National Food Security Act vs.

Direct Cash Transfer Direct Cash Transfer will achieve food security more effectively
Shamika Ravi A legal right that is impossible to fulfill is a bad idea. It fundamentally weakens the value of a right by making its violation acceptable. Therefore, while the basic objective of the National Food Security Act (NFSA) is noble and should be an aim of all modern economies, the proposed operational framework assures its failure. The proposed NFSA has the right intentions but we know that our distribution system has failed so far, not because the policies lacked good intentions, but because they are poorly designed. As per the proposed NFSA, the channel for distribution of the essential food entitlements is through the Public Distribution System (PDS). So far we have relied on the same ration shops under the assumption that shop owners will honestly distribute it to the BPL and other designated beneficiaries. Yet, existing empirical evidence (Khera, 2010) shows 67% leakage in the wheat meant to be delivered to the poor. This means that as per the NFSA, for an essential entitlement of 35kgs, we will need to direct 105kgs of wheat per household per month through the PDS. So the question that comes to mind is: why will the same PDS deliver better now? This is critical because an enhanced role of the current PDS is the basic foundation stone on which the operational framework of the NFSA is structured. The intellectuals behind the NFSA, are cognizant of the acute shortcoming of the distribution system, which is why the main body of the Act will mandate comprehensive reforms in procurement, distribution and management of the PDS. This reminds us of Milton Friedmans observation tha t when a business does badly, it is shut down, whereas when a government scheme fares poorly, the common response is to throw more money at it. Given the past experience of rampant leakages, the dogmatic response is to do more policing. So the NFSA has a grievance redressal and monitoring system under which a new institutional setup would be created, involving block level facilitation centers, District Grievance Redressal Officer (DGRO) and state and national level Food and Nutrition Commissions. The DGROs will be recruited through an objective national selection process (like UPSC) and will be independent officers with extensive powers to investigate, fine and compensate. The proposed creation of the redressal and grievance system is essentially creating a new layer of bureaucracy. Given our past experience with bureaucracy, there is no reason to believe that this new layer will be immune to corruption and manipulation.

A smart food security plan would have to be designed keeping in mind the laws of the market and the incentives that people respond to. That is why a system where the benefits are handed out directly to the poor households, cutting out all the middlemen, is a superior system to the current NFSA. A food security plan which hands out cash is an improvement on the NFSA where grains will be distributed through ration shops because beneficiaries can use the cash to purchase food from any store. And not just designated ration shops A direct cash transfer system can also take care of preferences of beneficiaries and thereby a major concern that many have with the proposed NFSA. People argue that the current Bill is only pushing calories and thereby ignoring the severe nutrition problem at hand. Food security does not have to be for rice, wheat and millet alone. A common fear amongst those pushing the current form of NFSA for grain distribution is that cash will be ineffective in remote areas where shops dont exist. The beauty of human behavior and incentives is that when households purchasing power for food increases in remote locations, local sellers will respond to these markets. But given the poor state of infrastructure in remote locations, this market discovery will take time. In such a situation, the best response of the government would be to identify specific remote locations to improve PDS infrastructure there and to remove the remoteness of these areas by making complementary investments like roads to reduce frictions and improve the overall delivery system. The direct cash transfer will also reduce adulteration and improve targeting. This is essentially because the shopkeeper receives the same prices from all buyers poor beneficiaries and the rich. So he has no incentive to turn the poor away. The beneficiaries on their part, can go to any shop not just designated ration shops so they will go to the shops which ensure quality and competitive prices. In a system like this, all the policing is done by the customers who are the poor beneficiaries. It doesnt require another layer of bureaucracy because most ordinary citizens in India, for good reasons, are extremely wary of more bureaucracy in their daily lives. Direct cash transfer for food will also ensure that a disproportionately large number of farmers are not incentivized into rice, wheat and millet cultivation due to governments procurement policies. By cutting out the middlemen, growers of pulses and other food items will respond to peoples preferences. This is crucial to consider because food security of Indias poor and the impoverished state of Indian farmers are two sides of the same coin. Trying to address one problem without considering the other is like solving a jigsaw puzzle with missing pieces. There are many who complain that cash for food can be easily exchanged and beneficiaries would instead use it to buy other goods or drink away. This point, besides being demeaning and paternalistic, is also absurd. It is akin to people arguing that the poor shouldnt be paid higher wages because they will spend it on unnecessary things. The fact is that under the

proposed NFSA, the government will provide 35 kgs of wheat/rice/millet to each household. Whether people eat it, sell it or let it rot is not something that we can verify. The larger point is also that enforcing consumption should be outside the purview of the government. While it is desirable that our citizens attain higher nutrition standards and greater mental and physical health outcomes, we have to respect individual freedom. The appropriate way to go about this would be to push greater awareness and literacy. Moving towards cash will also separate food security concerns of the poor, away from the problems with Indias distribution system. The Indian government procures nearly one third of all grains produced in India. One of the main objectives for such large procurements, besides distribution, is managing price fluctuations. Yet, the fact that the government held onto stocks well above required levels even during periods of very high food inflation, ranging 20 percent, makes one wonder about the efficiency of our food distribution system. The direct cash transfer will mean a greater role for private traders as delivery channel. Since beneficiaries can buy food items from anybody, they will police the channels leading to an overall improvement in the outcomes. NFSA is an obvious political tool and therefore has no political opposition. Sadly, the bandwagon of Delhi experts have emotionally rallied behind it, abandoning efficiency concerns as well as individual freedom of ordinary poor citizens.