MUMBAI: Reserve Bank of India governor Raghuram Rajan made a strong pitch for direct cash transfers to the poor, saying this would help reduce corruption by breaking the "cycle of dependence". The system involves the payment of subsidies directly into the bank accounts of beneficiaries, cutting out intermediaries.

"The poor and the under-privileged need the politician to help them get jobs and public services," the governor said at the 20th Lalit Doshi Memorial Lecture on Monday. "The crooked politician needs the businessman to provide the funds that allow him to supply patronage to the poor and fight elections. The corrupt businessman needs the crooked politician to get public resources and contracts cheaply. And the politician needs the votes of the poor and the underprivileged. Every constituency is tied to the other in a cycle of dependence, which ensures that the status quo prevails."

Rajan is pushing for the direct transfer of benefits to reduce leakages in the system. The Narendra Modi government is also said to be examining ways in which the system, rolled out as a pilot project by the previous administration, can be made more efficient.

"I believe it will give the poor the choice and respect as well as the services they had to beg for in the past," said Rajan. "It can break a link between poor public service, patronage, and corruption that is growing more worrisome over time."

The governor rejected the argument that direct cash transfers to the poor could led them to fritter away the money and that it would be a waste of resources.

"The vast majority amongst the poor will seize opportunities, especially for their children, with both hands," said Rajan. "Nevertheless, if there is evidence that cash transfers are being misspent - and we should let data rather than preconceived notions drive policy - some portion could be given in the form of electronic coupons that can be spent by the specified recipients only on food, education or healthcare." Rajan said direct transfers shouldn't be seen as a universal panacea.

"Financial inclusion and direct benefits transfer can be a way of liberating the poor from dependency on indifferently delivered public services, and thus indirectly from the venal but effective politician," he said. "It is not a cure-all but will help the poor out of poverty and towards true political independence."