Subsidies on food: Study advises delay of cash transfer scheme

NEW DELHI: With finance minister P Chidambaram recently declaring at a fullPlanning Commission meeting that cash transfers may replace subsidies for food, fertilizers and fuel by the end of the 12th five year Plan, the controversial proposal has again moved center stage. A recently concluded pilot project in Delhi which substituted ration cards with Rs 1000 transferred monthly to families throws light on the pros and cons of the scheme.

The study involved 450 below poverty line households living in Raghubir Nagar, a colony in west Delhi. Of these, 100 households (called the transfer group) received the cash through a bank account opened in the women’s name. The remaining 350 households (called control group) continued their routine of getting wheat, rice and sugar from the local ‘ration shops’ on their ‘ration cards’.

The final report of the study reveals that there was no difference between the amount of wheat, rice and sugar consumed by the transfer group and the control group. However, those getting cash transfers bought more pulses and eggs/fish/meat. Another significant finding was that those getting cash appeared to divert some of it at least to spending on medical attention from private hospitals. Earlier, when they were not getting the cash, only 2.4 percent households of this group used to go to a private hospital but after getting the monthly cash installments, this proportion shot up to almost 21%. Those not getting cash transfers continued to either go to government hospitals or seek alternative medicine which involved less spending.

Besides these two changes in lifestyle, cash transfers did not affect any other habits. There was no difference in fuel usage – cash receiving families did not switch to less hazardous fuels like LPG. Their children’s attendance or performance at school did not improve. They did not invest in income or skill enhancing measures. They did not spend more on sanitary improvements to their homes. Their savings did not improve. And, importantly, the men of the family did not increase spending on alcohol.

Not surprisingly, some of the cash transferred to the families was used by them to pay off pending loans, thus reducing their debt load. The families that had accepted the cash transfersystem were more indebted to begin with, having an average debt of Rs.74,746 compared to an average debt of Rs.43,216 among the control group.

The study also found that performance of the ration shops in the area improved after the study started – an unexpected spillover effect as the shopkeepers tried to keep their customers secure.

So, what is the bottom-line? Although 96% of those included in the year long study said at the end that they would like to continue with receiving cash, the report observes that “among the poor there is a strong public opinion in favor of the PDS system of subsidized food and fuel, in spite of its many defects”. Most of the poor are so used to the PDS system that they would be very insecure if it disappeared, the report says. Pointing to the multiple advantages of a BPL card in getting other government benefits the report says that people are “wary of experimentation” with this important document.

The study report also highlighted a surprising stumbling block – opening bank accounts. They found that “banks actively discourage no-frill accounts” in spite of directives from the RBI. “Opening a bank account is a tedious, time consuming and sometimes humiliating process,” the report says.

So, the study report recommends that the government very gradually introduce the cash transfer scheme and that too as an option, allowing the people to choose between ration cards and cash.

It was supported by the government of Delhi and the United Nations Development Program(UNDP) with Self Employed women’s Association (SEWA) doing the ground work.


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