Would the Shift to Cash Transfers Reduce Poverty and Ensure Food Security?

Read this compilation of articles published in the Economic and Political Weekly which discuss cash transfers and PDS.

The JAM (Jan Dhan-Aadhaar-Mobile) trinity proposed in the Economic Survey 2014-15 is an integral part of the current government's poverty alleviation strategy. The linking of Aadhar numbers, bank accounts, and mobile phones would be used to transfer cash to households in lieu of the existing public distribution system (PDS).

Arguments espousing cash transfers as a replacement for PDS claim that PDS is inefficient because of corruption, poor quality of food, and leakages. 
However, would the shift to cash transfers, or direct benefit transfers as they are called, help alleviate poverty and ensure food security?  

Read a selection of articles that evaluate in-kind food transfers, survey the preference for grain over cash in Chattisgarh, advocate cash transfers without dismantling the PDS and examine how replacing in-kind transfers would leave the poor vulnerable to price fluctuations. 

  • Abhijit Sen and Himanshu (2013), in a two part paper, report an evaluation of existing in-kind food transfers. Part I outlines the dimensions involved, in terms of reach, transfer content and physical leakages, and deals with the impact of these transfers on poverty as officially measured. Part II reports the impact of these transfers on calorie intakes and also discusses some issues regarding the financial cost of these transfers. Although preliminary, these results suggest caution in advocating cash transfers as substitute of in-kind transfers. (Out of Paywall)

 

  • Dipa Sinha (2015) argues that direct benefit transfers (DBT) in the form of cash cannot replace the supply of food through the public distribution system. DBT does not address the problems of identifying the poor ("targeting") and DBT in place of the PDS will expose the vulnerable to additional price fluctuation. Further, if the PDS is dismantled, there will also be no need or incentive for procurement from farmers and this system too will have to be done away with, adding a new source of vulnerability to cultivators of rice and wheat.

 

  • Peter Svedberg (2012) analyses the case for, and against, replacing a reformed version of the Public Distribution System with a targeted and differentiated cash transfer scheme. Such a scheme could cover about two-thirds of households, and make far larger transfers to the poorest compared to the actual subsidy embedded in the current system, eliminating the risk of large exclusion errors. Further, the overall budget can be held at the present outlay level. The paper argues that most of the objections to such a transfer scheme can be circumvented at the design stage.

 

  • A paper by Ashok Kotwal, Bharat Ramaswami and Milind Murugkar (2011) argues that there is a case to be made for cash transfers replacing the sale of food through the public distribution system. Cash transfers offer many advantages over in-kind food transfers, and their design can address the potential pitfalls pointed out by critics. However, in conclusion, it recommends that instead of centralised dismantling of the public distribution system, the decision on the means of delivery should be left to the states.

 

  • Devanshi Chanchani (2017) poses the question: Would the people of Chhattisgarh prefer cash transfers instead of foodgrain? From interviews with adult users of the PDS across two different locations, she observes that there is an overwhelming and consistent preference for grain over cash. 
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