Monday, April 4, 2011

Direct cash transfers - a recipe for food insecurity

Mainstream media voices are unanimous in calling upon the government to withdraw from public distribution of food grains and fuel. "Direct cash transfers" is the new catch phrase. "Money where the mouth is" screams an op-ed. Instead of distributing food and fuel at regulated prices, the government should hand out cash to BPL families to enable them to make purchases at market prices.

The government's economic advisors differ only in the details. Kaushik Basu, Chief Economic adviser to the Government of India, argues for distributing food coupons to BPL families that can be exchanged for food at private retailers. He sees the need for supporting the current retail outlets - the "fair price shops" - only in poor and remote areas that may not be attractive to private traders (Economic and Political Weekly, 29 January 2011). On the other hand, a government committee headed by Montek Singh Ahluwalia is  reported to be recommending a more cautious approach. Cash transfers are to be made to BPL families having UID-linked smart cards which will be valid only at the network of Fair Price Shops. This will keep the PDS intact in the interim.

However, the end game in all these approaches is the same, with the government getting out of distribution of food grains.

These "reforms" do not address the problem of exclusion of millions of poor from access to the PDS. Will they benefit at least the existing consumers of the PDS service?

For a discussion, see this India Together piece.


Some years down after this piece was written, there is some evidence from the grouund:


Kannan said...

Mr Ramammurthy E S writes to say "The last sentence is powerful. I would like to add that the Citizens should be also empowered to administer the services. After all, that is what the PRI Act is all about."

Kannan said...

Mr Srinivasan P V writes in

"Dear Kannan,

I like your article and share your fears. If the government is switching to cash transfers, it has to seriously worry about maintaining price stability, through buffer stocks or controls on trade and for sure it has got to be more effective than in the case of onions that you have cited. However, there is also merit in the government not operating millions of fair price shops and save on the serious leakages that we are facing today. Imagine a situation e.g. only 20 paisa reaching the poor for every rupee spent by the government. The savings from the leakages can be used in expanding the list of BPL households! I would imagine at least in the urban case the markets to be fairly competitive and not exploitative. So there may be some merit in retaining the current PDS system in rural areas. But then of course it is questionable how effective the current PDS is in rural areas. It may be better if the rural consumers form consumer cooperatives and make market purchases using the cash transfers to avoid being cheated by exploitative traders.

Overall, I think more research is needed before changing the system in a big way. For example, why can't we use the UID technology in the existing system to prevent leakages? The technology can be used to keep track of grain movements and the sales to PDS consumers so that the agents responsible are accountable for the missing grain.