Cash Transfer of Food Subsidy

On 21st August, 2015 notification was issued for the implementation of the Cash Transfer of Food Subsidy Rules, 2015, under the National Food Security Act, 2013. The Rules aim for Direct Benefit Transfer (DBT) for food grains on pilot basis in UTs of Chandigarh and Puducherry.  The Rules stipulate that the DBT scheme shall be implemented in identified areas for which there is a written consent of the State Government for implementation of the Scheme.

Salient Features of the Rules

State governments may implement cash transfer of food subsidy in areas which have fulfilled the following conditions:

With respect to Identification

• Completed digitization and de-duplication of the beneficiary database.
• Merged bank account details with the Aadhaar numbers.

With respect to management

• Food grains supply: Ensured adequate availability of food grains in the open market.
• Money transfer: Identification of a state agency which will receive funds from the central government and transfer them to accounts of beneficiaries.

Computation of Amount of Food Subsidy Payable

Rule 5 of the Rules stipulate that the amount of food subsidy payable to beneficiaries shall be computed by multiplying -entitled quantity of food grains with difference between 1.25 times applicable Minimum Support Price (MSP) and the Central Issue Price (CIP) or as may be revised from time to time by the Central Government.

Government for the entitled households and to transfer the due amount of subsidy into the bank accounts of entitled households through Public Financial Management System.

Current Status of Implementation of DBT

Puducherry is the first Union territory/state to implement direct benefit transfer (DBT) scheme for disbursal of food subsidy to the beneficiaries. On 22nd May 2016, pitching for direct transfer of food subsidy, Union Food Minister Ram Vilas Paswan asked states to initiate a pilot programs in at least some districts to pay cash directly to ration card holders. The direct transfer of food subsidy would enable ration card holders to purchase their choice of food grain from the market and also reduce the subsidy bill with reduction in cost of transportation and handling of food grains.

Under the food security law, the Centre is supplying food grains at a highly subsidized rate of Rs 1-3/kg to 72.46crore beneficiaries in 33 states and union territories, however in this two states namely Kerala and Manipur are yet to roll out the law.

Argument against policy

• Advantage of PDS over cash transfers from the perspective of the poor includes PDS supplies rations at a constant price, irrespective of the fluctuations in market prices. This therefore provides a shield against inflation, a benefit that cash transfers cannot match.
• Adequate infrastructures- like banks, electricity, still remains elusive in the larger expanse of the country
• Financial literacy in India is very low and half of its population are still to become a part of financial inclusion. DBT will not address the need of this section of population while PDS effectively serve.
• Would expose Economically Weaker sections of the society to the vagaries of market related negotiation, where they can be easily duped.
• However, though the DBT gives a choice to beneficiaries to buy food grains from anywhere in the open market, it is not possible to ascertain actual utilization of cash.
• Besides, State Govt. also needs to ensure round the year availability of food grains with easier access to beneficiaries at a reasonable price.

Argument for the policy

• Under DBT, cash transfers occur in the bank accounts of the beneficiaries directly, thereby ruling out possibility of leakages.
• Would help people in buying food items of better quality.
• It also leads to savings in operational expenditure involved in procurement of foodgrains, its storage and distribution through Fair Price Shops.
• Would significantly trim down the subsidy related expenditure of the government
• Transferring money would reduce the instances of market distortion, and will ensure free play for the demand and supply equilibrium to be struck.

Way forward

To change a policy which has been going for decades required proper Consultation with concerned stakeholders. Recommendation of Shanta Kumar Committee- required overhaul in the process of procurement, transportation and distribution, even parliamentary standing committee has talked about GPS tracking of trucks to check diversion, in short they have uphold the relevance of PDS in ensuring food security for the country, which 97^th out of 118 country in Global Hunger Index.

Therefore instead of substituting food with cash, political will be shown and government must take into account all the possible implication of the move, and then march ahead, keeping the welfare objective, as enshrined in the constitution of the country, in mind.