The Telegraph
Tuesday , January 15 , 2013
Since 1st March, 1999
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Govt to test cash transfer waters for food

- Pilot project in six Union territories; social activists oppose proposal

New Delhi, Jan. 14: The Centre is poised to launch a pilot project to study the delivery of food subsidy through direct cash transfer, a proposed system that civil society groups feel will end up inconveniencing the poor beneficiaries.

The food and consumer affairs ministry will start the pilot scheme in the six Union territories next month, a top government source told The Telegraph.

Now, households buy food grains at subsidised rates (called the “central issue price”) from fair price shops. Under the proposed scheme, they will buy the grains at a somewhat higher price (called the “economic cost”) from these same shops while the government will send the difference to their bank accounts a few days in advance.

Social activists argue that this system will only increase the hassles of the beneficiary without raising the subsidy and make the scheme over-dependent on banks, which tend to harass the poor anyway.

Eye on buyers

The government has provided for some checks, though. One fear was that the beneficiaries might spend the cash subsidy for other purposes.

So, the government will watch the beneficiaries’ “purchase behaviour”. If a beneficiary fails to buy any grains from fair price shops for two months, his cash subsidy will stop. It will be restored only if he explains satisfactorily why he could not buy the grains.

If a beneficiary keeps buying less than his full quota of subsidised grain, the government will calculate his average monthly grain purchase and release a cash subsidy relative only to that amount.

The Centre has no immediate plans to deliver food subsidy through cash but hopes to use the experience from the pilot project to smooth the transition whenever it happens.

Economic cost

The economic cost of food grains is calculated from the Food Corporation of India’s expenditure on procuring them at the minimum support price and storing and transporting them. For instance, the economic cost is now about Rs 20 a kilo of rice and Rs 12 a kilo of wheat.

Now, the FCI allocates the grains to states for distribution at the central issue price, which varies between grains and the various categories of beneficiaries.

For example, the central issue price for 1kg of wheat is Rs 4.15 for below-poverty-line beneficiaries, Rs 6.10 for above-poverty-line households, and Rs 2 under the Antyodaya Anna Yojana for the poorest. For rice, the corresponding figures are Rs 5.65, Rs 8.30 and Rs 3.


The government says a direct cash subsidy will help check the sale of subsidised grains in the market (called “leakage”) and duplication of beneficiaries.

The National Sample Survey says that only 41 per cent of the subsidised grains reach the targeted households — which ties up with the Planning Commission’s 2001 estimate of a 58 per cent annual leakage.

Two years ago, a World Bank report cited “high leakage” as one key reason for India’s slow rate of poverty reduction. It recommended a long-term cash transfer system while advocating continuance of the current system in areas where access is a problem.

The cash transfer may later be linked to beneficiaries’ 12-digit Aadhaar or National Population Register number, the source said.


“In this whole exercise, a BPL (below poverty line) cardholder does not get any additional subsidy. Rather, he has to make the rounds of the banks to get the subsidy,” said Nikhil Dey, a Mazdoor Kishan Shakti Sangthan activist.

He said the government needs political will, not technology, to check pilferage. “Has anybody ever been taken to task for pilferage?”

Right-to-food campaigner Kavita Srivastava sounded a warning.

“The government launched a similar pilot project in Kot Kasim in Rajasthan for kerosene subsidy transfer. It failed because the subsidy did not reach the beneficiaries in time. This too will not be successful,” she said.

Dey said: “The cash subsidy will depend on an adequate banking network, timely flow of cash to the accounts, effective functioning of the public distribution system and proper communication between all the agencies involved. I doubt this can happen.”