Govt expects DBT to plug 35-40% leakage in PDS

Savings from DBT of food subsidy expected to be much larger than that for LPG; national rollout by January


New Delhi: The Union government is almost ready with a system that will directly transfer benefits in the public distribution system (PDS) after it tasted success in such subsidy transfer for liquefied petroleum gas.

The PDS is administered by the state governments and they will be able to use this system by the end of this year, a top official said.

“We have asked the states to move fast but cautiously,” a finance ministry official who is working on the direct benefits transfer (DBT) scheme said on condition of anonymity.

This will help government check leakages worth 30-40% of the total food subsidy given through the PDS, the official added.

Currently, only the Union territories of Chandigarh and Puducherry use DBT in PDS. The Aadhaar-based transfer could be either through cash or collection of foodgrains from ration shops through biometric authentication. “In Chandigarh, we have started cash transfers,” the official said.

Under DBT for LPG, or Pahal Scheme, so far 141.9 million beneficiaries have received Rs.25,447.93 crore in their bank accounts since the scheme was relaunched in November 2014. The government expects to save Rs.15,000 crore in leakages in LPG subsidy every year.

In PDS, the official said, some leakage arises due to fake ration cards. “Now that the identity of a person is known and ration cards are Aadhaar-verified, only the right beneficiaries will get the subsidy,” he said. Around 95% of states have already digitised ration cards. Digitization for cardholders means getting their ration card information updated on a computer system.

The savings from DBT of food subsidy is expected to be much larger than that for LPG. According to budget estimates, India’s food subsidies for the 2015-16 will be Rs.1.24 trillion. So, if government manages to save 40% of the subsidy, it will be around Rs.50,000 crore annually.

“If the government is moving in this direction, then it is good and I will like to see the states to move faster in adopting the system,” said Ashok Gulati, a former chairman of the Commission for Agricultural Costs and Prices, which advises the government on food prices. “It is a low hanging fruit and the amount saved can be used for say education which will increase efficiency.”

The government’s savings will go up further if it accounts for the unpaid bills of the Food Corp. of India, which is expected to be around Rs.70,000 crore for 2015-16, Gulati said. A committee headed by former food minister Shanta Kumar, in its January report, had found that diversion of foodgrains from PDS amounted to around 47% of the total food subsidy.

“Cash transfers can be indexed with overall price level to protect the amount of real income transfers, given in the name of lady of the house, and routed through Prime Minister’s Jan Dhan Yojana and dovetailing Aadhaar,” the report said. Jan Dhan Yojana aims to open a bank account and provide insurance cover for every household in the country.

The DBT official said the cash transfers will be done at 1.25 times the issue price of foodgrains to tackle market fluctuation of foodgrain prices. “It is to protect a person from higher prices,” he added. According to the National Food Security Act, 2013, PDS beneficiaries are entitled to 5kg of foodgrains per person per month.

The government is overplaying the bogus cards factor as the main reason for leakage, according to Dipa Sinha, a right-to-food campaigner. “Whenever the government has done an exercise, be it in Delhi or Chhattisgarh, not more than 10% of the cards have been found to be fake,” she said.

Often the leakages happen before the foodgrains reach the fair-price shop, she said. “The leakage is happening in the supply process and Aadhaar can only help in reducing duplication,” she said. Sinha also said that cash transfers will worsen the farmer crisis as minimum support price is their only support and the procurement process will be affected.

A Supreme Court ruling on 11 August restricted the use of the Aadhaar number to distribution of cooking gas cylinders, kerosene and foodgrain through the PDS. The DBT for kerosene will also start in October and will be operational in states where food subsidy through the platform exists, the government official said.