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Resource centre on India's rural distress
 
 

World Bank endorses cash-transfer of food subsidy to poor
-FnBNews
 
The World Bank, like many analysts, is in favour of cash-transfer of subsidy for foodgrains to the poor in India. This suggestion was made in a recent report on Social Protection for a Changing India, drafted by the World Bank for the Government of India.

Using the National Sample Survey data, the report stated that the Public Distribution System (PDS) continued to absorb substantial public resources at almost 1 per cent of the GDP. While it covers up to 25 per cent of the households, its benefits for the poor have been limited.

India has already been contemplating on the proposal of cash-transfer of the subsidy amount to avoid problems of leakages and irregularities in the PDS. In this regard, the approach paper to the 12th Five Year Plan (2012-17) is set to outline a comprehensive road map for cash transfer of food, fertiliser and fuel subsidies, using Aadhar-based identification and ‘smart’ cards, with recharging facilities.
A proposal to initially start the exercise with cash transfer of food subsidy through a smart card, which could be recharged every month, according to the entitlement of the beneficiary, is likely to be considered.

But how will the payment of subsidy amount in cash be a solution? In poor families that cash will be used for buying more liquor than food. Some suggest that the money should be paid to the woman of the family. Probably, they are not aware of the fate of the rural women! However, a universal cash transfer plan can be implemented only after unique IDs are allotted. And the poor will have to wait till then.

In spite of impediments, cash transfer would any day be better than the existing practice of foodgrain supply through the PDS.

The WB rightly pointed that leakage and diversion of grains from the PDS were high. Only 41 per cent of the grains released by the government reached households, according to 2004-2005 NSS, with some states doing much worse. In 2001, the planning commission has estimated this leakage of the BPL grains at 58 per cent nationally.

In the medium to long term, the WB report recommends offering households the option of a cash transfer while continuing food-based support for specific situations such as in areas where access is an issue, for disaster relief and for specific vulnerable groups. This reform would not eliminate the need for food buffer stocks.

“Experiences in India and in many other countries have highlighted the benefits of targeted cash transfer. Bihar, for example, has already introduced food stamps or coupons to improve access. At the same time, states such as Tamil Nadu and Chhattisgarh, by enabling effective community participation, robust monitoring and smart IT solutions, have done particularly well in ensuring universal access to transfers in kind in the form of subsidised grain. These diverse experiences stress the need for further evaluations and the fact that immediate and medium term solutions may vary in different states," said Roberto Zagha, World Bank country director in India.