Shifting from PDS to coupons or cash transfers: Assorted arguments

This is a part of a series of articles on the proposal to shift from PDS to coupons or cash transfers. To see the introduction, click here .

Please read other articles in this topic before getting here…

The cost of administering the PDS is high

Some economists have pointed out that the cost of administering the PDS is very high, and it is now possible to transfer cash to people at a cheaper rate.  This is one of the strongest arguments for a shift from PDS to cash transfers, in my opinion.  The amount of money that could be transferred just by eliminating PDS is substantial, and can go a long way in assisting poor families with it.

While making that argument, it is important to realise that an important proportion of the cost goes to transporting grains from surplus states to where it is needed, for warehousing, and other purposes that will not go away just by eliminating the PDS.  Perhaps the market will do this more efficiently, but we have not seen that happen with fruits, vegetables and other grains in which the government does not play a major role.  I should add that I am not ideologically presupposed to believe that the private sector does everything more cheaply than the government.  I would instead like a careful exercise to be made in understanding how the cost of private trade would change if the cost of transferring grains is absorbed by them instead, and if they are more efficient than the government.  The capacity that the government has to move around grains also has an impact on collusive speculation, something that we should be wary about in a country where food is a dominant part of the budget for such a large population.

The current system of procurements actually increases the price of grains for poor people who do not have access to PDS

Kaushik Basu made the argument that the government is a major hoarder of food grains, and in the process of procuring food grains and creating major stocks, we end up increasing the prices of food grains in the market.  Many poor people do not have an access to the PDS, and have to rely on the market for their food grains, and such procurement and hoarding increases the prices at which they buy.  Prof. Basu carefully distinguishes between the need to hold some buffer stocks, and excessive hoarding that would lead to a major increase in the food prices.

This is an important argument, but if we focus on excessive hoarding by the government, it is important to realise that it is not inherent to the PDS. The massive stocks that have been televised widely are mainly a recent phenomenon following the ill-advised move to target the PDS to a narrow section of the population in 1997.  Such targeting removed a large number of users from the system, and simultaneously the price of grains even for officially poor was increased over the market price, making it unattractive for anybody to buy through the system.  On top of this, there was also an increased procurement in the following years from the farmers, which altogether led to a massive accumulation of stocks well over the official buffer stock levels.  One cannot blame the PDS for it.

[Kaushi Basu’s article talks about the entire food grains system, and not just the PDS.  He is thus not arguing that the increase in stock is due to the PDS.  I am not arguing against his position, but would like to clarify that his concern cannot be added as an argument against the PDS].

We should give some new ideas a shot

The unceasing restrain of those proposing these reforms is that we should “experiment” with new ideas when we are confronted with a poor system.  There can be no argument against trying new ideas, and being creative.  Unfortunately cash transfer is not a new idea, and it is not terribly creative.  As I have argued elsewhere in this series, India already has many different forms of cash transfers.  The idea of coupons has been experiment with.  We not heard about the performance of these alternatives, and we perhaps never will, at least from the proponents of reform.

Cash transfers should be conditional

Ashok Gulati wrote about making cash transfers conditional upon families sending their children to school.  While this may be a suitable arrangement as an added support for families to send children to school, it is a very poor basis to determine food support for families per se.  A conditional transfer of that sort is better done through scholarships, school feeding and other school-based programmes.  Basic services such as food and health should not be offered with strong conditionalities attached to them.

About Vivek Srinivasan

I work with the Program on Liberation Technology at Stanford University. Before this, I worked with the Right to Food Campaign and other rights based campaigns in India. To learn more, click here.

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