Kaushik Basu cautions against inflation caused by direct cash transfers

With the United Progressive Alliance government gearing up to implement the direct cash transfer scheme (DCT), World Bank senior vice-president and chief economist Kaushik Basu today cautioned of inflationary pressure being triggered by the move, on the economy.

Under DCT, the centre would disburse subsidies directly to the poor through bank accounts, which, to start with, would be implemented across 51 districts in 18 states from 1 January.

He said once DCT was implemented there was a risk of higher inflation with more money being pumped into the system, adding that there were enough tools to counter it.

Basu was the chief economic adviser to the government prior to joining the World Bank.

Basu added the scheme needed to be indexed to adjust with inflation so that the poor were not affected. Basu who was speaking on the sidelines of an event in Kolkata said, the net impact of DCT on inflation might be negligible as it was replacing subsidies.

The government is looking to disburse subsidies worth Rs3 lakh crore to targeted beneficiaries, through DCT. Around 29 welfare schemes under various ministries would be transferred through Aadhaar-enabled bank accounts, targetting over 1 million households in the country.