Food subsidy in cash for BPL likely

The finance ministry is preparing the blueprint for a new food subsidy programme which aims to introduce a system of cash payments for below poverty line (BPL) families instead of going through the public distribution system.

The move is part of an exercise to ensure that subsidies reach those targeted. Senior officials in the ministry told Business Standard that Chief Economic Advisor Ashok Lahiri is working on a paper on the subject.

In his Budget speech in July 2004, Finance Minister P Chidambaram had proposed a pilot project for monthly food stamps for eligible families, which were to be issued by designated distribution centres and used to buy foodgrain from any shop. The system, however, did not take off as none of the states came forward to implement the pilot project.

The Centre has allocated Rs 26,200 crore for food subsidies for the current financial year and is working on ways to reduce the three main subsidies "" food, fertilizer and petroleum.

"A system of cash payments can provide a choice to the beneficiary families who need not use the fair price shops for purchasing wheat and rice alone," said an official working on the paper.

The finance ministry will also have to address the issue of procurement by the Food Corporation of India which transfers the stock for sale through the public distribution system. "So far, we have not addressed the issue. We propose to look at alternatives in the coming days," an official said.

The food ministry had separately mandated McKinsey & Co to prepare a restructuring plan for the FCI.

Officials said the proposed system of cash payments will be deliberated in the run-up to the next Budget and will be implemented, if found feasible. They said a similar system was being used in some countries like Brazil where a high rate of success was observed.

Brazil has two types of cash transfer programmes in operation "" conditional cash transfers and restricted cash transfers. The restricted cash transfers, used in certain provinces, are in the form of a debit card where the money can be spent only for the purchase of food and cooking gas.

Apart from food, the conditional cash transfers can be used for meeting other needs such as housing, health care and education. A system of food vouchers, akin to the food stamps, was also being implemented in Brazil.