Prime Minister Narendra Modi in a meeting this week with BJP MPs from the northern states, encouraged them to implement direct benefits transfers (DBTs) in the public distribution system (PDS).
This would mean a direct cash transfer, equivalent to the cost of the subsidy, in the accounts of the beneficiaries instead of subsidised grains made available through fair price shops (FPS).
If implemented, this would be a disaster for food security in India.
At this point, it is important to highlight the importance of the PDS, which, as of 2013, provides five kilos of subsidised grains to approximately 75 per cent of rural, and about 50 per cent of urban populations, under the National Food Security Act (NFSA).
In a country like India, which is home to the largest undernourished population in the world, where over 190 million people go to bed hungry every day and 48 per cent of the children under five years are malnourished, the PDS is a lifeline for those who are able to access it.
Grains provided by the system make up for anywhere between half to one-fourth of the monthly intake of families availing benefits under this system. The PDS serves as a significant safety net for a large percentage of the population, who rely on their food entitlements for daily sustenance.
The PDS has suffered at the hands of large leakages, and government reports have suggested that as much as 45 per cent of all the grain doesn’t reach the intended beneficiaries. However, there is a widely acknowledged need to reform the system to ensure that the leaking pipes of the indispensable government support are plugged.
India is home to the largest undernourished population in the world, where over 190 million people go to bed hungry every day.
Methods of PDS
There are two methods that are being tested.
The first – biometric authentication physical uptake (BAPU), where beneficiaries authenticate their identity through Aadhaar and pick up their entitlement at the fair price shops (FPS). This is being used in Tamil Nadu, Andhra Pradesh and some other states.
The second – direct cash transfers instead of in-kind support, as recommended by the Prime Minister Modi, which has been tested in the Union territories of Chandigarh and Puducherry.
The direct cash transfers have been evaluated by independent agencies and have produced results that are hard to ignore. The system is fraught with issues for the consumers.
Problems with direct benefits transfers
Firstly, there were issues in transfers, as results show as high as 50 per cent of those entitled did not receive the full or part cash transfer, especially due to issues in linking of bank accounts with Aadhaar and ration cards.
Secondly, in Puducherry in particular, the cash transfer wasn’t reaching the account of the female head of the household and expenditure on food wasn’t a certainty.
Thirdly, access to banking infrastructure, particularly at the last mile, and communication on subsidy transfer, were reported to be poor. People had to visit the bank to make enquiries about their cash transfer and spend a day or two of wages to withdraw their entitlement.
Finally, and perhaps most importantly, the study shows that households have spent as much Rs 100-200 over the cash transfer to access the amount of grains they got through FPS before. In inflationary times, this expenditure is likely to grow, and money meant for other consumption expenditure will move to food.
In summary, with cash transfers, the PDS is unable to deliver on its one purpose, which is to provide people food security.
Impact on farmers
Beyond the recipients of grains through the PDS, moving to cash transfers will also adversely impact farmers.
The government buys rice and wheat through minimum support price (MSP) for distribution through the PDS (and maintain buffer stock). In the absence of this mass procurement from the government, which buys over a third of all the food production in India, the incentive to grow food crops would decline significantly.
This will be a problem for a country like India which depends on its food availability as one of the world’s largest grain producers.
Cost-saving, but who benefits?
The government will save significant money if the PDS is moved to cash transfers. The cost of procurement, storage, transportation and distribution currently incurred would have been done away with in one swift move.
Early estimates from the experiments suggest savings of close 15 per cent in the Union territories, which is likely to be the main motive for this massive move.
However, listening to evidence from the experiments is imperative when encouraging such a large and disruptive change. In areas of the experiment, there remains a strong preference for the PDS over cash. None of the state governments, responsible for distribution, have adopted cash transfers despite regular notices from the central government encouraging them to do so.
The message to Prime Minister Modi is loud and clear: improve the PDS but do not scrap it. One hopes that the lure of savings doesn’t lead to abdicating responsibility of feeding the millions who are still going to bed hungry.