The National Democratic Alliance government’s first experiment with handing out cash instead of subsidised food has been given a quiet burial late last month after the project proved too politically charged for politicians and too impractical for users.

The direct cash transfers had started in Puducherry in February to take advantage of the new bank accounts opened under the Pradhan Mantri Jan Dhan Yojana, a scheme that aims to ensure that no Indians are left out of the banking network. The government hoped that direct cash transfers would help plug corruption in the Public Distribution System – instead of being given subsidied food, beneficiaries would be given money to buy it at market rates. However, the project soon ran into trouble on two counts: there are fewer bank branches than ration shops and, two, banks debited the cash for purposes other than food.

Qualities of rice

As per an estimate by economists Jean Drèze and Reetika Khera, in India, the amount of grain being illegally siphoned out of the public distribution system fell from 54%  in 2004-'05 to 41.7% in 2011-'12. They attribute the reduction to simple reforms such as increasing the regularity of distribution. They attribute the leakages,  which reduced but are still significantly high, to diversion of grain from the  quota for beneficiaries who are above the poverty line.

A gradual transition to direct cash transfers, as more efficient than buying, transporting and distributing foodgrains, was recommended in January by a high-level committee on restructuring the Food Corporation of India headed by former Food Minister Shanta Kumar. Food Minister Ram Vilas Paswan suggested implementing cash transfers for food on a pilot basis in Puducherry and Chandigarh.

Chandigarh did not launch the scheme (and has not yet done so). But Puducherry, ruled by an NDA partner, decided to give it a try.

The conditions were right in Puducherry. Last October, the union territory had become one of the first places in India where every household was linked to a bank account under the Pradhan Mantri Jan Dhan Yojana. In addition, it has an extensive public distribution system.

All families in Puducherry get 10 kg single-boiled rice free per month from the public distribution system. Besides this, they also get 10 kg-35 kg double-boiled rice at subsidised costs (with prices varying from Rs 3 per kg for very poor Antodaya households to Rs 7.45 per kg for those below Below the Poverty Line). On paper, they are also to be give five free kilos wheat, though this has not been disbursed for a year, says researcher Swati Narayan in a paper titled Cash or Rice. During her research, Narayan found that most families in the union territory cook the single-boiled rice and use the less popular double-boiled rice to make batter for idli, dosa after mixing it with better quality cereals from the market.

No conditions attached

In February, the Puducherry government, led by Chief Minister N Rangaswamy of the All India NR Congress, launched a direct cash transfer of Rs 300 into the bank accounts of 3 lakh households, replacing 10 kg of rice provided free every month.

Over two months the NDA ally’s government transferred Rs 18 crore, the largest cash for food transfer in the Public Distribution System. The cash was given unconditionally – that is, once it reached the beneficiaries, there were no riders on it. The money could be used to buy food or on anything else. The amount Rs 300 was arrived at based on the current cost of rice in the retail market and was not indexed to the shifts in the price of rice in the market, said officials.

But soon after the launch, the project ran into trouble.

Opposition assault

One problem was the gaps in administering the programme. “Beneficiaries complained that the money sent to the beneficiaries’ bank accounts got auto-debited under other heads, such as the account holder’s pending dues for self-help group membership, etc. and that they did not receive the cash,” said P Priytarshny, director of the food and civil supplies department.

Also, Priytarshny points out, there “are total 400 ration price shops but only 100 bank branches. People complained they found banks more difficult to access than ration shops.” Some beneficiaries living away from urban areas incurred double costs – first making a trip to the bank to withdraw cash and then to a market to buy rice, instead of a single trip to the ration shop as earlier.

Another trouble was the opposition parities, which began attacking the government no sooner than the experiment was initiated. R Rajangam, secretary of the Communist Party of India (Marxist), launched an online petition, asking Puducherry’s Lieutenant Governor to discontinue the programme. He said the government was allowing Puducherry’s people to be used as guinea pigs, with no fear that their hardship may increase under the system of cash transfers.

“If only cash is given, workers may spend it on alcohol,” said Rajangam. “When rice is given, it provides nutrition to women, children and the old.” He observed that the cash transfers had not been designed to protect the poor against a rise in the price of rice.

Second pilot project

The CPI(M) announced a public protest outside the Legislative assembly beginning April 23, pushing the government further on the backfoot a few months before scheduled elections.

A day before the agitation was to begin, on April 22, Chief Minister Rangaswamy announced in the assembly that the cash transfers were withdrawn.

While the Puducherry government has called off the pilot and restored the provision of state-sponsored 10 kg single-boiled rice, the central government may continue the experiment in the category of the less popular doubled-boiled rice ration, which is provided through central funds. The second pilot will start from June 1. “We will have to first talk to banks,” said P Priytarshny.