India spends close to two percent of its GDP as subsidies for the poor. Subsidies are seen as a means to provide basic livelihood security to the poor. Subsidies in form of both cash and kind are provided under various schemes of government. A common criticism against these schemes is that it is riddled with inefficiencies and leakages. As a result a large chunk of subsidies are not reaching the intended beneficiaries. Government is considering the idea of direct cash transfer as a means to correct the inefficiencies in existing system.
Direct cash transfer aims at delivering subsidies directly to beneficiary in form of cash. Two major pillars of this scheme are Unique identity under UID and financial inclusion. While UID helps authenticate identity of the beneficiary ,financial inclusion would ensure that regular subsidy payments are made into beneficiaries bank account,there by acting as a source of insurance. This idea is largely based on the succesfull cash transfer schemes in Latin America. There are several inherent advantages in cash transfer schemes vis-à-vis in-kind subsidies. It is more transparent and simple, provides wider choice to beneficiary and provides income security to the poor. In this context there have been demands to replace the leaky public distribution system(PDS) with direct cash transfer
PDS has been the mainstay of governments efforts to ensure food security of those living below the poverty line. Today fair price shops are spread across the length and breadth of the country. Despite large leakages, many still consider it a necessity. With such a vast reach, it would be better to improve efficiency of existing system rather than replacing it with a new system without adequate infrastructure. The best way forward is to make use of UID in authenticating beneficiaries availing PDS. This would help eliminate ghost beneficiaries thereby cutting down leakages. Automation of processes will aid in real time monitoring of sale of grains.
The direct cash transfer scheme in current scenario is useful in consolidating existing cash transfer schemes like pension and scholarship. While expanding the scope of DCT, government should consider the ground level infrastructure like bank branches, authentication tools etc. Mere transplantation of cash transfer model that was successful in a predominantly urban Latin America to Indian society would have deleterious impact. A lot of grass root level changes need to be brought in before widening the scope of cash transfers to include essential goods like food grains.