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Giving the poor a choice PDF Print E-mail
Thursday, 19 February 2015 00:00
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That's what cash transfers do vis-a-vis the PDS

 

While critics of the High Level Committee (HLC) on restructuring the Food Corporation of India (FCI) continue to argue it does not take into account major improvements in the ration shop system in a few states—at an all-India level, it makes little difference though—as a recent Crisil paper points out, the biggest advantage is that it offers the poor a genuine choice for the first time. Using NSSO data, Crisil points out just 37% of Indians use ration shops to buy rice and 28% to buy wheat right now—the number is to rise to 67% under the National Food Security Act; among the poor, 51% buy rice from the ration shops and 40% in the case of wheat. If the HLC recommendations are implemented and people are given cash instead of the ration shop option, more than half the poor will be immediately better off since they will find themselves getting the subsidy meant for them.

More important, Crisil points out, since there is a shift in consumer preferences away from cereals as households get richer, this will boost overall welfare. If you leave aside the poor, households spend under a tenth of their incremental earnings on purchasing more cereals. Combine this with the fact that the current FCI operations cause market prices to rise—FCI’s economic cost is nearly twice the MSP in the case of rice and 1.4 times in the case of wheat—this raises costs for even the poor as compared to a situation in

which there was no FCI and no ration-shop system. Apart from the R25,000 crore Crisil says cash transfers will save the government, it will also result in other agriculture reforms—with FCI no longer procuring wheat and rice, farmers will start growing other crops.

It is not just in foodgrains that cash transfers will lead to larger reforms, apart from large budgetary savings. In the case of elementary education where the central government alone is likely to spend over R42,000 crore, as various ASER studies have pointed out, the impact is quite poor. But if the money—R2,100 per child per annum, on average—was to be given to parents, the impact could be quite different. In case parents chose to admit their children in private schools, they could demand better quality; were even government school teachers to get part of their pay based on vouchers given by parents, the quality of teaching would improve dramatically as happens in each area where competition is introduced. And if funds like those earmarked for PDS and schools were to be made available to the beneficiaries directly, this would mean a lot more money in their Jan Dhan accounts which, in turn, would result in banks being more comfortable in giving loans to the poor—that would not only better their lives considerably, it would provide a big consumption fillip to the economy. Though the BJP was opposed to Nandan Nilekani’s Aadhaar initially, adopting it has perhaps been the government’s biggest reform so far.

 

 

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