The Telegraph
Wednesday , January 9 , 2013
Since 1st March, 1999
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Support for direct cash transfer

Calcutta, Jan. 8: Direct cash transfer (DCT), the pet subsidy scheme of the central government, will not impact inflation if the finance ministry is able to balance it through increased tax revenues.

The scheme, which aims to credit money directly to Aaadhar-linked bank accounts of intended beneficiaries, is expected to increase liquidity in the system as more money is made available to consumers.

According to T.C.A. Anant, the chief statistician of India, whether the scheme will contribute to inflation will depend on how the government is able to finance the additional expenditure.

The government has to either increase tax revenue or borrow from the market to finance this expenditure. If it borrows, chances of inflation are more as it cannot neutralise the effect of extra liquidity in the system.

“DCT by itself is not inflationary. It is the overall government budgetary position, which determines whether the thing is inflationary, or not,” Anant said on the sidelines of a seminar at the Indian Statistical Institute today.

Nobel Prize winning economist James Mirrlees held views similar to Anant’s. “The experience with countries like Mexico and Brazil showed that the leakages are small in cash transfers provided to the poor by the government,” he said.

Asked whether there was a possibility that the poor would have a tendency to spend the extra money in hand on unimportant items of consumption, Mirrlees said in many countries the government was transferring the money directly to women.

“Women tend to be more reliable when it comes to good use of money,” he said.