PDS Vs. Direct Cash Transfer
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PDS Vs. Direct Cash Transfer

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Economics

PDS Vs. Direct Cash Transfer

Introduction:

Considering the pilferages of food grains before reaching the beneficiaries, experts have come up with multiple alternatives such as direct cash transfer through Direct Benefit Transfer(DBT) to the bank account of the beneficiaries or distributing food coupons which can be reimbursed against the purchase of food grains.

Direct Benefit Transfer (DBT) aims to:

reduce the need for huge physical movement of foodgrains

provide greater autonomy to beneficiaries to choose their consumption basket

enhance dietary diversity

reduce leakages

facilitate better targeting

promote financial inclusion

Pros and Cons of various alternatives::

i. Public Distribution System(PDS)

Pros :

Insulates beneficiaries from inflation and price volatility

Ensures entitlement is used for food grains only

A well-developed network of FPS ensures access to food grains even in remote areas

Cons:

Low offtake of food grains from each household 

High leakage and black marketing of subsidized food grain 

Adulteration of food grain and poor quality

Lack of viability of FPS due to low margins

Lack of flexibility to choose the food basket

ii. Cash Transfer::

Pros:

Cash in the hands of the poor increases their choices

Cash may relieve financial constraints faced by the poor, and increase the flexibility to choose his/her food basket.

Administrative costs of cash transfer programs may be significantly lesser than that of other schemes

Potential for making an electronic transfer

Cons:

Cash can be used to buy non-food items which will derail the purpose of the scheme.

Will expose recipients to price volatility and inflation.

For necessities like food, one will have to take the pain to access the bank facility, and also there is poor access to banks and post offices in some areas.

iii. Food Coupons::

Pros:

Household is given the freedom to choose where it buys food.

Increases incentive for competitive prices and assured quality of food grains among PDS stores.

Ration shops will give full food grains to the poor, no incentive to turn the poor away.

Cons:

Food coupons are not indexed for inflation; may expose recipients to inflation.

Difficult to administer; there have known to be delays in issuing food coupons and reimbursing shops.

Conclusion:

Though the alternatives to PDS are worth considering proper impact analysis is necessary before reforms, as it is one of the largest schemes running in India.