Cash transfers more effective than PDS, says ICRIER-OECD report

Irrespective of teething problems encountered in places where it was launched as pilot, direct cash transfers are far more effective than food subsidy in reducing food insecurity and nutritional imbalances among the Indian population, a new report has shown.

Currently, India spends ₹1,45,400 crore — about 1.3 per cent of its GDP — to give food at highly subsidised rates (subsidies on grains like rice and wheat are as high as 90 per cent) to 67 per cent of the population. While State-owned firms such as Food Corporation of India procure, stock and supply rice and wheat in many States, in others, the States themselves do the same for which funds are released proportionately by the Centre. Nearly 30 per cent of rice and wheat produced in the country are procured at minimum support prices (MSP) for public distribution.

But, a study, recently published by the Indian Council on Research on International Economic Relations (ICRIER) and the Organisation of Economic Cooperation and Development (OECD), said direct bank transfers (DBT) would work better than the existing targeted Public Distribution Scheme (tPDS) as the former not only plugs the leakages, but also helps in ensuring better nutritional security. According to the ICRIER-OECD report, Agricultural Policies in India, released last week, thanks to tPDS, food consumption in the country is skewed towards wheat and rice and away from cheaper and more nutritious food.

“Instead of buying and physically stocking grains in such huge quantities, big countries like India can go for direct cash transfer to the consumers. It is not a 0-1 game, but one that is done a gradual manner, starting with cities, then to surplus States, and finally the others over a period of 3-5 years. Still, if the Government wants to retain food subsidy in many far-flung areas (where consumers do not have access to markets to buy grains or to banks), it can still do it,” said Ashok Gulati, Infosys Chair professor of agriculture at ICRIER, main author of the report. Such a scheme would be much more cost-effective and much more transparent and it can lead to lesser leakages in the system. Grain leakages in targeted Public Distribution System is said to be anywhere between 21 and 35 per cent, he said. India is home to one in four undernourished persons in the world and the situation changed only a little despite decades of public food distribution. Besides, as the cash transfer programme is less costly than the tPDS, the money saved by partially switching to DBT could be invested in research and development to improve agricultural productivity, enhancing irrigation facilities and market infrastructure.

Some glitches

It is not that India hasn’t experimented with DBT in food sector. Since 2015,the Centre has launched DBT in pilot mode in three Union Territories of Chandigarh, Puducherry and Dadra & Haveli. But in the surveys that evaluated the scheme, a number of beneficiaries complained either they didn’t receive the subsidy, or received the subsidy with a delay or received an amount of subsidy that was not sufficient to buy same amount of grains as they did under the PDS. The report called for solving these glitches so that DBT can be rolled out in other States.

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