Leakages will be small in cash transfers: James A Mirrlees

KOLKATA: Nobel prize winning economist James A Mirrlees today said that providing direct cash transfers to the poor as opposed to subsidies would result in small leakages as experienced in other countries.

"The experience with US, Mexico and Brazil showed that the leakages are small in cash transfers provided to the poor by the government," Mirrlees told reporters on the sidelines of a seminar at the Indian Statistical Institute here.

Mirrlees said that the Indian government was trying to manage the subsidies well by introducing direct cash transfers to the poor.

"I hope that this will work well as the leakages are quite small. Indirect transfer is more prone to leakages than direct transfer," the Scottish economist said.

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

"The women tend to be more reliable when it comes to good use of money," he said, expressing doubt whether such a system would work in India.

"I hope the people will act in the best interest," he said.

Asked whether such cash transfers would add to inflationary pressures in the economy, Mirrlees said that it depended on how the government was financing it.

"But it doesn't seem so," he said. Mirrlees suggested imposition of 100 per cent marginal tax rate on low incomes.

"It is very difficult to apply taxes on low-income people in India. So far, leakages in the transfers to the poor are reasons for low marginal tax rates," he said.

The UPA government has decided to launch direct cash transfers as a pilot project in select districts across the country from January 1 this year.

On the issue of FDI on multi-brand retail, Mirrlees said that the small shopkeepers might face problems, but it would bring in more value-addition.