The BRICS Heads of State Summit in Delhi this week presents an excellent opportunity to launch some joint initiatives that would help promote the aims of the meeting, security and stability. Among those, one stands out that could easily be sidelined.
The leaders of India, Brazil, China, Russia and South Africa face a common challenge arising from the fact that their economic growth is leaving a large number of people languishing in dire poverty and economic insecurity. Each country has adopted very different approaches. Without doubt, Brazil has done best, and India, China, Russia and South Africa would be well advised to learn lessons from its experience.
For dealing with poverty, India has relied heavily on hugely expensive subsidies, primarily through the Public Distribution System (PDS). Most of the money poured into those schemes goes astray. Nearly three-quarters of PDS never reaches the poor. Inequality has worsened as well, as it has in China, Russia and South Africa in recent decades.
In China, the share of national income going to capital has risen by twenty percentage points in just over two decades. The Chinese leadership is acutely concerned about the persistent poverty threatening the sustainability of their growth model, marked by a rising incidence of social protests. South Africa has also fared badly, with sluggish economic growth being combined by the persistence of high poverty, chronically high unemployment and shocking inequality.
By contrast, Brazil under President Lula transformed their social protection system to rely extensively on cash transfers, notably its scheme of Bolsa Familia, which since its introduction in 2003 has reached over a quarter of all Brazilians, over 50 million people. In that time, poverty has declined, income inequality has fallen considerably, economic growth has risen while it has fallen in the other BRICS countries as well as in the G20 area in general, and unemployment has fallen to its lowest ever. And women and children have done particularly well.
Cash transfers have been hailed as a primary reason for these successes. President Dilma Rousseff is committed to continuing on that road. There is even a law on the statute books committing the government to introduce a basic income for all as and when economic conditions allow it.
The Bolsa Familia is nominally a conditional cash transfer scheme, providing monthly payments conditional on children attending school and having regular medical check ups. In practice, these have moved to “co-responsibility” commitments, obliging local agencies to provide better facilities as much as being policing mechanisms.
Meanwhile, India has slowly moved into a phase where the Planning Commission and others are more open to use of cash transfers. Regrettably, polemical criticisms have been holding up dispassionate debate. Cash transfers do not rule out other schemes, such as labour projects such as MGNEGS. Nor do they mean government should roll back its development of social services.
At the moment, several experimental cash transfer schemes are in progress in various states. These have been done mostly by non-government bodies, such as SEWA. Lessons learned are mainly positive. But Indian officials and their colleagues in China, Russia and South Africa should organise a joint assessment of the design of cash transfers, drawing on the Brazilian experience, and that of other Latin American countries.
The issue of cash transfers is closely related to one other theme that is scheduled for discussion, financial initiatives. Cash transfers are linked to the need for financial inclusion, an imperative that concerns all five countries. Unless the poor, the emerging precariat and all rural residents are enabled to be part of the money economy, their plight will continue to deteriorate. In this respect, lessons are to be learned by all the BRICS countries, and here India has some recent encouraging experience to pass to their colleagues.
Guy Standing is Professor of Economic Security, University of Bath, England. He is the author of Cash Transfers in India: A Review of the Issues, just published by UNICEF, New Delhi.
