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Cash cure for leaky PDS by Anirban Bhaumik

The Government proposal to make cash transfer in place of food grain to poor families has drawn mixed reactions.

Raghuvir Nagar on the western outskirts of Delhi has of late turned into a turf for a war between two schools of thought. The war has not been limited to campaigns and debates and purportedly escalated to the level of allegations, even intimidation, so much so that the Government of the national capital territory asked the police to keep the situation under control.

On either side of the battle lines were two prominent NGOs. One – ‘Sewa Bharat’ – argues that the Government should consider moving towards cash transfer as an alternative to providing foodgrains to the poor. It is carrying out a pilot study in Raghuvir Nagar to assess the feasibility of cash transfer. The other – ‘Parivartan’ led by eminent RTI activist Arvind Kejriwal – is opposed to it and feels that the proposal to shift to cash transfer is an attempt to cover up the government’s failure to monitor and keep the ration system working properly. It pointed out that cash transfer too would remain prone to corruption and leakages and, being inflation insensitive, would not help the poor.

It was amid this intense debate that the World Bank on May 18 came out with a two-volume report titled “Social Protection for a Changing India”. It was prepared after the international financial institution comprehensively reviewed the performance of the PDS as well as other key poverty alleviation and social protection programmes of the government. Taking note of the high leakages of foodgrains in most of the States, the WB in its report recommended gradual reform in the PDS, allowing beneficiary households to choose between grains and cash equivalents.

The PDS, which now absorbs almost one per cent of the GDP, has undergone significant changes over the past one-and-a-half decade – from a universal entitlement scheme, to a geographically targeted supplemental subsidy, and finally since 1997 to a targeted approach based on household welfare levels independent of location. It now awaits another evolutionary turn as the Congress-led UPA Government is set to introduce the National Food Security Bill in Parliament, giving the nation’s poor a landmark legal entitlement to highly subsidised foodgrains.

But, as the WB’s lead economist for social protection in India, John Blomquist, observes, the PDS’ “effects on poverty alleviation is low due to high leakages to non-poor and weak administrative features.”

A 2005 report of the Planning Commission is one of the most recent evaluations of the PDS. It pegged nationwide leakage of grains meant for distribution among BPL households  at 57.9 per cent. This was a combination of outright diversion of grains – through ghost BPL cards as well as diversion in the supply chain – and Above Poverty Line households unduly benefitting from the grains that were subsidised for the BPL families. Bihar (91.1%), Punjab (89.5%) and Karnataka (70.9%) topped the roll of the States with leaky PDS. Only about 41 per cent of grains released by the Government reached the targeted households in 2004-05.

Following a Supreme Court order, the Ministry of Consumer Affairs, Food and Public Distribution set up a Central Vigilance Committee to look into the maladies of the PDS, with Justice (retired) D P Wadhwa as the chairman. The panel studied the PDS across the country and observed in its reports that the system had collapsed in a number of states and had been working very poorly in many others.

The Supreme Court on several occasions asked the Centre and State Governments to revamp the PDS. The apex court’s latest order on PDS came as recently as on May 14 last, when it issued a series of directives to overhaul the PDS and ensure  food grains allocated under the scheme reach the poor.

The WB in its report outlined two fundamental reforms – (i) switching to a cash transfer for the poor, or offering options for poor households between food and cash and (ii) switching to a conditional cash transfer, in order to leverage improved human capital outcomes. Neither option, however, eliminates the need for food buffer stocks, nor for the continued use of food-based transfers for specific situations (where relief aid is needed due to disasters) or specific areas (remote or dry land areas) and possibly specific population groups, noted the World Bank.

 ‘Sewa Bharat’, which has been studying suitability of cash transfer in Delhi, noted  that though it was difficult to explain to people the concept, a majority of them – about 60 per cent – were ‘agreeable’ to it and a large number opposed it.

‘Parivartan’ says that the amount of money the  Government plans to give people to buy 32 kg wheat, five kg sugar, 10 kg  rice and six litres kerosene would not be enough to purchase similar quantities of items within a few months. Government officials counter that the proposal for cash transfer has a provision for quarterly review of the cash amount that is on offer instead of ration. But Kejriwal questions how the alternative scheme could guarantee that the poor  use the money to buy food and not for other purposes. With alcoholism being high among the men in the targeted households, even if the money is put in the women’s account, their husbands can easily take away the money from them, he points out. “If the Government moves to cash transfer, it will have to throw the huge amount of foodgrains procured by it in the Bay of Bengal,” says National Advisory Council member N C Saxena.

Pilot project in Mysore, Hyderabad

Aditya Raj Das

The Congress-led UPA government’s in-principle decision to move towards direct cash transfer  instead of food grains to people living below poverty line reflects a paradigm shift in policies on subsidy management.

Provision of subsidy--often viewed as the converse of a tax-- has remained as an instrument of fiscal policy of the government with the avowed objective of insulating vulnerable sections of the society from the vagaries of market forces.

The government provides subsidies notably on food grains, mass-consumed fuel like diesel, LPG and kerosene to enable the common man have access to  basic necessities at affordable prices.

The government also subsidises fertilizer to help farmers get the basic agricultural input at lower price. While on one hand subsidies are disturbing the overall fiscal fabric of the economy, the growing phenomenon of benefits of subsidy not reaching the targeted group has emerged as a major challenge for the government.

Knowing full well that it would be politically imprudent to do away with subsidies, the government has been deliberating on evolving modalities for ensuring that the subsidy reach the targeted beneficiaries.

A task force headed by IT expert Nandan Nilekani, Chairman of the Unique Identification Authority of India (UIDAI) has been set up to work out the modalities. The system is scheduled to be in place by March 2012. The Planning Commission while formulating approach paper to the 12th Five Year Plan (2012-17) is expected to outline a comprehensive road map for cash transfer of food, fertilizer and fuel subsidies.

In case of food grains to BPL families, either cash will be deposited in their bank account or smart cards issued to buy food items of their choice either in fair shops or designated shops. Money equivalent to subsidy entitlement will be credited to the smart card. A pilot project for direct transfer of subsidy for LPG is proposed in Mysore and Hyderabad by September/October this year.

(With inputs from Ajith Athrady)