Give them food, not money

The government intends to place cash in the hands of the poor through the nationwide ‘direct benefits transfer’ scheme.

Elaborate technical support is being mobilised to ensure that the poor are no longer left to the mercy of middlemen and corruption. In the process, the government also does away with subsidies.

Given that there are no leakages and shortcomings in the process of reaching the money to the poor, will the poor spend the money exactly for what it is intended?

This question is not limited to the choice between alcohol for the adult male and nutritious food for the family. Even if there are no vices in the family, will the poor still have the preference to consume food and clothing, for which they are being paid?

UNSATISFYING MEAL

Much of our understanding of the economics of consumption depends on how we define ‘one’ - i.e. ‘one’ meal, ‘one’ cup of tea, etc.

If we can precisely define the quantity ‘one’ then we can understand what happens when the consumer consumes less than ‘one’.

When we say ‘one’ meal, the consumer knows what and how much it ought to be. Consuming less than that quantity causes a peculiar kind of deficit.

To experience the deficit, drink half a cup of tea, or better still, eat half a meal. You will realise that you were enjoying mouthful after mouthful but did not have enough to eat. (Enjoying mouthful after mouthful is high marginal utility and not having enough to eat is low total utility).

This deficit in economics could mean that the consumer would have to pay a higher price than the utility he derives. In such a case he would not be happy to consume the meal.

If the meal is less than ‘one’ meal, the deficit leads the consumer to place more value on the additional unit than the partial meal he consumes. (That is to say that the marginal utility or price of a fractional quantity exceeds the total utility by virtue of the fraction.)

Now, we can attempt a sort of ‘definition’ of how big or small the single unit ought to be. The poor consume just gruel and salt in one meal. This could be defined as ‘one’ as long as it covers the minimum calorific intake prescribed by the poverty line. Yet the term used to describe the poorest of the poor, eligible for cash subsidy, is ‘below the poverty line’. So this is consumption less than ‘one’.

MONEY AND CHOICE

In such cases, it can be noted that even at higher consumption levels the deficit (excess of price over utility) is present, in fact, in larger measure. So we can call it permanent consumer deficit. A case of: “I have tasted the consumption of the fractional meal and know how much utility it yields. So I don’t want to consume any more”. In the case of such a deficit it is anyone’s guess that the poor would not be prepared to consume essentials, given a choice.

A consumer would consume a commodity only if he requires it, and not if he can forgo it. Yet, the fact is that forgo-ability does yield utility, even though economics is wedded to the concept that only consumption yields utility.

The best example for this is the burning of foreign cloth by Gandhiji. People were forgoing consumption of the cloth, yet they were deriving utility.

A soldier, for example, who does not consume water for a long time builds up a forgo-ability for water and thus increases his utility from water when he does consume water.

The poor also when they forgo consumption of essentials, derive utility from forgo-ability.

The further observation is that the consumption of essentials less than ‘one’ unit causes the demand curve of the poor to be elastic while we expected it to be inelastic. It is, in fact, more elastic than the demand curve of the not-so-poor.

This is because unless the poor enjoy consuming the commodity, they are not going to have an inelastic demand curve for such consumption. The poor consume gruel and salt only because they have no choice.

Given the choice they would consume something else. This also makes the consumption of essentials by the poor forgo-able.

When money is given to the poor, forgo-ability becomes easier as money brings with it the choice of many other goods and services.

It must be noted that giving money does not meet any specific requirement as the poor can now spend it on anything else. Due to these, giving aid to the poor in cash is not justified.

NO PRICE REFERENCE

In contrast to this, we find that giving the aid in kind meets a specific requirement. What is given in kind is consumed by the beneficiary. (There is also no price and no need to relate the marginal utility to the price. Marginal utility is now irrelevant).

Consumption can be carried on without any deficit even if the quantity consumed is less than ‘one’.

Yet there are practical difficulties in giving it in kind. So, policymakers are thinking of giving the aid in cash.

We must note that at least the essentials have to be given in kind because the ‘gap’ between the marginal utility and total utility is higher in the case of necessities than non-essentials.

For instance, the successful NREGA that gives employment to the poor for 100 days in a year can be used to deploy 2-5 per cent of its labour force, subject to the same employment terms, to run dairies and poultries for the exclusive consumption by the poor in the same locality.

Such nourishment in kind would help keep the poor away from deficit and forgo-ability in the consumption of nutritious food.

(The author is a freelance writer.)

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