Direct benefit transfer scheme for food subsidy in jeopardy; what ails this crucial scheme?

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New Delhi | Updated: August 29, 2017 6:32:08 AM

Despite the remarkable success of the PAHAL scheme for delivery of LPG subsidy to beneficiary bank accounts — over Rs 50,000 crore transferred and close to Rs 29,500 crore saved by the Centre till FY17 — the direct benefit transfer (DBT) scheme for food subsidy is in jeopardy.

Official sources said that while the Union food ministry last year asked states to initiate DBT-food ‘pilot’ in a district or in a block, the responses from them have been rather lukewarm.

Despite the remarkable success of the PAHAL scheme for delivery of LPG subsidy to beneficiary bank accounts — over Rs 50,000 crore transferred and close to Rs 29,500 crore saved by the Centre till FY17 — the direct benefit transfer (DBT) scheme for food subsidy is in jeopardy. Even before the Supreme Court verdict making privacy a fundamental right cast clouds on use of Aadhaar for disbursal of assorted sops by the government, DBT-food has hardly progressed from the three small pilot projects launched in October 2015 in certain localities in the Union territories (UTs) of Chandigarh, Puducherry and Dadra and Nagar Haveli.

While annual savings to the Centre on its food subsidy bill from DBT-food is estimated to be Rs 30,000 crore, sources said most state governments have been reluctant to roll out the scheme as it would entail winding up of their respective civil supplies corporations, a vestige of political patronage. The DBT-food scheme could help reduce Food Corporation of India’s (FCI) operational costs significantly. While there are a total of 82 crore beneficiaries under the National Food Security Act (NFSA), the DBT-food pilot projects have so far covered just 9 lakh people, and resulted in subsidy savings of Rs 12 crore. The plan was to extend the scheme to at least one district in each state by last year, but that was not to be. The diversion of foodgrain from the public distribution system (PDS) is seen at 30-40%.

Official sources said that while the Union food ministry last year asked states to initiate DBT-food ‘pilot’ in a district or in a block, the responses from them have been rather lukewarm. Although digitisation of more than 23 crore ration cards have been completed and more than 18 crore cards have been seeded with beneficiaries’ Aadhaar numbers, DBT-food has been a virtual non-starter.

While the fertiliser subsidy is projected to be flat at Rs 70,000 crore till FY20 and fuel subsidy may decline from Rs 25,000 crore in FY17 to Rs 10,000 crore in FY20, food subsidy could rise to Rs 2 lakh crore in FY20 from Rs 1.45 lakh crore in the current fiscal owing to the NFSA and arrears to FCI, the government has said recently in its mid-term expenditure report. The food ministry has been urging states to adopt cash transfer model of DBT especially in urban areas and subsequently scale it up. A high-level committee for restructuring FCI chaired by former food minister Shanta Kumar had recommended the gradual introduction of cash transfers in PDS, starting with large cities with more than 1 million population and then extending it to grain-surplus states, and then giving an option to deficit states to opt for cash or physical grain distribution.

The NFSA guarantees 5 kg of rice or wheat per person at Rs 2 per kg and Rs 3 per kg, respectively, every month, even as the economic costs of PDS rice and wheat are around Rs 24.08 per kg and Rs 32.64 per kg, respectively. This includes, apart from the procurement costs, the expenses on grain transportation, storage and distribution, besides PDS retailers’ margins. In Chandigarh where a pilot DBT project is under way, the economic costs of PDS rice and wheat have been worked out at Rs 23.12 a kg and Rs 16.12 a kg, respectively. “The difference between economic cost and NFSA prices is transferred to beneficiaries bank accounts,” a UT government official told FE. Icrier had suggested a phase-wise roll-out of DBT in PDS in all the 36 states and UTs by 2022. “The governments should strengthen and streamline PDS and simultaneously encourage focused investments for expanding financial infrastructure and ensuring complete Aadhaar-seeding of bank accounts and ration cards,” it said. However, it added, for rolling out DBT/PDS efficiently, the government must ensure adequate supply of grains, especially rice and wheat, in the open market.

 

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