Agriculture Reference
In-Depth Information
Direct cash transfer has other advantages as well. Because of limited volumes, the via-
bility of the government marketing channel (the PDS retailers) is an endemic issue. This
is not a problem with direct transfers because it eliminates the dual marketing system
(of private and government). Second, there would be greater economic access, as con-
sumers are restricted not just to particular outlets. Further, poor consumers need not
worry about timing their purchases with wage payments.
Third, direct transfers allow consumers to choose foods according to their needs and
preferences. In parts of India, poor consume grains such as sorghum and pearl millet
that are not subsidized by the current regime. Local grains and varieties are not sup-
ported by the PDS. Cash transfers could allow consumers to spend their budget on their
preferred commodities and would therefore be less distortionary in consumption. This
is the textbook economics case for the superiority of cash transfers over in-kind trans-
fers. It also has implications for reducing regional inequalities.
In a system with in-kind transfers, the government needs to engage in procurement,
storage and distribution. Naturally, it finds it logistically convenient to procure grain
in two or three large surplus states and then distribute it. The farmers in these surplus
states are generally well to do, and they receive the benefit of government-assured sup-
port prices. These benefits are not received by the poor growers of local grains. A local
grain that is not included in the subsidized basket clearly suffers from the disadvantage
of having to compete with a subsidized substitute. Growers of local grains like sorghum
and millet are typically located in arid and semi-arid areas, and they do not have the
option of switching cultivation to rice and wheat because of lack of complementary
inputs (particularly water). The rationing system of in-kind transfers thus invariably
generates inequality between the farmers of the surplus states and those in arid and
semi-arid areas. It is easy to see that cash transfers would do the opposite, as the con-
sumers in the poorer areas would choose to spend their cash on local grains and thus
boost their demand and hence their prices.
Despite these potential advantages, cash transfers have been vigorously opposed by
civil society organizations. A leading advisor to the Right to Food campaign referred
to a proposal on cash transfers as “ill conceived, not thought through. . . fraught with
grave risks” and as a result “is a solution that is worse than the problem it seeks to
address” (Patnaik 2010). The Right to Food campaign has organized protest rallies in
states that have wished to pilot programs of cash transfers. If the public distribution
system is so dysfunctional, why is there so much resistance to replacing it with direct
cash transfers?
Challenges to Cash Transfers: Feasibility
An immediate objection is infeasibility. How can cash be transferred? Does a poor
country have the systems to implement it? A cash transfer system is constructed on two
pillars: a payments system to distribute the cash; and an authentication system to verify
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