PDS not working, shift to cash transfer: World Bank tells India

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India’s public distribution system has limited benefits due to huge leakage and wastage, World Bank said on Tuesday. It also recommended cash transfer as an alternative to provide subsidised food for the poor.

“No country in the world has a well-functioning PDS system. India is no exception,” World Bank said in its report Social Protection for a changing India that was launched here Tuesday.

“The public distribution system continues to absorb substantial public resources at almost one per cent of GDP. While it covers up to 25 per cent of the households, its benefits for the poor have been limited,” the report stated using national sample survey data.

“Leakages and diversion of grains are high. Only 41 per cent of the grains released by government reach households, according to 2004-05 NSS (the latest data available) with some states doing much worse. In 2001, the planning commission has estimated this leakage of BPL grains at 58 per cent nationally,” the World Bank report prepared on request from government said.

It is the first comprehensive review by World Bank on performance of India’s key anti-poverty and social protection programmes like PDS, Mahatma Gandhi National Rural Employment Guarantee scheme, Indira Awas Yojana and Indira Gandhi national old age pension scheme.

World Bank’s lead economist for social protection in India John Blomquist told reporters that in the short-term PDS could continue but in medium to long term, it should be replaced by cash-based subsidy. There is also a mechanism to take care of price fluctuations.

Principal adviser to planning commission Pranob Sen, however, did not subscribe to this view. “Cash transfer can replace PDS only if PDS is seen as just a safety net. There are other issues as well. In some parts of the country, food grain is available only through the PDS system and in such areas cash transfers would serve no purpose.”

Also, he said, it is difficult in a country like India to attempt inflation indexation of cash transfer. Indexation can be done only on national inflation and in India price variation is so much from state to state that “we will end up over-compensating in some places and under-compensating in some others.” He however admitted that PDS working is not perfect and that an alternative to it in a country like India has to be a “hybrid” of PDS and cash transfer not merely cash-based subsidy.

Prime minister’s economic advisory council member M Govinda Rao said that be it PDS or targeted cash-transfer, they would work only when the country has perfect information gathering system.

World Bank report said experiences in India and in many other countries have highlighted benefits of targeted cash transfer. Bihar for example has already introduced food stamps or coupons to improve access. At the same time, states like Tamil Nadu and Chhattisgarh have done particularly well in ensuring universal access to transfer of subsidised grain.


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