Emboldened by the success of DBT (direct benefit transfer) in LPG, the government is keen to launch this in food and fertilizers. To begin with, it will launch a pilot scheme in Puducherry where 330,000 ration card holders could receive Rs 300-400 a month each in their bank account in lieu of their monthly quota of rice after the lists are validated and their bank accounts are seeded with Aadhaar. Beneficiaries will be free to spend the money on any thing, not necessarily grain. If, the pilot in Puducherry is successful, it will be rolled out in other Union Territories (UTs)
When juxtaposed with Modi – government’s tall claim about implementing DBT [a committee under Mr Shanta Kumar – a senior BJP leader – recommended its early implementation besides prime minister himself exhorting concerned officials to put it on fast track], this is a tiny step. Considering that there are 676 districts and we are only at a pilot stage in a small place [that too yet to start], at this pace, it will take several years or even a decade to see this happening all over India.
The erstwhile UPA – government too had initially talked big but dragged its feet. Thus, in January 2013, it announced a nation-wide roll-out of DBT covering subsidies and other payments under all 29 welfare schemes. But, even before ink was dry, the scope was substantially diluted. While excluding fertilizers from the word go, in case of food, it announced its intent to launch pilot schemes from April 1, 2013 in six union territories (UTs) [and any state willing to implement it].
Under a draft model scheme finalized by food & civil supplies ministry, Food Corporation of India (FCI) will issue food grain to states/UTs at ‘economic price’ plus its handling and distribution cost. The fair price shops (FPS) will sell to consumers at price equal to economic price plus dealer’s commission say ‘X’. The difference between ‘X’ and target price will be credited in the bank account of consumers. The funds will be transferred to the beneficiary a month in advance of monthly purchase.
The model draft remained on paper as UPA did not implement the pilot schemes. Modi – government has resurrected the idea but real action on the ground is missing. A bigger question is whether it has applied its mind on how to structure the scheme so that intended benefits reach consumers in full and pitfalls of the kind afflicting extant dispensation are avoided.
Under existing targeted public distribution system (TPDS), consumers get their quota of food from FPSs at a ‘target’ price which varies depending on the category viz., below poverty line (BPL) or above poverty line (APL). The price applicable to BPL is substantially lower than for APL. For the very poor covered under Antyodaya, price is Rs 1/2/3 per kg for coarse cereals, wheat and rice respectively. The excess of procurement, handling and distribution cost over target price is reimbursed to FCI/other state agencies as subsidy.
The system encourages inefficiencies in entire supply and distribution chain, prone to large-scale leakages/diversion of subsidized food for black marketing and leads to unsustainable increase in food subsidy. A scheme of DBT is intended to get rid of all these drawbacks. However, implementation of a draft model on the lines finalized by food ministry in 2013 per se won’t help much as it merely shifts the point of subsidy payment from supplier to consumer even while continuing with TPDS.
Modi – government has no intention of shunning TPDS either. Yet, if DBT is implemented, this could lead to catastrophic consequences. Imagine a FPS selling rice at Rs 30 per kg but consumer can afford only Rs 25 per kg [as per a calculation by food ministry viz., 1.25 times MSP of paddy Rs 13.6 per kg (2014-15)/0.67 and includes Rs 3 per kg as target price and Rs 22 per kg cash transfer]. In such a scenario, who will come forward to buy his stuff?
Under present dispensation, sale price being highly subsidized [Rs 1/2/3 per kg in states where National Food Security Act (NFSA) has been rolled out], consumers are ever keen to buy. Plus, FPS has an added incentive of making extra money by diverting to market [illegal though]. Under DBT, it will not only forgo this bonanza, but won’t even be sure of recovering the cost. This can lead to large-scale closure of FPSs which may seriously disrupt supplies of food. The outcome will be similar if for some reason [technical or due to inadequate budget allocation] subsidy does not reach beneficiaries in time.
In view of above, government should first go for holistic reforms in food sector. This will require dismantling of all controls on supply and movement of grains and allowing un-fettered entry of private sector [all states will have to abolish APMC acts]. The TPDS or NFSA which is cast in the mould of control will have to go. As regards requirements under various schemes such as Antyodaya or mid-day meals, nothing prevents the state from making purchases either directly from farmers or sourcing from market.
These steps will lead to participation of private trade/corporate sector, cooperatives and farmer’s organizations [besides state agencies]; give a boost to investment in infrastructure for storage, handling, transport; enhance efficiencies in the supply and distribution chain and eventually help in substantial reduction in cost of making food available in every nook and corner of the country. Millions of consumers will have access to food at lower prices without state having to chip in with subsidy support.
Notwithstanding above, the poor and the very poor households will need subsidy and that is where DBT will come in handy. The process of their identification should start now. Already, under PM Jan Dhan Yojna (PMJDY), around 150 million accounts have been opened but that includes all and sundry. Banks and states need to coordinate efforts to segregate the poor and authenticate with Aadhaar cards if not already done.
The government should put in place a fool proof eco-system to ensure that (i) all poor households have bank account; (ii) subsidy for each month’s purchase is deposited at least one month in advance; (iii) subsidy amount is regularly adjusted to cover variations in price (iv) use of cash for any purpose other than food is prevented and (v) beneficiary should have freedom to buy any type of food and from where ever he likes.
So, Modiji should not commit the folly of looking at DBT in isolation. He should view this in conjunction with comprehensive reforms in food sector and do proper sequencing i.e. first unshackle the sector followed by implementation of DBT. Or else, he will run the risk of triggering a disaster.