Direct benefi t transfers in the form of cash
cannot replace the supply of food through the public distribution
system. Though it is claimed otherwise, DBT does not address the
problems of identifying the poor ("targeting") and DBT in place of the
PDS will expose the vulnerable to additional price fluctuation. Further,
if the PDS is dismantled, there will also be no need or incentive for
procurement from farmers and this system too will have to be done away
with, adding a new source of vulnerability to cultivators of rice and
wheat.
Some recent developments have once again made it clear that there is
an accelerated push to replace transfers of foodgrains through the
public distribution system (PDS) with cash transfers. The High Level
Committee (HLC) on Reorienting the Role and Restructuring of the Food
Corporation of India (FCI) (known as the “Shanta Kumar Committee”) went
beyond its mandate and recommended that the PDS must be progressively
replaced by cash transfers, and that the coverage under the National
Food Security Act (NFSA) must be reduced from 67% to 40% (GOI 2015a). A
shift to cash in place of foodgrains was argued for on the basis of data
showing high leakages in the transfer of grains through the PDS. Using
the same argument of leakages and inefficiencies, the
Economic Survey
for 2015–16 also recommends a shift to direct benefit transfers (DBT).
It goes a step further and claims that direct transfers through the “JAM
Trinity” platform (Jan Dhan–Aadhaar–Mobile) has the potential of
“wiping every tear from every eye” (GOI 2015b). The finance minister, in
his budget speech, mentioned neither the PDS nor the NFSA, but did
mention JAM as one of the “game-changing reforms” introduced by the
National Democratic Alliance (NDA) government.
1
It has also come to light that taking forward the recommendations of
the Shanta Kumar Committee, the Government of India issued letters to
state governments urging them to come up with plans to shift to a PDS
based on cash transfers linked to Aadhaar (Sethi and Agarwal 2015).
While there are issues with making Aadhaar mandatory for the PDS (as the
Supreme Court has said that Aadhaar cannot be made a precondition for
access to any social schemes) in this article we focus on the issue of
cash transfers replacing PDS.
2
Leakages and Reforms
The most forceful argument in favour of cash transfers is based on
estimates of leakages in PDS. The Shanta Kumar Committee estimates that
over 47% of grain meant for the PDS leaks out of the system before it
reaches the actual beneficiaries. The basis and assumptions behind these
estimates of leakages have themselves been challenged.
3
While different estimates for leakages are due to different assumptions
made while using the National sample Survey Office (NSSO) data, what is
clear from all the studies is that leakages in the PDS are showing a
declining trend. Not only is there a secular decline in PDS leakages, it
is also seen that those states which are making efforts in terms of
expanding coverage, lowering prices and putting in place reforms in the
PDS are precisely the ones which are also showing lower leakages.
Joining the southern states such as Kerala, Tamil Nadu and Andhra
Pradesh, which have had low leakages in the PDS for a long time, are
states like Chhattisgarh and Odisha, and more recently Bihar. Field
studies in Bihar and Odisha also show much lower levels of leakages
(Chatterjee 2014; Somanathan and Kjelsrud 2015). The attempt to wind up a
system which is showing significant improvement is difficult to
justify. One lesson from the experience of these states is that wider
coverage and lower prices can contribute to lower leakages. This is
precisely what the NFSA aims to do. It expands coverage, providing the
opportunity to have an exclusion-based identification system for
eligibility under the PDS (allowing for “near-universalisation” in rural
areas of many poor states), and lowers prices. Further, leakages are
mostly in the above the poverty line (APL) quota, where entitlements are
unclear (Drèze and Khera 2015), lending a strong basis for the
expectation that full implementation of the NFSA with its expanded
coverage, low prices and uniform entitlements will reduce leakages in
the PDS further and this needs to be given a chance.
Along with greater coverage and lower prices, there is a similar set
of reforms that has been implemented in most states where the PDS has
improved or where it functions effectively. These have been summarised
by the Justice Wadhwa Committee of the Supreme Court based on their
reports on the PDS in 28 states and union territories (UT) across the
country. Similar reforms have also been recommended under the NFSA and
data shows that progress is being made in these fronts too. For
instance, door-step delivery has been started in 12 states (as on 31
March 2014), digitisation of fair price shops has been completed in 28
states, and digitisation of ration cards/beneficiary database has been
completed in 13 states, and is in progress in 17 states (GOI 2014a). A
number of states have also introduced toll-free helplines for grievance
redress, SMS alerts and so on.
Targeting and Identification
As many studies in the past have shown, the big issue with the
targeted PDS has been identification of those below the poverty line
(BPL). Misidentification, which includes both exclusion and inclusion
errors, has contributed to leakages as well. The incentive system that
was put into place because of dual pricing for BPL and APL, and the
resulting black market, could be avoided to a great extent with uniform
pricing and universal coverage. Once a shift is made to a universal
system, the issue of leakages is also taken care of to a large extent.
It is hoped that once the NFSA (although not universal, has higher
coverage) is fully implemented, much of this will be corrected.
The experience of states with defined criteria to identify those who
would be eligible for “priority” ration cards once again brings out
clearly the impossibility of having a foolproof identification system in
India. The pilot study done before the Socio Economic Caste Census
(SECC) also howed that while it might be possible to identify 10%–20% of
the richest and the poorest households in rural areas with some degree
of accuracy, it is very difficult to rank all those in the middle
(Himanshu and Murgai 2011). If one goes back to 40% coverage, as
recommended by the Shanta Kumar Committee or the poverty-line-based
quotas as in the past, we once again fall into the trap of having a
BPL-based system with all its problems. In fact, what needs to be done
urgently is to speed up the process of availability of SECC data so that
proper criteria can be made for identification (the exclusion-based
system being implemented by Bihar and Odisha being the desirable way of
doing it).
This problem of identification will remain even if the PDS is
replaced by cash transfers. It is clear that what the policymakers are
talking about is not universal cash transfers, but one that is targeted
at the poor. In fact, the
finance
minister in his speech makes a misleading remark that, “The JAM Trinity will allow us to transfer benefits in a leakage-proof,
well-targeted
and cashless manner” (emphasis added). How is DBT expected to solve the
problem of identification automatically? In fact, cash transfers would
make it even more difficult because there is an element of
self-selection as far as the PDS is concerned, which will be absent in
the case of cash transfers.
Access to Banks
In spite of the large number of bank accounts opened under the Jan
Dhan Yojana, it remains a fact that bank branches are very difficult to
access in most parts of the country. The letter written by the
Government of Odisha protesting the idea of replacing the PDS by cash
transfers says that for more than 50% of the population, the nearest
bank is 10 km–15 km away.
4 On the whole, there are 1.16 lakh
bank branches in the country, of which only 38.4% are in rural areas
(RBI 2014). In the case of post offices, most of which are surely in
rural areas, there are 1.5 lakh in the country. On an average, a post
office serves an area of 21.21 sq km and a population of 7,175 people
(data from website of India Post). While there are currently 5.2 lakh
fair price shops in the country, with an average of 365 ration cards per
shop (GOI 2014b). Although it is claimed that transfers can be made
through mobile phones, the current state of mobile connectivity and
people’s comfort with using mobiles for such transactions, it is
difficult to imagine the country being ready to shift from cash to
completely mobile-based transactions.
Along with the easier access to PDS shops, there is also the question
of what the alternatives are for people to buy their staple food.
Usually in villages, the local
kirana (grocery) shop owner is
also the moneylender, and people have expressed their fears that in the
event that they had to depend on him for their basic food security, they
would be even more exploited as the shopkeepers would take advantage of
this vulnerability. People have also responded saying that given their
hand-to-mouth existence, PDS grains give them the assurance that there
will be something at home even on days they do not find work. Given the
vulnerability of livelihoods, indebtedness, increasing commercialisation
of basic education and health services, the poor have a need for cash
and there is no guarantee that the money can be used or kept aside for a
time when there is no food available. The PDS plays a role in filling
this gap.
5
PDS and Its Multiple Roles
Studies have also shown that the PDS does contribute to increased
consumption of not just cereals, but that it allows saved income to be
used to buy better foods such as pulses. Himanshu and Sen (2013b) show
how additional income of the same amount raises calorie consumption by
only half as much as an equivalent amount of PDS foodgrain does. Given
that the levels of food consumption in India are still so low, there is
still a need for a direct food programme such as the PDS.
The PDS also offers relative protection from price fluctuations.
While this has been certainly the case during the period of high food
price inflation after 2008, this has been the case even for earlier
years. As Himanshu and Sen (2013b) show, while market prices for rice
and wheat increased by almost three times between 1993–94 and 2011–12,
PDS issue prices actually declined in nominal terms. What they also
show, and this is relevant to those who argue that the minimum support
price (MSP)–PDS system is less efficient than the market, is that except
for 2004–05 not only has the economic cost of rice and wheat been lower
than corresponding market prices, but also that the benefit from per
unit transfers from the PDS has been higher than the per unit subsidy
cost to the government.
Cash transfers will not protect people against inflation, especially
in the context of fluctuating, and generally high food inflation.
Although it is claimed that cash transfers will be inflation indexed,
experience with previous cash transfer programmes in India only shows
that this does not happen in practice. The social security pensions, for
instance, have hardly increased for over 10 years in spite of
spiralling inflation (under the “National Social Assistance Programme”).
Procurement Will Be Undermined
Increasingly, MSP operations and procurement have been geared only
towards the PDS. Although MSP is announced for more than 20 crops,
public procurement is largely focused on rice and wheat. Reducing or
closing down the PDS would be a direct threat to procurement as well, as
there would remain no incentive to procure. Such a fear has been
expressed by the food minister himself, when he asked, “What will happen
to the grain we procure and store in the godowns?” (
Business Line 2015; and reports in a number of other newspapers.)
While there are a number of things that need to be done to support
farmers and agriculture in the country, what is also needed is expansion
in procurement operations both by the number of crops and regions
covered. Procurement currently is largely concentrated in only a few
states with farmers in food-surplus states such as Bihar and West
Bengal, which hardly benefit from MSPs (the Shanta Kumar Committee
report also points this out).
6 However, the conclusion from
this is not to stop procurement, but to strengthen infrastructure and
close other gaps which will allow small farmers across the country to be
able to sell to the FCI/state governments at remunerative prices. This
is an important concern and is all the more significant today when food
prices are falling.
India continues to be a country where there are still a large number
of people dependent on agriculture for their livelihood. At the same
time it is also true that most people are net buyers of food from the
market. There is therefore a need for a system which ensures
remunerative prices for farmers while keeping prices low for consumers.
Cash transfers cannot be an apt instrument to compensate farmers for
unremunerative prices or for that matter any other subsidy, given the
complex nature of the agrarian production structure in India.
7
The PDS is rightly placed to play such a role for supporting
agriculture and food security and in spite of its many shortcomings has
been playing such a role in the past. During the global recession and
food price inflation (2008–11), the PDS was credited for being one of
the factors that helped keep India insulated from the crisis to a
similar extent (Dev 2010). At the same time it was also seen that
mismanagement of this system can lead to inflation and distortions in
the food economy, which are not favourable to the poor (Chandrasekhar
and Ghosh 2013; Himanshu 2010). The excess stocks that have been
maintained now for the last six years are a result of such mismanagement
and need to be distributed through an expanded PDS rather than being
allowed to create artificial shortage and inflationary pressures in the
market.
Summing Up
The experience of other countries is that cash transfers there were
not introduced as substitutes to other public programmes (Ghosh 2011).
While Brazil has its Bolsa Familia programme, it also has a number of
other schemes to ensure zero hunger including direct procurement from
small farmers, provision of highly subsidised meals through community
canteens, school mid-day meals and so on. In India on the other hand,
cash transfers are being seen as a substitute that will replace the PDS
(Chmielewska and Souza 2011). Moreover, countries such as Brazil and
Mexico have a completely different context where they are much more
urbanised and therefore better connected, and are much ahead of India in
terms of education, health and nutrition indicators.
Some cash transfers are of course important and exist in India as
well—pensions for the aged, single women and disabled, maternity
benefits, and scholarships for disadvantaged children are all cash
transfer systems which need to be strengthened. The resistance is not to
the idea of cash transfers itself, but to cash transfers being seen as a
panacea for all poverty-related problems in India, and in the present
case for the replacement of the PDS by cash transfers. Most public
programmes in the country suffer from leakages and poor implementation.
However, there are examples within India itself, where these same
programmes have been made to deliver to the poor. The choice really is
whether we
invest
in improving the delivery of services (something which needs to be done
for even cash transfers to succeed), or we throw the baby out with the
bathwater.
