Some Thoughts on Direct Benefit Transfer for PDS

       Some Thoughts on Direct Benefit Transfer for PDS

              As has been recommended by the High Level Committee for restructuring of FCI and decided by the Government a Pilot Scheme for Direct Benefit Transfer for foodgrains is to be launched for the Union Territories of Chandigarh, Puduchery and Dadra & Nagar Haveli.  Under this Scheme, it is proposed to directly transfer the amount of food subsidy to the bank accounts of eligible beneficiaries in order to enable them to procure foodgrains directly from the market.

            This scheme is indeed laudable in its objective as it would give choice to the beneficiaries for buying foodgrains and also take care of the leakages in the Food Supply Chain Management System.  However, the implication of such a scheme would have an impact on the operations of the Food Corporation of India as also for the Government’s objective to ensure remunerative prices for farmers and making available foodgrains in all parts of the country at prices fixed by the Government.  Presence of a player like Food Corporation of India in the procurement and management of rice and wheat ensures that prices of rice and wheat in the Open Market are also controlled.  This is evident if one looks at the rate of inflation for rice and wheat compared to the increase in prices for pulses and oilseeds.  Further, procurement of almost 30% of the production of rice and wheat by FCI and State Agencies for the Public Distribution System ensures that farmers get the Minimum Support Price that is announced by the Government.

Issues with Direct Benefit Transfer:  

1.         In case DBT was to be introduced and beneficiaries were allowed to procure foodgrains from the Open Market there would always be a risk of varying prices across the country and hence the admissible food subsidy for DBT will vary from State to State.  Thus a beneficiary in Punjab would be eligible for a lesser quantum of DBT as against a beneficiary in Mizoram.

2.         Further, the quantum of food subsidy to be given as DBT would depend on the prevailing prices and in case foodgrain prices spiral up on the pattern of the prices witnessed for pulses there would be a risk of food subsidy going up in an uncontrolled manner.  This would have huge impact on the finances of the State.

3.         Further, in the absence of procurement operations by FCI or State Agencies there would be no mechanism to ensure that farmers are getting the MSP for their produce.  This might lead to stress amongst farmers.

4.         Another issue would be to ensure that the amount transferred for food subsidy as DBT is actually utilised by the beneficiaries for procuring foodgrains.  Without a fool proof mechanism it may result in utilisation of the funds released on expenses other than foodgrains and the likelihood of hunger and starvation cannot be ruled out. 

In view of the above, the following is suggested for effective implementation of DBT scheme:-

i)             The key objectives for introduction of DBT are to ensure an efficient Food Supply Chain Management System and to eliminate leakages and corruption in the Public Distribution System.  The prime reason for leakages is the price differential between market price and the issue price of foodgrains under various schemes.  If the issue price of foodgrains is made the same as the economic cost of FCI there would be no incentive for diversion or leakages.

ii)            Thus FCI and State Agencies would continue with its procurement, storage and movement operations.  However, they would be required to sell the foodgrains to the State Government at economic cost and thus the Corporation would be forced to adopt efficient management techniques to ensure that FCI is able to operate in the market as State Governments would be free to procure from either FCI or from the open market.

iii)           The Government would fix the Central Issue Price under various Schemes which will be close to the economic cost of FCI and the difference between the Central Issue Price and the existing Issue Prices will be transferred to the bank account of beneficiaries through Direct Benefit Transfer.  Thus, the beneficiaries will be getting the necessary funds for buying foodgrains.

iv)           The State Government would make available the foodgrains through network of Public Distribution System at the fixed issue prices and citizens will pay the issue price which will be close to the economic cost of FCI.

v)            Another alternative could be that FCI or Agency of the State Government could undertake home delivery of foodgrains to the beneficiaries.  This can be done by delivering foodgrains for six months at one go directly to the home of the beneficiaries.  This would require making 30 kg sealed bags @ 5 kg of foodgrains for six months.  These bags can be sealed and branded so that there is no issue with regard to quality and quantity of foodgrains being issued. Depending on the size of the family of a beneficiary five or six 30 kg bags can be delivered once every six months and verification of the same be obtained through Aadhaar based biometric system.  Payments can be made electronically through the Jan Dhan Debit cards. This would save the need for the beneficiary to make a trip to the Bank for withdrawing cash.  Details of foodgrains issued along with the date and quantity can be made available on a public website so that anyone can verify the actual distribution of foodgrains.

Abhishek Singh

(Views are Personal)