Economy

Ten Facts That Set the Record Straight on Cash Transfers

The cash transfer debates are apparently back in vogue. But unfortunately cash is repeatedly pitched against subsidized foodgrains. Sarath Davala’s ‘Another Kind of Welfare’, for example, as a rebuttal to Rakshita Swamy’s ‘A State only in Name’ is riddled with unpalatable contrasts.

So here are 10 quickly digestible facts to set the record straight:

1. Almost half of rural homes purchase rice each month from ration shops

The number of families that depend on food rations has doubled in the seven years between 2004-5 and 2011-12. At last count, 46% of rural homes purchased rice and 34% wheat from fair price shops.

There has been an impressive revival of the PDS especially in the poorest states. Even before the enactment of the National Food Security Act in 2013, 67% of rural household in Chhattisgarh, 54% in Odisha and 45% in Bihar purchased subsidised rice from ration shops.

The presence of the public distribution system in the four Southern states is ubiquitous. There routinely more than 75% of rural households buy their rice from fair price shops.


Source: National Sample Survey (2015), Public Distribution System and Other Sources of Household Consumption, 2011-12, Report 565

2. Leakages in the PDS have declined in seven years, especially in Bihar

Davala’s assertion that “the national average of pilferage in the PDS system is 48 per cent” is patently untrue. Economists Jean Drèze and Reetika Khera have calculated from the National Sample Survey (NSS) that PDS leakages fell from 54 to 42 per cent between 2004-05 and 2011-12. In Bihar, for example, leakages plummeted within two short years from 75% to 24%.


Source: Drèze and Khera (2015), Understanding Leakages in the Public Distribution System, Economic and Political Weekly, L(7) based on NSSO 2004-5 and 2011-12

In the seven years, the India Human Development Survey (IHDS) reports an even greater decline from 49% to 32%.


Source: Drèze and Khera (2015) Understanding Leakages in the Public Distribution System, Economic and Political Weekly, L(7)

3. Universal cash transfers could cost 8 per cent of India’s GDP

Back-of-the-envelope calculations show that Unconditional Basic Income (UBIs) to every Indian equivalent to the international poverty line could cost as much as 8 per cent of GDP.

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Of course as Davala contends cash transfers, “need not replace the existing welfare system altogether”. So it is utterly unfortunate that they are usually pitched against subsidised foodgrains. After all, subsidised foodgrains are not strictly comparable as they do not have universal coverage and currently cost the exchequer around 1 per cent of GDP.

While UBIs may become viable in future, miniature pilots also discount inherent fallacies of composition. Expanded to scale, for example, UBIs could trigger runaway inflation.

4. Large-scale cash experiments in Delhi and Puducherry have flopped

It is also important to acknowledge that while the small-scale SEWA study in Madhya Pradesh may have thrown up “quite positive” results, larger ‘live’ interventions have repeatedly failed.

Delhi’s 2012 Anna Shree Yojana launched with much fanfare for one-lakh families in lieu of foodgrains, for example, has been quietly wound up.

This summer, Puducherry too abandoned within two months the largest cash rollout for 3 lakh families. Cash doubled the workload and transaction costs of families – first to trudge to the bank and then to purchase foodgrains.

5. India has 5,00,000 ration shops compared to only 43,000 bank branches

Further bank branches are few and far between. Even Puducherry, despite being a highly urbanised union territory with excellent infrastructure, has more ration shops than bank branches – a reality across large parts of India.

Across India, half a million fair price shops exist in three of every four villages. In comparison, bank branches are present in only 8 per cent and post offices in a quarter of villages. Gujarat, for example, has 1 ration shop for every 3,500 people compared to 1 bank branch for only every 25,000 population.


Sources: Ration Shops: GOI (2011), State-wise Number of Fair Price Shops  (As on 30.06.2011), Ministry of Consumer Affairs, Food and Public Distribution, Press Information Bureau. Bank Branches: Reserve Bank of India (2014), Basic Statistical Returns of Scheduled Commercial Banks in India – Volume 43, Table No 1.2

6. The poorest families often get excluded from cash transfers

Any switch from existing subsidies to cash must indeed be implemented as Davala emphasizes, “without hurting any of the stakeholders”. But the 2011 Kotkasim Direct Benefit Transfer (DBT) kerosene experiment revealed that poor families who cannot navigate complicated cash systems invariably get left out.

Their ouster is then heroically projected as cost savings such as the purported `12,000 crore drop in LPG subsidies. But exclusion errors, hidden costs and negative externalities often go under-reported.

7. The international experience of cash transfers is mixed, but the Indian government considers them “Nirvana

The international experience of cash transfers is distinctly mixed. Across the border alone, for example, Bangladesh’s targeted primary education scholarship unlike its superior female secondary education stipend is whittled by corruption. Similarly Nepal’s universal old age pension is leagues ahead of India’s targeted one.

So, Davala’s dismissal of all skeptics as “ideologically disinclined” is a disservice. On the other hand, the Indian government has repeatedly positioned DBTs as “game changing”? The Indian Economic Survey dedicates an entire chapter touching titled, Wiping every tear from every eye: the JAM (Jan-Dhan, Aadhaar, Mobile) Number Trinity Solution, which equates cash transfers to no less than “Nirvana”. Recently even the Finance Minister extolled its virtues.

9. The rich rarely #GiveItUp, especially cash

But is it possible in the first place to identify who is poor before dishing out cash?

The Prime Minister’s #GiveItUp campaign to induce the rich to voluntarily relinquish their LPG subsidy speaks volumes of this inherent flaw (and even that hasn’t worked – only 0.35% LPG users enrolled to give up their subsidy).

Aadhaar may be an integral part of the larger JAM trinity, but the Supreme Court has now also unequivocally ruled against Aadhaar numbers being made compulsory for any government service.

10. The Food Act has been illegally postponed thrice

The National Food Security Act promises, two of every three Indians 5 kilos of subsidised foodgrain every month. Nevertheless, the government seems intent on eating into the food subsidy of the poor to dole out cash. The NDA government since it assumed power has illegally postponed the law thrice.

When will Indians be able to spread poet Pablo Neruda’s ‘The Great Tablecloth’ and ‘sit down to eat, with all those who haven’t eaten’? Or will we have to keep chewing on cash?

Featured image credit: shankaronline/Flickr, CC BY 2.0.

  • Mukesh Kamath

    Points well received. Govt is thinking of launching dbt for food only in cities. Delhi annashree yojana was a great success. It was wound up for other reasons. Kotkasim experience is so because it was launched too early and proper precautions were not taken. We cannot force anyone to relinquish subsidy. So this .35% is good enough to start with. Cash transfer in puduchery should have been pursued with greater perseverance.

    • da3mon

      Yeah the doublespeak is interesting. The Author tried to pass the winding down of the Delhi scheme as a “failure” without providing evidence for that. Since when does the government scrap schemes for “failure” ? That is done for political reasons,

    • da3mon

      She also conveniently forgets to mention the fact that prior to the Vajpayee government, the PDS system for 50 odd years was exactly what she wanted: it was universal, not cash based, etc and it was a massive source of corruption. In the name of “serving the poor” it was serving bureaucrats and middlemen. It is only after that time that the PDS system stopped being a joke and became an actual scheme towards poverty alleviation.

  • Meenal Mamdani

    The author makes many valid points but seems to be as ideologically opposed to giving cash as the earlier author is devoted to it. There have been some randomized controlled trials done by J-PAL that have shown that direct transfer of cash is more beneficial to the people than delivery of specific items. Give Directly, an NGO in Kenya, has been using this method for a while while fine tuning it at the same time. Also, why must one choose one or the other. Could we not have a blend of the two ways depending on the recipient? All poor people are not alike and may be there is a place where DBT may prove useful.

  • Mukesh Kamath

    Much water has flown in the ganges since the article was published. One of the shortcomings ie inadequate bank coverage is about to get solved. With 100 crore Jan dhan accounts, 100 crore mobile phones and 100 crore aadhaar numbers soon and a payment banks and cashless way of payment ie unified payment interface about to be launched you would want to revisit your assertion unless you’re indeed disinclined.

  • Nitya

    Factual errors – Bank branch numbers by the website are grossly incorrect. It stands at above 1.5 lakhs today. While the point you try to make with these numbers is still supported, I think while comparing FCI shops with cash-out points – the article should also take into account business correspondent networks and then stack up the comparison. FCI will still emerge as a superior network, but it will be not be a such lopsided and misleading picture.