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Photo: Ramesh Pathania/Mint
Photo: Ramesh Pathania/Mint

NDA govt kicks off PDS reforms with direct cash transfers

Starting September, govt will usher in direct cash transfers to Aadhaar-linked bank accounts of beneficiaries in Puducherry, Chandigarh, Dadra and Nagar Haveli

New Delhi: The government has decided to bite the bullet on public distribution system (PDS) reforms.

Starting September, it will usher in direct cash transfers to the Aadhaar-linked bank accounts of beneficiaries in Puducherry, Chandigarh and Dadra and Nagar Haveli. In Daman and Diu, PDS benefits will be provided on the basis of Aadhaar-linked biometric verification.

“We are taking the measure on the request of members of Parliaments of these Union territories. While initially, 500-700 per household will be transferred to the bank accounts of beneficiaries as food subsidy, at a later stage, kerosene will also be brought under DBT (direct benefit transfer). There will be no option of availing foodgrain through PDS. It will be totally based on cash (transfers)," Peeyush Kumar, joint secretary in charge of DBT in the finance ministry, said.

He was addressing a conference on DBT organised by the United Nations Development Programme (UNDP) on Thursday.

A high-level committee on the state-owned Food Corporation of India’s (FCI’s) restructuring, chaired by former food minister Shanta Kumar, had recommended an overhaul of the FCI-managed PDS earlier this year. The panel estimated that cash transfers could save the exchequer 30,000 crore annually. For 2014-15, the central food subsidy bill is estimated at 1.15 trillion.

So far, DBT had been rolled out for transfer of cooking gas (LPG) subsidies. Called the Pahal scheme, it has covered 11.89 crore of the 14.54 crore active LPG consumers till March, according to petroleum minister Dharmendra Pradhan’s statement in Parliament.

But unlike Pahal, where the cash transfer to the Aadhaar-linked bank account of the beneficiary is based on consumption, in the case of PDS, the amount will be transferred each month irrespective of the beneficiary’s past consumption history.

Earlier, chief economic adviser to the finance ministry, Arvind Subramanian, speaking at the conference, described DBT as a “game changer" for India. He pointed out how DBT in the case of LPG subsidy had resulted in a 24% reduction in the sale of subsidised LPG, as “ghost beneficiaries" had been excluded. The savings to the government were to the tune of 12,700 crore in 2014-15, he added.

Kumar said the centre has directed state governments to fully digitize their Aadhaar enrolment sheets and link them to the PDS database by the end of December, failing which their PDS supplies would be stopped. “We have also told the state governments that by December you identify one district and start a pilot project for PDS through biometric identification so that you are aware of the issues that come up," he added.

Once states link Aadhaar numbers with the PDS database, biometric devices will be made available at fair-price shops, so that verification of beneficiaries can be done within seconds.

“At present, 89% of the Aadhaar database is digitized. But unfortunately, Aadhaar seeding is on the lower side, only around 10-15%. In Delhi and Andhra Pradesh, it is 100%," he said.

In Delhi, 25,000 fair price shops have been entirely digitized and linked to Aadhaar. In Krishna district of Andhra Pradesh, PDS is completely based on biometric authentication since May.

“The initial results of one month are quite encouraging. Savings in the first month itself is 8 crore, meaning almost 100 crore in savings from one district in a year," Kumar said.

On taking DBT beyond the Union territories, Kumar clarified that the central government could not take a decision on rolling it out in states as the matter is a state subject.

Dipa Sinha, fellow at the Centre for Equity Studies, a Delhi-based research and non-profit advocacy group, and convenor of the steering committee of the Right To Food campaign, said at a time when the coverage of PDS is improving, the government is sending confusing messages by pushing for cash transfers, shutting down PDS.

“PDS plays multiple roles by ensuring basic food security for the poor and support for farmers. Dismantling PDS will mean foodgrain procurement and, in turn, production will go down, which could be dangerous for the country," she added.

The National Sample Survey Office data released last week showed that more rural households are buying from PDS, and their purchases of subsidised food have doubled in the past seven years. Nearly 28% of rice eaten by all rural households in 2011-12 was from the PDS, more than double the share of 13.2% in 2004-05. Also, nearly 46% of rural households across India bought subsidised rice from PDS in 2011-12, up from 24.4% in 2004-05 and 39% in 2009-10.

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