Food subsidy reforms to roll out from Puducherry

Trial run to distribute up to Rs 400 a family per month in lieu of PDS rice to begin in a few weeks

In the next few weeks, about 330,000 ration cardholders in Puducherry could receive Rs 300-400 a month each in their bank accounts in lieu of their monthly quota of rice but only after the lists are validated and their bank accounts seeded with Aadhaar.

Beneficiaries will be free to spend the money on anything, not necessarily grain, as the Centre embarks on one of its most ambitious programmes in the Union Territory, to distribute cash in place of grain to streamline the public distribution system and plug leaks.

For Puducherry, it will be the second brush with cash-for-grain, after a pilot for a local grain distribution scheme had to be abandoned in April due to opposition from beneficiaries. After Puducherry, it could be Chandigarh's turn. Talks are also on to run a pilot in Meerut, Uttar Pradesh.

Subsequently, the finance ministry wants to run similar pilot schemes in a district in each state, though the food ministry isn't on the same page.

In March, the Puducherry government had replaced its popular scheme of distributing 10 kg rice and five kg wheat with cash on a limited scale. A sum of Rs 600 a month was transferred to the bank accounts of identified ration cardholders and 40,000-50,000 transactions were conducted before the government switched back to the old system. There are about 600,000 PDS beneficiaries in Puducherry and most are rice eaters.

"We had to go back to the old system because bank accounts were not opened properly and the Aadhaar seeding wasn't perfect. However, for the National Food Security Act project, we are working on a different scale," an official in the Puducherry civil supplies department told Business Standard.

After cash transfers start under the National Food Security Act, beneficiaries in Puducherry will receive 10 kg of rice and five kg of wheat under the local scheme and Rs 300-400 in their bank accounts from the central government.

The National Informatics Centre and the Public Financial Management System are validating the list of beneficiaries submitted by the Puducherry government.

The Union food ministry has proposed a standard 1.25 times of the prevailing minimum support price, less the central issue price, be paid in cash to beneficiaries instead of grain. This is the calculation for food security allowance the Centre has promised if it fails to distribute grain under the National Food Security Act.

In states where the law is not in force, the central issue price could be higher. But for now, pilots on cash transfer will be done only in states under the ambit of the National Food Security Act. "In states where the Act is in force, rice is sold at Rs 3 a kg, wheat Rs 2 a kg and coarse cereals Re 1 a kg," said an official in the Union food ministry. He said the decision on the amount to be transferred into the bank accounts of beneficiaries would be taken by the Prime Ministers' Office, adding the proposal mooted by the food ministry might be approved.

Officials said for common grade paddy, the amount to be transferred worked out to Rs 14 a kg, and for grade 'A' paddy Rs 14.5 a kg. The minimum support price has been taken as the 2014-15 level of Rs 13.6 a kg for common grade and Rs 14 a kg for grade 'A' paddy. In places where cash will be distributed in place of wheat, a sum of Rs 80.6 could be transferred into the bank accounts of each beneficiary every month. For a family of five, this works out to Rs 403 a month for wheat and Rs 350 a month for common grade paddy.

The methodology adopted by the government is different from the one thought of by the United Progressive Alliance, according to which the difference between the derived market rate (appropriation cost) and ration shop rate was to be transferred into the bank account of the beneficiary, provided he purchased his quota of grain from the ration shop.

"Any attempt to transfer cash in lieu of grain should be made only after a proper model has been put in place. Our previous experience in Alwar (cash-for-kerosene) and Delhi (cash-for-grain) shows it has failed," Reetika Khera, associate professor at the humanities and social sciences department of the Indian Institute of Technology, Delhi, told Business Standard.

She added transferring cash based on the minimum support price might not be a good idea, given the market price of grain fluctuated widely while the price support was set for a year.

"Each state will have to identify a district in which the scheme can be piloted. After that, cash transfers will be rolled out in other districts," said a finance ministry official.

In February, Business Standard had reported the Centre was eager to implement the programme in Union Territories and select cities before a nationwide rollout.

Officials in the food ministry aren't convinced the idea will work at the national level. They argue once cash is distributed for grain countrywide, it will have a cascading impact on procurement. That apart, the Centre also wants to complete the programme of biometric scanners in ration shops, so far implemented only in a few places.

NOVEL APPROACH

• For such schemes under the UPA govt, only the subsidy amount was transferred, while grain had to be bought from ration shops
• Puducherry has been selected as it has a small scale and the right mix of urban and rural population
• If the pilot is successful, it will be rolled out in other UTs; Chandigarh seems next in line
• Earlier, Puducherry had experimented with cash transfer for its scheme of offering 10 kg rice and 5 kg wheat
• The cash to be transferred is expected to be 1.25 times the prevailing MSP of wheat and rice, minus the central issue price
• In states where the food security Act is in place, the issue price is Rs 3/kg for rice, Rs 2/kg for wheat and Rs 1/kg for coarse cereals