Delivering Food Subsidy - The Oxford Topic of Food, Politics, and Society - page 309

the population was estimated to be under this extremely low poverty line. These
people are destitute, not just poor. The basic arguments invoked to provide food
subsidies for the poor are valid even for the people with the level of consumption
at twice the official poverty line. Over three-quarters of India's population has an
expenditure level under $2 a day. Moreover, it is difficult to claim that someone
just under $2 a day is in need of food subsidy and someone just above it is not. The
harm done by excluding the truly needy far outweighs the gains of wasting the sub-
sidy on those who do not need it. In addition, there is likely to be some self-selec-
tion due to the inconvenience of collecting the subsidy that would make the rich
stay away. Clearly, there are few arguments against universal coverage in a coun-
try like India. Of course, in a rich country like the United States where the poor
are a much smaller group and where they have well-developed formal institutions
such as the Internal Revenue Service, it makes sense to have a targeted program.
Even Latin America is a lot richer than South Asia or sub-Saharan Africa, and the
poor that need subsidies constitute a minority. Also, institutional development is
further along in Latin America, so identifying the poor through means testing or
other methods is not an insurmountable problem. For all these reasons, it makes
much more sense to have targeted programs in Latin America than in South Asia
or sub-Saharan Africa.
The available evidence on the exclusion error in the present targeted public distri-
bution system in India strengthens the theoretical arguments in favor of universal
coverage. In fact, the clamor for universal coverage is growing is in part because of
increasing awareness that more than half of the poor as defined by the Government of
India's official criterion are left out of the official list of those classified as BPL (Jha and
Ramaswami 2012).
While the logic of near-universal coverage in reducing targeting exclusion errors has
not been challenged, some economists—and especially those in government—fear that
it will lead to unaffordable subsidy expenditures. Another concern is that near-universal
coverage with substantial entitlements will mean a substantial expansion of the PDS and
hence of grain procurement by the government. The worry is that this will accentuate
the adverse effects of procurement discussed earlier. The domination of grain trade by
parastatals is not comforting either for those who worry about costs and efficiency in
grain marketing.
The disquiet about what the food security bill implies for procurement and grain mar-
kets could be easily settled if the food subsidy is given in cash. Under such systems, the
food subsidy is directly transferred to the beneficiaries. Households use this transfer to
buy grain from designated retail outlets. As the grain would move through the usual
market channels, procurement is not necessary.
The coverage question is therefore connected with the mechanism of subsidy deliv-
ery. Near-universal coverage with in-kind transfers is likely to be costly. The move
would also increase the market price of food, for which reason the farm states would
favor in-kind transfers. This is discussed later in the paper.