Karnataka Becomes an Accidental Pioneer of Cash Transfers for Food

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When the Karnataka government was recently denied additional rice from the Food Corporation of India for its Anna Bhagya scheme, it announced an interim arrangement of distributing cash instead of rice to its identified below poverty line (BPL) beneficiaries.

This decision inadvertently makes Karnataka a pioneer in the Union government’s Direct Benefit Transfer (DBT) drive. There have been smaller pilots since 2014, when DBT for food was encouraged, but its adoption at a state level is new, and may be a start of reforms of India’s Public Distribution System (PDS).

What is DBT food?

To leverage its JAM trinity of Jan-Dhan bank accounts, Aadhaar and mobile integration, the government announced several digital-based initiatives, particularly around 2015. JAM was seen as an important innovation for improving the delivery and targeting of existing welfare schemes.

One such effort was under the PDS or National Food Security Act, 2013 (NFSA), where states/UTs were allowed to substitute grains for cash directly transferred into the Aadhaar-linked bank accounts of beneficiaries. The transfer amount was a multiple of the grain’s minimum support price (MSP), minus the central issue price.

The idea was to: (i) identify genuine beneficiaries with Aadhaar and improve targeting; (ii) improve financial inclusion and usage, mainstreaming beneficiaries into the financial system; and (iii) to provide greater agency to beneficiaries so they could decide if they wanted rice or wheat, or fruits, vegetables, eggs or pulses.

While no big state adopted the initiative, pilots of DBT food were undertaken by the Centre in the Union Territories of Chandigarh, Daman and Diu and Puducherry, and there were other pilots in areas of Delhi and Madhya Pradesh.

We studied these pilots (Saini et al 2017) and found that such unconditional cash transfers (i) improved the diet of beneficiaries, who could now include fruits, meat, fish and eggs; (ii) empowered women heads of households because the DBT transfer was made in their name; (iii) did not increase tobacco and alcohol consumption much; and (iv) improved the general welfare of beneficiaries as some portion of the transfer was also used for getting medicines and repairing homes.

Sure, there were problems in implementation. For example, last mile connectivity in accessing and operating bank accounts was problematic for the rural masses. In some states, banking points were sparsely located. Open market availability was also an issue, particularly in food-deficient states like in Northeastern India. Some perceived that the cash didn’t bring home as much foodgrain as the PDS.

Also Read: If Jharkhand's Direct Benefit Transfer Experiment Isn't Working, Why Is It Still On?

In our study, we concluded that not all states and not all areas within a state were ready for a switch to DBT, and phased adoption is necessary. We also understood the role that unconditional cash transfer could play in encouraging nutritional diversity. In the longer run, this may also lead to rationalisation of current procurement levels of wheat and rice under MSP.

We recommended that Punjab, Goa, Delhi, Daman and Diu, Chandigarh and Puducherry could be the early adopters of DBT for food. These UTs/states are quite urban, have sufficient grain on the open market, are financially inclusive, and have a lower percentage of poor and malnourished. For the second phase, we identified Haryana, Tamil Nadu, Andhra Pradesh, Telangana, Karnataka and Kerala.

Karnataka’s Anna Bhagya Scheme (ABS) and cash transfer

Under the NFSA, the government distributes 5 kg of rice per person per month for free in Karnataka. Under ABS, the newly elected government of Karnataka has committed to double this entitlement to 10 kg.

As the country is already reeling under double-digit cereal inflation and the threat of El Niño, the Centre refused the Karnataka government’s request for additional rice from the central pool.

Consequently, the state government is trying to procure rice from other states and as an interim arrangement, has declared that it will transfer the value of 5 kg rice in cash to beneficiaries.

It seems that the state government has decided to transfer Rs 170 per month per person, which is about Rs 850 per month for a family of five. This calculation is based on rice priced at Rs 34 per kg.

What now?

We believe that rolling out a DBT transfer at the state level in a small window of time is bound to be replete with problems. For one, the government of Karnataka will have to link ration cards with Aadhar-enabled bank accounts, without a readily available database.

A similar time-bound exercise was undertaken by the government of Odisha during the launch of its KALIA scheme. In mission mode, a unified database of eligible beneficiaries was created by combining and triangulating data across databases. Such an exercise would also help the state government in cleaning the beneficiary database by eliminating undeserving individuals.

Meanwhile, what GoI may do

Based on the Consumption Expenditure Survey (CES) conducted by the National Statistical Organisation (NSO) which concluded on June 30, the government should encourage an informed debate on the extent of poverty. The next Census will also enable the government to assess the volume of the poor who deserve assistance under NFSA.

Overall, we think the government would do well if it planned for a food policy for 2033. Will India continue with the present policy of open-ended procurement and free distribution of food grains in 2033?

DBT for food in Karnataka should enable the beneficiaries to include millets, eggs, meat, pulses, fruits and vegetables in their diets. If that happens, then there is a unique opportunity of learning for the Union government, other states and researchers like us. Therefore, we propose that governments should conduct an impartial concurrent evaluation of this DBT initiative.

Shweta Saini is an agricultural economist and Siraj Hussain is a former secretary, government of India.

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