Direct cash transfer won't push up inflation: Basu

KOLKATA, INDIA: World Bank chief economist Kaushik Basu Wednesday said the central government's direct cash transfer scheme would not have "any net effect" on inflation and that the scheme should be "indexed" to adjust with inflation.

"Direct cash transfer (DCT) doesn't have to mean that there is an injection of liquidity into the system. It is an implicit subsidy replaced by DCT. So, it will not have any net effect on inflation," Basu told the media on the sidelines of an event at IIM - Calcutta.

Basu, however, said the direct cash transfer scheme, slated to start from Jan 1, should have an index to adjust it with inflation so that the people would continue to enjoy same buying power.

"When you switch over to DCT (from subsidies), you index it. You have an index rule, so that it does not erode with inflation. So that the people continue to have same buying power," the renowned economist said.

The former chief economic advisor to the finance ministry said the country had to "do a lot of things" in developing infrastructure for effective implementation of the direct cash transfer scheme.

"When we switch to DCT in the same infrastructure, some problems of current system will persist. It will gradually improve in terms of software," he noted.