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Troubles with Cash Food Subsidy

A Case Study of Jharkhand Villages

A pilot project of cash food subsidy to replace the public distribution system in Nagri block of Ranchi district in Jharkhand is analysed to highlight the problems experienced by Jharkhand in implementation of cash food subsidy through the direct benefit transfer system in the PDS. Further, the limitations of cash transfer as a means to replace the PDS are highlighted as also the infrastructural and institutional constraints to impose digitalisation in rural Indian conditions.


The authors would like to thank Jean Drèze, Alex M Thomas, and EPW’s anonymous referee for their valuable comments.

Barun Kumar Barnwal ( is a PhD scholar at Central University of Jharkhand. Mrityunjay Pandey ( is a PhD scholar at University of Hyderabad.

Direct benefit transfer is an odd term for the new system, whereby the food subsidy is provided in a very roundabout way. (Drèze 2018)

Several states in India have launched pilot projects to give cash food subsidy through the direct benefit transfer (DBT) system directly to the public distribution system (PDS) beneficiaries’ bank accounts to address the problem of leakages in the PDS. In October 2017, the Government of Jharkhand launched a pilot project of replacing the grain distribution system through fair price shops (FPSs) with the transfer of subsidy amounts to PDS beneficiaries’ accounts.

The first phase of the DBT scheme was initiated in 20 districts in the country in early 2013 with seven programmes under its ambit (Yojana 2013). While DBT may be relevant in the payment of old age pensions, children’s scholarships, and maternity entitlements, it poses several problems when used as an alternative to the PDS, especially in poorer states like Jharkhand. Cash food subsidy through the DBT system is presented as a magic bullet to address major problems such as inclusion error, late transfer and transaction costs in the PDS, and a means of reducing government expenditure on food subsidies (Nehra 2016; Drèze 2017: 175–97). However, cash food subsidy is also prone to leakages and irregularities and could be difficult to implement in remote rural areas (FAO 2015). It poses issues in indexation of subsidy with food inflation. Also, it does not ensure purchase of grains (Ghosh 2011).

When it was implemented in Jharkhand, the government had available the prior experience of Chhattisgarh and Puducherry to review and assess before experimenting with its people. While Chhattisgarh is demographically and geographically similar to Jharkhand, both are model regions for the well-functioning PDS in India. It has created havoc in the functioning of the PDS in these states. Apart from implementation issues, several other problems arose, including its big failure to serve the poor, especially the vulnerable among them, such as the elderly and disabled (Narayan 2015).

This study analyses the impact on the PDS of providing cash food subsidy directly to PDS beneficiaries’ bank accounts via the DBT system, through an examination of the experience of Nagri block of Ranchi district in Jharkhand, where a pilot study has been conducted by the Jharkhand government.

Methodology and Analysis

In early October 2017, DBT had been introduced on a pilot basis in Nagri block of Ranchi district, located almost 15 km away from the main city of Ranchi. Almost 12,500 poor and largely tribal beneficiaries have been covered under the DBT pilot project (Pakhale and Barnwal 2018). The present study is descriptive in nature. The study has used a purposive sampling technique in the selection of the district (Ranchi) and block (Nagri). The selection of villages has been done using purposive sampling technique. The final units of the study, that is, households, have been selected based on the systematic sampling method. This study covers six villages from this block: Katarpa, Tusmu, Hotwasi, Kosaro, Lada, and Khunta. The basis of the selection of these villages is that they have a higher percentage of tribal population. These villages dominantly consist of a landless and marginal landholding manual working class. From the lists of the National Food Security Act (NFSA) cardholders, 112 households were systematically selected. The numbers of selected samples from the different villages are as follows: 18 from Katarpa, 20 each from Tusmu and Hotwasi, and 18 each from Kosaro, Lada, and Khunta. The survey was conducted during January–February 2018. It collected information on four months of implementation of DBT.

In the old system, the beneficiary directly gets grains from FPSs. In the new system, banks and Pragya Kendras, also known as customer service centres (CSCs), emerged as the main institutions. Beneficiaries have to first visit a bank and get confirmation about whether the DBT money has been credited in their accounts. After getting information regarding the credit of the DBT money in their account, the banks send them to the CSC. The primary job of a CSC is facilitation and resolving of enquiries. However, due to the overburdening of banking institutions because of insufficient number of branches, the CSC also has to play the role of giving liquid cash to beneficiaries for PDS grain purchase. The state of public transportation and the distance of the location of banks and CSCs from beneficiaries’ homes become crucial variables to measure the smooth and efficient functioning of DBT. In this study, 30% of the households reported that the bank is more than 6 km away from their homes. Each month they have to make at least one visit, and in most of the cases two visits to the bank. One household even reported that the bank is 20 km away from their home. About 20% of the households reported that the CSC is more than 6 km away from their homes (Table 1).

The distance of banks and CSCs from households has led to the situation that, on an average, households are spending more than 13 hours every month to get their PDS ration. These tribal villages largely consist of manual daily wage workers. Due to this, any time spent on getting social security benefits directly affects their household income. This study attempts to analyse the time spent by each household to complete the entire process, from checking their balance in the bank to collecting money from the CSC and getting the grains from the PDS shops. The survey collected data on the time spent to get rations in the month of January 2018. To analyse the income forgone to get PDS ration, the study considers each working day as consisting of eight hours. This study considers the minimum agricultural wages of Jharkhand for 2017–18, that is, ₹230 per working day (GoJ 2018) and the Mahatma Gandhi National Rural Employment Guarantee Act wages of Jharkhand for 2017–18, that is, ₹168 per working day, as two different measures of per day income. If time spent to get PDS grain is less than four hours, in that case it is presumed that half a day’s wage is forgone.

About 13% of the households have spent more than 30 hours to get PDS grain. One household even spent 60 hours to complete this marathon to get PDS grains. PDS was started with the prime objective of food security and it is always considered as a policy that provides basic food requirements to the distress-driven population of India. As Table 2 shows, DBT in Nagri pushed 13% of the households to give up more than five working days in a month and an income of more than ₹1,100 every month. This amount is even higher than the amount they receive as subsidy through DBT.

Even after spending hours and forgoing labour days, there is no end to the struggles of the beneficiaries. Now, with the DBT system, they are highly dependent on the transfer of money in their bank accounts to purchase the ration from the PDS shops. The correlation between the number of times money was transferred and the total number of times grain was purchased is 0.69.

Table 3 depicts the dependence of beneficiaries on DBT transfers from the state for the purchase of foodgrains. In the first four months of the implementation of DBT, 17% of the households did not get a single rupee in their bank accounts. Only two households got all four months’ DBT money in their bank accounts. Only 5% of the households purchased foodgrains every month. This has directly affected the very principle of the institutions of food security and the PDS.

Food security cannot be achieved merely through the availability of foodgrains. Entitlements also need to be ensured. However, in post-DBT Nagri, 15% of the households purchased ration by borrowing money and only 45% of the households got the DBT money in advance to purchase the ration with. Due to the lack of awareness of the working of financial institutions, illiteracy, and the lack of a support system, 65% of the households are unaware about the account in which their subsidy amount gets credited. That weakens the very institution of DBT and leaves the system open to the threat of financial fraud. Above all, after four months of DBT implementation in Nagri, 94% of the households said that, given an option, they would choose the old system, that is, getting rice at ₹1 per kg. Only two households reported that they are satisfied with the new system, DBT.


There is a standing debate in academic and policy circles around the relative merits and demerits of in-kind provisioning and DBT. The major problems that have been found from the fieldwork in this study are that the financial inclusion is merely a daydream for many poor, the banking infrastructure is poor in terms of no easy access to banking facilities, link failure is a common phenomenon, and the location of banks and CSCs is at long distances from beneficiaries’ homes. This study shows that income forgone in the process to get subsidised foodgrains is very high, and for some it is more than the subsidy they get.

The government should look into this first before introducing any new policy such as DBT. In spite of the Jan Dhan Yojana, there are still large bottlenecks in accessing banks by the poor, whereas the network of PDS outlets is far more widespread and more easily accessible. State governments should introduce reforms in the PDS to improve the delivery of foodgrains rather than replace it through institutions such as cash food subsidy through the DBT system. In the case of Jharkhand, the DBT system should not be introduced into a well-functioning PDS as it will only worsen the problems of hunger, food insecurity, and poverty. That is clearly visible in the series of starvation deaths due to technical glitches in the PDS in Jharkhand. The introduction of the DBT is nothing more than a troublesome phenomenon for a large number of tribal families in Jharkhand. If governance is for the people and 94% of the population does not want a new policy, then the new DBT system must be rolled back to the PDS.


Drèze, J (2017): Sense and Solidarity: Jholawala Economics for Everyone, Ranikhet: Permanent Black.

— (2018): “Following the Grain Trail: On India’s Public Distribution System,” Hindu, 17 January, viewed on 18 October 2019,

FAO (2015): “Ten Debates on Right to Food and Social Protection—Learning from India’s Experience,” Food and Agriculture Organization, viewed in June 2018,

Ghosh, J (2011): “Cash Transfers as the Silver Bullet for Poverty Reduction: A Sceptical Note,” Economic & Political Weekly, Vol 46, No 21, pp 67–71.

GoJ (2018): “VDA Piece Rate,” Department of Labour, Employment & Training, Government of Jharkhand, Ranchi.

Narayan, S (2015): “Ten Facts That Set the Record Straight on Cash Transfers,” Wire, 15 August,

Nehra, S (2016): “Cash Transfers,” National Food Security Act 2013: A Primer, Right to Food Campaign, New Delhi, September.

Pakhale, A and B Barnwal (2018): “Pillar to Post,” Frontline, 27 April.

Yojana (2013): “Bold Initiative-Cautious Start,” Vol 57, February, p 3.

Updated On : 26th Oct, 2019


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