting Sustainable Development Finance
  Advocates blended finance models — combining public, private, and multilateral funds.
  Supports climate-smart investments, emphasizing adaptation and resilience rather than only mitigation.
  Example: Green Credit Programme and Sovereign Green Bonds (₹16,000 crore issued in 2024).
• Reforming Global Financial Institutions
  Calls for IMF quota reform and greater voting rights for emerging economies.
  Pushes for debt restructuring and SDR reallocation for low-income nations.
  Advocates for integrating SDG-linked financing into Bretton Woods institutions.

Key Challenges in Global Finance

• Unequal Representation
  OECD countries control >55% voting power in IMF; Africa’s share <5%.
  Global South’s priorities—adaptation, poverty alleviation—remain underfunded.
• Climate Finance Gap
  Global need: $4.3 trillion/year for SDG & climate finance till 2030 (UNCTAD, 2024).
  Actual flows: <25% of requirement met.
  Loss and Damage Fund (COP28) still undercapitalized (<$700 million pledged vs $100 billion goal).
• Debt Burden
  59 developing countries are in debt distress or near default (IMF, 2024).
  Need coordinated debt restructuring beyond IMF’s limited mechanisms.

India’s Policy Innovations

• International Solar Alliance (ISA)
  Target: Mobilize $1 trillion in solar investment by 2030.
  Over 100 countries joined; India leads funding and training.
• Coalition for Disaster Resilient Infrastructure (CDRI)
  Focus: Resilient infrastructure funding post-natural disasters.
  Backed by G7 and UN, India as secretariat host.
• Global Biofuel Alliance (GBA, 2023)
  Partners: India, US, Brazil (50% of global ethanol production).
  Aim: Promote sustainable energy and reduce oil import dependence.
• NDB Reform & BRICS Expansion
  BRICS bank lending: $33 billion (as of 2024).
  India’s emphasis: local currency financing to reduce dollar dependence.

Opportunities for India

• Leadership in Global South
  India’s G20 Presidency (2023) and BRICS activism positioned it as a bridge between developed and developing worlds.
  Promotes inclusive multilateralism — reforming global institutions to reflect 21st-century realities.
• Green Development Finance
  India can lead solar, biofuel, and green hydrogen financing frameworks for South Asia and Africa.
  Leverage its Digital Public Infrastructure (DPI) model for transparent fund flows.
• Knowledge & Capacity Sharing
  Through development partnerships (Lines of Credit via EXIM Bank, ITEC program), India extends soft power and builds institutional capacity.

Way Forward

• Institutionalize South–South Finance Mechanisms
  Build platforms like Global South Development Bank under BRICS/ISA framework.
• Bridge Climate Finance Gaps
  Push developed countries for predictable and concessional finance flows under COP and G20 frameworks.
• Harmonize Green Standards
  Align NDB, AIIB, and GCF projects under common green taxonomy for consistency.
• Expand Local Currency Financing
  Reduce dependence on dollar-based lending; enhance resilience of Global South economies.
• Promote Inclusive Digital Finance
  Use India Stack model for transparent fund disbursement in developing nations.

Takeaway 

The global financial order is undergoing a power shift from the West to the Global South.
India, through BRICS, G20, ISA, and CDRI, is emerging as a norm-shaper in sustainable finance.
Its green and blue diplomacy symbolizes a model of development that is equitable, resilient, and inclusive, positioning India as a transformative force in global economic governance.