Direct cash transfers effective in poverty alleviation, says J-PAL's Iqbal Singh Dhaliwal

Cash transfers can boost consumption

Direct cash transfers are effective in fighting poverty and do not typically lead to misuse, with evidence from India and other countries showing that households tend to use the money productively, Iqbal Singh Dhaliwal, global executive director of the Abdul Latif Jameel Poverty Action Lab (J-PAL) has said.

On average, there is no increase in so-called “vice” consumption. Cash transfers may instead help households invest in health, education, and small businesses, Dhaliwal told Moneycontrol in an interview. Edited excerpts:

Some critics worry about fiscal pressures when new schemes are introduced. How do direct benefit transfers (DBTs) affect macroeconomic management?

That’s a key challenge. When governments roll out new transfer schemes without cutting inefficient existing programmes, it can create fiscal strain. Sound fiscal management is critical to ensure sustainability.

On the design side, what’s most effective in terms of transfer structure?

Research shows lump-sum transfers, say, Rs 12,000 once , are often more effective than small monthly payments for enabling households to make investments. Monthly transfers are helpful for consumption smoothing but if the goal is long-term asset creation, larger one-time transfers give people the capital to start a small business, improve their home, or fund education.

India has invested heavily in physical and digital infrastructure like the JAM trinity. How does this factor into broader development goals?

India has built a robust physical and digital public infrastructure. The JAM trinity – Jan Dhan bank accounts, Aadhaar identification, and mobile connectivity – is among the best in the world. It provides the backbone for DBTs and allows the government to reach beneficiaries at scale but infrastructure alone is not enough. No country has achieved sustained development without substantial investments in human capital, particularly in education and health. As I often say, ‘hardware is hard, but software is harder.’

India has built the hardware. Now the country must focus on the software – the people, their skills, their health and education. No country has developed without improving human capital and these areas will determine whether India can become a truly Viksit Bharat by 2047.

Beyond infrastructure and human capital, which reforms are critical to ensure India remains attractive for private investment?

Ease of doing business reforms are essential. Land, labour and legal reforms, alongside continued GST simplification, create an environment where companies can invest confidently. Without these, even the best infrastructure won’t fully translate into productive economic activity.

Climate change is often cited as a structural challenge. How does it fit into India’s development strategy?

Climate change is a long-term structural threat but it also creates opportunities. Green energy jobs – in electric vehicles, solar power, and battery production – can drive new employment while supporting sustainable growth. India must align its economic planning with climate action to seize these opportunities.

If you had to prioritise, what are the areas India must focus to achieve its target of Viksit Bharat 2047?

There are five key pillars. First, robust physical and digital infrastructure. Second, human capital development through better health and education. Third, ease of doing business reforms. Fourth, prudent fiscal management to avoid undue strain on states. And fifth, integrating climate action into economic strategy to leverage green growth. Together, these will create a strong foundation for India’s growth trajectory.