The Economic and Political Weekly (EPW) is an important source of study material for IAS, especially for the current affairs segment. In this section, we give you the gist of the EPW magazine every week. The important topics covered in the weekly are analysed and explained in a simple language, all from a UPSC perspective.
1. Food Subsidy in Cash or Kind?
- Food subsidies, currently availed in the form of subsidised cereals, be given out in the form of cash instead.
- Arguments have been advanced on both sides of this debate, which remains largely unresolved so far.
About the debate
- Either the PDS should be entirely replaced by cash transfers, or it should remain entirely in-kind.
- Hardly any family gets its food entirely from the PDS or entirely for cash. Most make use of both systems.
- Some analysts and official agencies have come out in favour of the cash alternative.
- Other scholars have argued that the food security of the country’s poorer citizens is better ensured by retaining the existing mode of in-kind subsidies given out through the public distribution system (PDS)
Significance of Public Distribution System in India
- The need for the public distribution system varies widely across states and districts. In some districts, the poor draw more than 80% of their grain from thePDS, but in other districts this share is less than 10%.
- A wide diversity of relationships with the PDS exist, suggesting a need for alternative modes of provisioning.
- On an average, across the country, less than 30% of BPL (below poverty line) households’ total grain consumption derives from the PDS, while more than 70% is sourced from the market.
- The relative shares of the PDS and the market in the grain supply of the poor vary considerably from district to district and from state to state.
- People in some districts get more than 80% of their grain supply from the PDS, whereas people in other districts source less than 10% of their grain from the PDS.
Diversity of relationships with the PDS in states
- On an average, across India, 12.2% of households get more than 70% of their grain supply from the PDS.
- But, there are six states—Jammu and Kashmir, Himachal Pradesh, Chhattisgarh, Maharashtra, Goa, and Tamil Nadu—in which more than 20% of households are highly PDS dependent.
- On the other hand, less than 10% of households are highly PDS dependent in 10 other states.
- Differences across states are larger when only BPL households are considered.
- The PDS is meant to provide fair-priced foodgrains to APL households and subsidised grains to BPL households.
- The percentage share of heavily PDS-dependent BPL households is greatest (50.5%) in Maharashtra.
- In seven other states—Jammu and Kashmir, Himachal Pradesh, Jharkhand, Rajasthan, Chhattisgarh, Kerala and Tamil Nadu—this share is greater than 30%.
- At the other end of the spectrum, the share of BPL households who are heavily dependent on PDS is only 3.3% in West Bengal and 7.6% in Andhra Pradesh.
- Therefore, implementing a cash alternative will have different implications in different states. Replacing the PDS pipeline for 6% of grain consumption is a qualitatively different matter compared to replacing half or more of the grain supply line.
Benefits of the cash alternative
- The freedom to buy the grains one prefers—including grains like bajra and maize that are not supplied by the PDS—and to buy them at a place and time of one’s selection
- The enhanced bargaining power that the ability to exit any particular shop provides to the consumer
- The reduced need for the authorities to closely safeguard against leakages in the PDS pipeline of subsidised commodities.
- The considerable savings that should accrue to the taxpayer from having a system that is less administratively heavy.
Disadvantages of cash alternative
- The distant location of banks and post offices from many villages
- Shortages of public transport facilities in some areas.
- Single-member households, elderly and disabled persons, who worry that cash means going to two places (bank and ration shop) instead of one
- The lack of familiarity, in situations of low literacy, with banking procedures
- The inability of the existing bank network to cope with a suddenly enlarged demand for services, as witnessed in the chaotic scenes seen at the time of demonetisation
- Reports of corrupt practices in handling MGNREGA payments
- The fear that, without the anchor of the PDS, the balance of power will shift towards traders and away from consumers
Design principles for implementing Cash alternatives
- States should have the right to opt into (or stay out of) the testing of alternatives.
- Families within these states. should also have the right to opt between food and cash. They should also have the right to reverse their choices. The choice for a family must not be made by someone else.
- Retain and strengthen the existing network of PDS outlets—making them partners, and not adversaries, of the new system
- Food subsidies to BPL households should be given out, in the first instance, in the form of vouchers, distributed through the existing network of PDS outlets
- Food vouchers should be inflation-indexed cash entitlements, equal in value to x kg of wheat or rice at the prevailing market price.
- A far-reaching public information campaign must be run in the selected districts during the three to six months prior to the launch of the test in any district. People should know clearly the ramifications of both options.
Implementing cash alternative
- A prior test of the cash alternative, rolled out in three cities in 2015, violated several of these design principles and had to be hastily rolled back.
- Individuals were not given the right to choose whether they wanted to opt into or out of the cash alternative.
- Rather, the alternative was thrust upon them without any mass education campaign and without clear and well-known processes. The worst failures were observed on the part of the banks.
- In many cases, there were errors in the amounts deposited in individuals’ accounts: too much money was deposited in some accounts and too little in others.
Challenges in implementation
- Educating, motivating and policing two mammoth bureaucracies (the PDS and banks) and arranging for coordination between them hugely increases the workload and magnifies the risks.
- Poorly informed citizens are likely to panic.
- A widespread public information campaign preceding the introduction of the cash alternative helps bring clarity and purpose to the undertaking, enabling people to make considered decisions.
- No such information campaigns preceded the 2015 experiments.
- The potential benefits of cash are considerable, but the risks involved in replacing the PDS with cash are also large.
- Systems need to be developed and put in place that protect food security, especially of vulnerable households.
- These and other systems are not yet in place at the present, also it is uncertain about moving from the PDS to cash will be smooth or even that it will result in producing net benefits.
- However, since the cash alternative holds the promise of greater freedom of choice to the consumer while lowering the burden to the exchequer, it needs to be tried out with seriousness and care.
- The achievement of this promise is tricky in practice, which is why a sequenced plan of implementation, starting with a few pilot districts, is recommended.
- Change will occur incrementally. Even in the first set of districts, people will not switch to cash all at once.
- It can reasonably be expected that thePDS will continue for a long time even in districts where the cash alternative is implemented.
- There might well be some districts where the cash alternative is preferred by the vast majority of eligible households, and other districts where the majority prefer to obtainPDS grains.
- Trying to find a single solution is the wrong idea in a situation where levels of PDS dependence vary a great deal across households and districts. Those who want it should have the cash alternative; there should be no imposition of cash upon the rest.
For more EPW articles, read “Gist of EPW