Tag Archive PDS

India: Direct cash transfers is aimed at dismantling food procurement, and moving away from food self-sufficiency.


Some weeks back, I was participating in a panel discussion on  on a national TV channel. While the discussion wheeled around the merits and demerits of cash transfer, I think the anchor was taken by surprise when I said that  is in effect a ‘cash-for-vote’ programme. Supporting my argument with a World Bank study for Latin America, I found the entire focus of the discussion thereafter shifting to whether the real intention behind the aggressive push for  is aimed at the 2014 elections.While the media as well as most panellists who frequent the TV channels, for some strange reasons, were and are still reluctant to talk about the political ramifications of cash transfers, it was Rahul Gandhi who made it abundantly clear when he told his party men that cash transfer could win them not only 2014 but also the 2019 general elections. The entire academic euphoria over the proposed aggressive roll out of Aadhar-based (UID-lined) cash therefore is simply overbearing and needs to be seen in the light of political bias. In fact, the visible trend in the ongoing national debate is more towards being seen as politically correct.
A World Bank working paper, entitled: “Conditional Cash Transfers, Political Participation and Voting Behaviour,” studied the voting behaviour for a conditional cash transfer programme launched in Colombia just before the 2010 elections. Subsequently, a 2011 study of an unconditional cash transfer programme in Uruguay clearly established that cash transfers did help the ruling party get a large share of the votes, and thereby helped the party to romp home at the back of cash transfers. In India, the political urgency and the aggressiveness with which the massive cash transfers are expected to cover the entire country by April 2014 is therefore quite obviously aimed at bringing electoral benefit to the ruling party.

The unconditional direct cash transfer programme that is proposed to be launched from Jan 1 in three phases will start with 43 districts involving a cash provision of Rs 20,000-crore. Eventually, all forms of subsidies to the poor, including food and fertiliser, will be in the form of cash flow, and would add up to Rs 3 lakh crore annually. I fail to understand how and why such a massive cash outflow pipeline will reach the beneficiaries without first putting up a fool-proof delivery system in place. The Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) too was envisioned with a lot of expectations but has failed miserably to deliver. Several studies have pointed to nearly 70-80 per cent leakages, and yet somehow the impression is that MNREGA has transformed the rural economics.With only 40 per cent of the population having access to banks, and with an over ambitious target of reaching the remaining population through banking correspondents – who will be operating like the village postmen except they will now be equipped with portable handheld machines acting like micro-ATMs – we are perhaps expecting too much from the most important human link between the technology and the money delivery. So far, there are only 70,000 banking correspondents and the experience has not been very encouraging. In the next one year, the number of banking correspondents will have to increase ten-fold to reach a staggering figure of 7 lakh.
Knowing that the entire rural and agricultural banking operations are rooted in corruption, I wonder how we have accepted that the banking correspondents will not be swayed by corrupt practices. If 60 per cent of the beneficiaries have to be reached through an army of banking correspondent, who will be handling over Rs 1.5 lakh crore by any conservative estimate, the delivery mechanism is certainly fraught with over-confidence stemming from political urgency. This is where I think the policy makers and bureaucrats have failed to rise above assumptions. This is where I think the aadhar-based cash-for-vote will end up being no different than the hype generated at the time of launching MNREGA.
Nevertheless, what worries me more is when cash transfers move to the next phase, and that means meeting food entitlements directly with cash. Thanks to the concerns raised by the civil society, the government has deferred cash-for-food for the time being. It was more because of the fear that the cash-for-food programme could go completely out of control, and therefore could negate the political advantage that the ruling party is hoping to garner, that it has been kept in abeyance. At a time when the proposed National Food Security bill is pending introduction before the 2014 elections, any tampering without a proper evaluation could backfire.
It is true that close to 60 per cent of the food that is channelized through the public distribution system is either wasted or siphoned off in transit, and that the entire system is mired in corruption. What reaches the poor beneficiaries is often not even fit for consumption. The answer however does not lie in dismantling the  system, but reforming the world-largest food delivery system to riddle it of corruption, and make it more effective. This is certainly possible, but given the extent of political meddling in the allotment of ration shops to transportation of grains, it has never been attempted in right earnest.For several decades now, the international emphasis has been to force India to dismantle the PDS. The first attempt was made at the time of the infamous Dunkel draft during the primitive years of world trade negotiations. WTO aimed at curtailing the PDS role, and wanted markets to ensure food security. Strong opposition from India, cutting across political lines, forced the WTO to eventually withdraw that clause.Subsequently, in the name of decentralisation of food procurement and storage system, an attempt was made during the tenure of Atal Bihari Vajpayee to divest the Centre of its onerous responsibility of procuring foods for the central pool, and leave it to the States to manage grain procurement, storage and distribution.
Several chief ministers had opposed the decentralisation move thereby forcing the government to retreat.
For several years now, the emphasis has once again been on discarding food procurement. Allowing Food Corporation of India (FCI) to increasingly take on a commercial role by shifting focus from its sovereign role of ensuring domestic food security to looking for opportunities for grain exports, and finally to engage in future trading in wheat so as to offload and earn profits from the mounting surplus it carries. This has also to be seen in conjunction with the proposal to cap food procurement to the country’s buffer stock needs, and thereby deprive farmers of getting benefit of the assured price of wheat and rice. At present, FCI is under an obligation to purchase the surplus grains flowing in to the mandisat the Minimum Support Price. Once this role is withdrawn, farmers would be left at the mercy of trade.
Providing cash in the hands of poor beneficiaries means less emphasis on the PDS ration shops. The idea is to provide coupons or provide food entitlements in the form of cash, and leaving it to the people to buy their quota from the market. Whether the money provided would be used primarily to buy liquor, junk foods or other consumer goods is an important issue, but what is more important is to understand how it is aimed at dismantling the food procurement system. This subtle way, very cleverly designed, would undo the gains of food self-sufficiency so assiduously achieved after the advent of Green Revolution.The underlying objective is very clear. Once the direct cash transfers begin, the ration shops would be gradually phased out. Once the PDS shops are removed, the cap in food procurement that is being suggested for FCI will come into play. With food procurement limited to meet the buffer requirements, which is somewhere between 14 to 22 million tonnes a year (against 82.3 million tonnes stocked with the FCI in June 2012), wheat and rice farmers would no longer get the benefit of the minimum support price. Farmers would be left to face the vagaries of the trade, and as has been the experience in those States which do not have a robust system ofmandisand thereby unable to provide farmers with assured prices, distress sale will become a norm.
Withdrawal of food procurement system will have an impact on food production. This would help farmers to abandon farming, and migrate to the urban centres. This is exactly what the World Bank has been proposing for several years now. The 2008 World Development Report had called for land rentals and providing farmers with training opportunities so that they can be absorbed in the industry. The government, as directed, made budgetary provisions for setting up 1000 industrial training institutes across the country. It is therefore obvious that the government had wanted to withdraw from food procurement and distribution for quite long now, following the dictates of the World Bank/IMF. Cash-for-food will facilitate the process and make it easy. Food requirement will then have to be met from imports, and there is already a dominant thinking within the government which advocates importing subsidised food off-the-shelf from the western countries rather than spending more on growing food within the country.
FDI in retail comes at a time when contract farming is receiving greater attention. The idea is to link the farmers growing cash crops with the supermarkets. This will help the government from doing away with the system of announcing the minimum support price and thereby reduce the subsidy outgo. This is exactly what the World Trade Organisation (WTO) had wanted several decades ago. The process to dismantle food procurement, a highly emotive issue in India, actually began in mid 1990s. It is now receiving the final touches.
Prime Minister Manmohan Singh had repeatedly said that the country has 70 per cent more farmers than what is required. Cash-for-food will provide the smokescreen needed to accomplish what the WTO/World Bank/IMF have been telling India for long. It is only when of the farming population is moved out of the villages that the agribusiness can find a stronghold in India. The predominant economic thinking is that the population in agriculture has to be cut back drastically for any country to grow economically. Cash transfers will then be part of the bigger promise of igniting country’s economic growth. #

National Food Security Ordinance: Anything But Expensive

Vol – XLVIII No. 30, July 27, 2013 | Dipa Sinha

While critics have overblown the cost estimates of the National Food Security Ordinance, the ordinance itself is a missed opportunity. What is needed is a more comprehensive Act which incorporates measures such as procurement, storage and distribution through a decentralised, strengthened and universal public distribution system, among others and a strong grievance redressal and monitoring mechanism.
Dipa Sinha (dipasinha@gmail.com) is an activist with the Right to Food campaign.

With the promulgation of the National Food Security Ordinance (NFSO) last week, there have been many shrill voices warning the nation about the high costs of its provisions. The media, especially the TV news channels, have been continuously flashing figures on how expensive, and therefore harmful to the Indian economy the food bill will be. The most popular figures seem to be 3% of the GDP annually as estimated by the economist Surjit Bhalla (Indian Express, 6 July 2013) and Rs. 6 lakh crores over the next three years as estimated by Ashok Gulati, the Chairperson of the Commission of Agriculture Costs and Prices (CACP) (The Economic Times, 4 July 2013). It is necessary to understand how these figures have been arrived at, based on extremely dodgy assumptions. Further, there is a need to look beyond this superficial discussion and investigate how far this ordinance will go in addressing people’s hunger and malnutrition.
Surjit Bhalla uses an erroneous method to arrive at this estimate of Rs. 3 lakh crore per year. He assumes the actual consumption and outreach of PDS as reported by people in the NSS survey to be the current provision of the government and adjusts it to the proposed coverage and lower prices under the ordinance. So, he argues that according to National Sample Survey (NSS), 44% of the people get access to Public Distribution System (PDS) at an average of 2.1 kgs per head[1]. To expand this to 67% coverage and 5 kgs per head at lower issue prices as proposed by the ordinance, the food subsidy of 2011-12 (Rs. 72000 crores) has to be increased 4.3 times. The implicit assumption here is that the present level of leakages as reflected in the NSS will remain the same even after the ordinance is rolled out and further, that the government will allocate resources taking into account leakages. His calculations do not take into account the fact that the allocation of foodgrains under the Act will in fact go up only by 2 mn tonnes from 60 mn tonnes to 62 mn tonnes or that the current allocations are at three different issue prices for the Above the Poverty Line (APL), Below Poverty ine (BPL) and Antyodaya Anna Yojana(AAY) populations; or that currently the allocations are at the scale of 35kgs per household per month or even that the expenditure of many state governments on food subsidy will now go down as they will be getting grains cheaper from the central government. By using statistics to one’s own convenience without clearly mentioning the assumptions being made, such a method of estimating the food subsidy is only misleading.
Overblown Costs
By challenging readers to counter his calculations Bhalla tries to convince them that there can be nothing wrong with it. In fact the counter-question to be posed to Bhalla is how he proposes the Rs. 314,000 crores will be put to use. Food subsidy is the difference between the economic cost and issue price; which is currently around Rs. 20 per kg. To spend Rs. 314,000 crores the government will have to procure 157 mn tonnes of foodgrains, which is even more than the total marketable surplus of cereals produced in the country. Is he by any chance imagining that the NFSO will nationalise the foodgrains market? That would be too far-fetched for even someone like Bhalla!
Ashok Gulati on the other hand inflates his estimates by including “the investment in agriculture that will be needed to stabilise production, the investment that would be needed in storage and the investment that would be needed in transportation through railways”. The question to ask here would be whether these costs can all be attributed to the NFSO. “Food subsidy” only includes the cost to the exchequer on account of procuring foodgrains at minimum support prices, storing and transporting the grains and then selling them at a subsidised price to the consumers.
It is only fair that when we are comparing how much higher the food subsidy will be as a result of the NFSO, only these aspects are included in the Ordinance being taken into account. Moreover, is Gulati suggesting that the government (or he) does not think it is necessary to invest in agriculture and the only reason to do it would be to provide for the NFSO. The public investment in agriculture has stagnated since the 1990s leading to stagnation in the agrarian economy and this needs to be corrected to protect the lives and livelihoods of majority of our rural population and to ensure that we remain food sufficient and do not become import dependent like in the 1960s. This is a goal in itself whether we have a PDS or not. An expanded and reformed PDS can only contribute to revitalising agriculture by increasing decentralised procurement (which by the way will also reduce transportation costs) and including newer crops such as pulses and oilseeds.
The NFSO in fact is only a very small step towards ensuring food security. It is a myth that it is very expensive and that it will result in food shortages in the open market. The current food subsidy is around Rs. 90,000 crores. With an average subsidy of Rs. 20 per kg; the food bill will cost about Rs. 1,24,000 crores (for 62 mn tonnes). This is around 1.2% of the GDP and not 3% as projected by media reports. The other figure that is repeatedly quoted by the media is that food subsidy was only Rs. 25,000 crores 10 years back and it has been constantly increasing at a rapid rate. The reality is that as seen in the figure below from the Economic Survey of 2013 over the last 10 years the food subsidy has hovered around 1% of GDP. Interestingly, the percentage of households accessing foodgrains from the PDS has gone up from 28% in 2004-05 to 39% in 2009-10 and 44% by 2011-12 despite the expenditure remaining constant at less than 1% of GDP. This has also been accompanied by steep reduction in leakages in the PDS. In fact it is the improvement in efficiency of PDS which has been ignored by Bhalla’s calculation. But that also explains why the NFSO can still deliver subsidised foodgrains to 67% of the population without much additional costs if the PDS is made efficient.

Source: Economic Survey, 2013
This unfortunate discussion around the cost of the NFSO has only served to divert the attention away from the real issues. Similar attempts were made to derail the NREGA when it was being passed, with one estimate stating the Act will cost up to Rs. 2,08,000 crores a year. After it was passed, the expenditure on NREGA has been less than Rs. 40,000 crores a year.
So, how far does the NFSO go in addressing hunger and malnutrition? Is it indeed the “gamechanger” that it is being made out to be?
One of the positive aspects of the NFSO is that it presents the opportunity to move the PDS away from the current APL-BPL system (linked to the poverty line) which is fraught with problems of identification and ensuing exclusion of many poor to one where only the rich are identified and excluded and the rest are covered with uniform. The NFSO proposes to do this by covering 67% of the population at uniform prices of Rs. 3 for rice, Rs. 2 for wheat and Re. 1 for millets; while excluding the rest. The 67% is to be divided across the states based on their level of development. So states like Bihar, Uttar Pradesh and Rajasthan can expect to cover 80% or more of their rural population under the PDS. Such an expansion, if accompanied by some reforms, can be expected to go a long way in strengthening the PDS in these states. In fact, the NFSO can also be expected to contribute to lowering of leakages in the PDS. Recent studies based on NSS data and field surveys have shown that the extent of leakages in the PDS have been going down in many states. The PDS is functioning better in states where the BPL coverage has been expanded, where issues prices have been decreased and reforms in PDS have been initiated (Drèze and Khera, 2011; Himanshu, 2011; Khera, 2011; Sen and Himanshu, 2011) which is precisely what the NFSO aims to do.
Concerns with the NFSO
However, there are problems with the way in which the PDS entitlements have been currently defined. While the principle of excluding the rich and covering the rest is a sound one (of course, it would be even better if the PDS is universalised) the ordinance does not specify the identification criteria for exclusion. Moreover, a cut-off (75% for rural areas and 50% for urban areas) is prescribed at the national level but there is no clarity on what the percentages will be in each state. There is once again the danger of some poor being left out arbitrarily. What can be hoped is that the state governments take this opportunity to universalise coverage, at least in the poorest districts, by using state funds. The NFSO also provides only a limited quantity of 5kgs per head per month and restricts itself to cereals; where the minimum basket should have included pulses and oils. By doing so, the extremely inadequate diets of the poor could have been addressed to some extent.
The NFSO is also very limited in its entitlements for children, who ideally should have been central to a food security act. Child malnutrition levels in India are extremely high and it is well known that interventions to address malnutrition must focus on children under two years of age, pregnant and lactating women and adolescent girls. While the NFSO converts the existing schemes for mid day meal and take home rations in schools and anganwadi centres into legal entitlements, this is not accompanied by essential interventions for treatment of malnourished children, provision of calorie-dense local foods, growth monitoring, and nutrition and health education and so on. Addressing malnutrition would also require other complementary interventions such as access to basic health care, sanitation and drinking water.
The NFSO introduces a limited but extremely critical entitlement for women in the form of maternity entitlements for all pregnant women. By doing this, for the first time we recognise the right of children under six months to breastfeeding and that most women in our country are in fact ‘working’ women. However, once again the ordinance fails us by not going far enough – maternity entitlements are wage compensation for women to be able to stay home for rest and exclusive breastfeeding. They should therefore have been linked to minimum wages. But, the ordinance at least makes a beginning by including this very important entitlement.
The Congress is now in a hurry to implement the ordinance and reap electoral benefits. Such hurry without working out proper identification criteria and mechanisms can derail the entire process. On the other hand, many state governments over the last few years have moved many steps forward in improving their PDS – these states can now take advantage of the additional resources to universalise coverage and even provide other items such as pulses and oils if they are not already doing so.
In many ways the NFSO is a missed opportunity. A comprehensive Act which includes procurement, storage and distribution through a decentralised, strengthened and universal PDS, universal nutrition services for children, special provisions such as community kitchens in urban areas, provision of cooked meals for the destitute persons, social security pensions for the aged and strong grievance redressal and monitoring mechanism is the need of the hour[2]. One can only hope that when the ordinance is debated in the Parliament amendments towards strengthening its provisions as introduced by the Left and some regional parties are discussed and passed.
Bhalla, Surjit (2013): Manmonia’s FSB: 3% of GDP, Indian Express, 6 July 2013
Drèze, Jean and Reetika Khera (2011): PDS leakages: the plot thickens, The Hindu, 12 August 2011
Himanshu (2011): A revived PDS is visible now, Livemint, 16 August 2011
Khera, Reetika (2011): Revival of the Public Distribution System: Evidence and Explanations, Economic and Political Weekly, Volume 46 Issue 44
Sen, Abhijit and Himanshu (2011): Why Not a Universal Food Security Legislation?, Economic and Political Weekly, Volume 46 Issue 12


[1] 2.1 kg per head is the average consumption from PDS for the entire population and not just the 44% who are accessing PDS.
[2] See www.righttofoodindia.org for the Right to Food Campaign’s demands in relation to the Food Security Act. It covers all of these aspects.