Applications for the LAMP Fellowship 2025-26 will open soon. Sign up here to be notified when the dates are announced.
Recently, the government announced that it plans to transfer benefits under various schemes directly into the bank accounts of individual beneficiaries. Benefits can be the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS) wages, scholarships, pensions and health benefits. Beneficiaries shall be identified through the Aadhaar number (Aadhaar is an individual identification number linked to a person’s demographic and biometric information). The direct cash transfer (DCT) system is going to be rolled out in 51 districts, starting January 1, 2013. It will later be extended to 18 states by April 1, 2013 and the rest by April 1, 2014 (or earlier). Presently, 34 schemes have been identified in 43 districts to implement the DCT programme. Currently, the government subsidises certain products (food grains, fertilizers, water, electricity) and services (education, healthcare) by providing them at a lower than market price to the beneficiaries. This has led to problems such as high fiscal deficit, waste of scarce resources and operational inefficiencies. The government is considering replacing this with an Aadhaar enabled DCT system. It has claimed that the new system would ensure timely payment directly to intended beneficiaries, reduce transaction costs and leakages. However, many experts have criticised both the concept of cash transfer as well as Aadhaar (see here, here, here and here). In this blog, we provide some background information about cash transfer, explain the concept of Aadhaar and examine the pros and cons of an Aadhaar enabled direct cash transfer system. Background on cash transfer Under the direct cash transfer (DCT) scheme, government subsidies will be given directly to the beneficiaries in the form of cash rather than goods. DCTs can either be unconditional or conditional. Under unconditional schemes, cash is directly transferred to eligible households with no conditions. For example, pension schemes. Conditional cash transfers provide cash directly to poor households in response to the fulfillment of certain conditions such as minimum attendance of children in schools. DCTs provide poor families the choice of using the cash as they wish. Having access to cash also relieves some of their financial constraints. Also, DCTs are simpler in design than other subsidy schemes. Even though cash transfer schemes have a high fixed cost of administration when the programme is set up, running costs are far lower (see here, here and here). Presently, the government operates a number of DCT schemes. For example, Janani Suraksha Yojana, Indira Awas Yojana and Dhanalaksmi scheme. In his 2011-12 Budget speech, the then Finance Minister, Pranab Mukherjee, had stated that the government plans to move towards direct transfer of cash subsidy for kerosene, Liquified Petroleum Gas (LPG), and fertilizers. A task force headed by Nandan Nilekani was set up to work out the modalities of operationalising DCT for these items. This task force submitted its report in February 2012. The National Food Security Bill, 2011, pending in Parliament, includes cash transfer and food coupons as possible alternative mechanisms to the Public Distribution System. Key features of Aadhaar The office of Unique Identification Authority of India (UIDAI) was set up in 2009 within the Planning Commission. In 2010, the government later introduced the National Identification Authority of India Bill in Parliament to give statutory status to this office.
For a PRS analysis of the Bill, see here. Aadhaar enabled direct cash transfers Advantages Identification through Aadhaar number: Currently, the recipient has to establish his identity and eligibility many times by producing multiple documents for verification. The verification of such documents is done by multiple authorities. An Aadhaar enabled bank account can be used by the beneficiary to receive multiple welfare payments as opposed to the one scheme, one bank approach, followed by a number of state governments. Elimination of middlemen: The scheme reduces chances of rent-seeking by middlemen who siphon off part of the subsidy. In the new system, the cash shall be transferred directly to individual bank accounts and the beneficiaries shall be identified through Aadhaar. Reduction in duplicate and ghost beneficiaries: The Aadhaar number is likely to help eliminate duplicate cards and cards for non-existent persons or ghost beneficiaries in schemes such as the PDS and MNREGS. Disadvantages Lack of clarity on whether Aadhaar is mandatory: According to UIDAI, it is not mandatory for individuals to get an Aadhaar number. However, it does not prevent any service provider from prescribing Aadhaar as a mandatory requirement for availing services. Therefore, beneficiaries may be denied a service if he does not have the Aadhaar number. It is noteworthy that the new direct cash transfer policy requires beneficiaries to have an Aadhaar number and a bank account. However, many beneficiaries do not yet have either. (Presently, there are 229 million Aadhaar number holders and 147 million bank accounts). Targeting and identification of beneficiaries: According to the government, one of the key reasons for changing to DCT system is to ensure better targeting of subsidies. However, the success of Aadhaar in weeding out ‘ghost’ beneficiaries depends on mandatory enrollment. If enrollment is not mandatory, both authentication systems (identity card based and Aadhaar based) must coexist. In such a scenario, ‘ghost’ beneficiaries and people with multiple cards will choose to opt out of the Aadhaar system. Furthermore, key schemes such as PDS suffer from large inclusion and exclusion errors. However, Aadhaar cannot address errors in targeting of BPL families. Also, it cannot address problems of MNREGS such as incorrect measurement of work and payment delays. Safeguard for maintaining privacy: Information collected when issuing Aadhaar may be misused if safeguards to maintain privacy are inadequate. Though the Supreme Court has included privacy as part of the Right to Life, India does not have a specific law governing issues related to privacy. Also, the authority is required to maintain details of every request for authentication and the response provided. However, maximum duration for which such data has to be stored is not specified. Authentication data provides insights into usage patterns of an Aadhaar number holder. Data that has been recorded over a long duration of time may be misused for activities such as profiling an individual’s behaviour.
The United Nations celebrates October 16 as the World Food Day every year, with an aim to spread awareness about eradicating hunger and ensuring food security for all.[1] In this context, we examine the status of food and public distribution in India, and some challenges in ensuring food security for all.
Background
In 2017-18, over Rs 1,50,000 crore, or 7.6% of the government’s total expenditure has been allocated for providing food subsidy under the Targeted Public Distribution System (TPDS).[2] This allocation is made to the Department of Food and Public Distribution under the Ministry of Consumer Affairs.
Food subsidy has been the largest component of the Department’s expenditure (94% in 2017-18), and has increased six-fold over the past 10 years. This subsidy is used for the implementation of the National Food Security Act, 2013 (NFSA), which provides subsidised food grains (wheat and rice) to 80 crore people in the country.[3] The NFSA seeks to ensure improved nutritional intake for people in the country.3
One of the reasons for the six-fold increase in food subsidy is the non-revision of the price at which food grains are given to beneficiaries since 2002.[4] For example, rice is given to families under the Antyodaya Anna Yojana at Rs 3/Kg since 2002, while the cost of providing this has increased from Rs 11/Kg in 2001-02 to Rs 33/Kg in 2017-18.
Provision of food subsidy
TPDS provides food security to people below the poverty line. Over the years, the expenditure on food subsidy has increased, while the ratio of people below poverty line has reduced. A similar trend can also be seen in the proportion of undernourished persons in India, which reduced from 24% in 1990 to 15% in 2014 (see Table 1). These trends may indicate that the share of people needing subsidised food has declined.
Nutritional balance: The NFSA guarantees food grains i.e. wheat and rice to beneficiaries, to ensure nutritious food intake.3 Over the last two decades, the share of cereals or food grains as a percentage of food consumption has reduced from 13% to 8% in the country, whereas that of milk, eggs, fish and meat has increased (see Figure 1). This indicates a reduced preference for wheat and rice, and a rise in preference towards other protein rich food items. 
Methods of providing food subsidy
Food subsidy is provided majorly using two methods. We discuss these in detail below.
TPDS assures beneficiaries that they will receive food grains, and insulates them against price volatility. Food grains are delivered through fair price shops in villages, which are easy to access.[5],[6]
However, high leakages have been observed in the system, both during transportation and distribution. These include pilferage and errors of inclusion and exclusion from the beneficiary list. In addition, it has also been argued that the distribution of wheat and rice may cause an imbalance in the nutritional intake as discussed earlier.7 Beneficiaries have also reported receiving poor quality food grains as part of the system.
Cash Transfers seek to increase the choices available with a beneficiary, and provide financial assistance. It has been argued that the costs of DBT may be lesser than TPDS, owing to lesser costs incurred on transport and storage. These transfers may also be undertaken electronically.6,7
However, it has also been argued that cash received as part of DBT may be spent on non-food items. Such a system may also expose beneficiaries to inflation. In this regard, one may also consider the low penetration and access to banking in rural areas.[7]
In 2017-18, 52% of the centre’s total subsidy expenditure will be on providing food subsidy under TPDS (see Figure 2). The NFSA states that the centre and states should introduce schemes for cash transfers to beneficiaries. Other experts have also suggested replacing TPDS with a Direct Benefit Transfer (DBT) system.4,[8]
The central government introduced cash subsidy to TPDS beneficiaries in September 2015.[9] As of March 2016, this was being implemented on a pilot basis in a few union territories. In 2015, a Committee on Restructuring of Food Corporation of India had also recommended introducing Aadhaar to plug leakages in PDS, and indexing it to inflation. The Committee estimated that a switch to DBT would reduce the food subsidy bill of the government by more than Rs 30,000 crore.[10]
Current challenges in PDS
Leakages in PDS: Leakages refer to food grains not reaching intended beneficiaries. According to 2011 data, leakages in PDS were estimated to be 46.7%.10,[11] Leakages may be of three types: (i) pilferage during transportation of food grains, (ii) diversion at fair price shops to non-beneficiaries, and (iii) exclusion of entitled beneficiaries from the list.6,[12]
In 2016, the Comptroller and Auditor General (CAG) found that states had not completed the process of identifying beneficiaries, and 49% of the beneficiaries were yet to be identified. It also noted that inclusion and exclusion errors had been reported in the beneficiary lists.[13]
In February 2017, the Ministry made it mandatory for beneficiaries under NFSA to use Aadhaar as proof of identification for receiving food grains. Through this, the government aims to remove bogus ration cards, check leakages and ensure better delivery of food grains.10,[14] As of January 2017, while 100% ration cards had been digitised, the seeding of these cards with Aadhaar was at 73%.14
Storage: As of 2016-17, the total storage capacity in the country is 788 lakh tonnes, of which 354 lakh tonnes is with the Food Corporation of India and 424 lakh tonnes is with the state agencies.[15]
The CAG in its performance audit found that the available storage capacity in states was inadequate for the allocated quantity of food grains.13 For example, as of October 2015, of the 233 godowns sanctioned for construction in Maharashtra, only 93 had been completed. It also noted that in four of the last five years, the stock of food grains with the centre had been higher than the storage capacity available with Food Corporation of India.
Quality of food grains: A survey conducted in 2011 had noted that people complained about receiving poor quality food grain which had to be mixed with other grains to be edible.6 There have also been complaints about people receiving food grains containing alien substances such as pebbles. Poor quality of food may impact the willingness of people to buy food from fair price shops, and may have an adverse impact on their health.[16]
The Ministry has stated that while regular surveillance, monitoring, inspection and random sampling of all food items is under-taken by State Food Safety Officers, separate data for food grains distributed under PDS is unavailable.[17] In the absence of data with regard to quality testing results of food grains supplied under PDS, it may be difficult to ascertain whether these food items meet the prescribed quality and safety standards.
[1] About World Food Day, http://www.fao.org/world-food-day/2017/about/en/.
[2] Expenditure Budget, Union Budget 2017-18, http://unionbudget.nic.in/ub2017-18/eb/allsbe.pdf.
[3] National Food Security Act, 2013, http://indiacode.nic.in/acts-in-pdf/202013.pdf.
[4] “Prices, Agriculture and Food Management”, Chapter 5, Economic Survey 2015-16, http://unionbudget.nic.in/budget2016-2017/es2015-16/echapvol2-05.pdf.
[5] The Case for Direct Cash Transfers to the Poor, Economic and Political Weekly, April 2008, http://www.epw.in/system/files/pdf/2008_43/15/The_Case_for_Direct_Cash_Transfers_to_the_Poor.pdf.
[6] Revival of the Public Distribution System: Evidence and Explanations, The Economic and Political Weekly, November 5, 2011,
[7] ‘Report of the Internal Working Group on Branch Authorisation Policy’, Reserve Bank of India, September 2016, https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/IWG99F12F147B6E4F8DBEE8CEBB8F09F103.PDF.
[8] Working Paper 294, “Leakages from Public Distribution System”, January 2015, ICRIER, http://icrier.org/pdf/Working_Paper_294.pdf.
[9] “The Cash Transfer of Food Subsidy Rules, 2015”, Ministry of Consumer Affairs, Food and Public Distribution, September 3, 2015, http://dfpd.nic.in/writereaddata/Portal/News/32_1_cash.pdf.
[10] Report of the High Level Committee on Reorienting the Role and Restructuring of Food Corporation of India, January 2015, http://www.fci.gov.in/app2/webroot/upload/News/Report%20of%20the%20High%20Level%20Committee%20on%20Reorienting%20the%20Role%20and%20Restructuring%20of%20FCI_English_1.pdf.
[11] Third Report of the Standing Committee on Food, Consumer Affairs and Public Distribution: Demands for Grants 2015-16, Department of Food and Public Distribution, http://164.100.47.193/lsscommittee/Food,%20Consumer%20Affairs%20&%20Public%20Distribution/16_Food_Consumer_Affairs_And_Public_Distribution_3.pdf.
[12] Performance Evaluation of Targeted Public Distribution System, Planning Commission of India, March 2005, http://planningcommission.nic.in/reports/peoreport/peo/peo_tpds.pdf.
[13] Audit on the Preparedness for Implementation of National Food Security Act, 2013 for the year ended March, 2015, Report No. 54 of 2015, Comptroller and Auditor General of India, http://cag.gov.in/sites/default/files/audit_report_files/Union_Civil_National_Food_Security_Report_54_of_2015.pdf.
[14] Unstarred Question No. 844, Lok Sabha, Ministry of Consumer Affairs, Food and Public Distribution, Answered on February 7, 2017, http://164.100.47.190/loksabhaquestions/annex/11/AU844.pdf.
[15] Annual Report 2016-17, Department of Food & Public Distribution, Ministry of Consumer Affairs, Food & Public Distribution, http://dfpd.nic.in/writereaddata/images/annual-140217.pdf.
[16] 30 Food Subsidy, The Economic and Political Weekly, December 27, 2014, http://www.epw.in/system/files/pdf/2014_49/52/Food_Subsidy.pdf.
[17] Unstarred Question No. 2124, Lok Sabha, Ministry of Consumer Affairs, Food and Public Distribution, Answered on November 29, 2016, http://164.100.47.190/loksabhaquestions/annex/10/AU2124.pdf.
