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Feb 05 2013, 03:25 IST
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SummaryGovernment hasn’t thought cash transfers through. Food security bill adds to the confusion

Government hasn’t thought cash transfers through. Food security bill adds to the confusion

Does the UPA government believe that the public distribution system is broken and cash transfers are needed, or does it believe that the PDS works well and can serve a multiple of the numbers it is currently catering to?

In the budget session of Parliament, the government is expected to further push subsidy expenditure through cash transfers. In the same session, it is expected to table the food security bill. Surely, it is clear that there is a contradiction between the philosophy of the two. The strategy of cash transfers, when it means giving money to poor households to bring them above the poverty line, is based on the philosophy that households should be free to choose what they buy. Providing subsidised cereal to households is a policy that is based on the notion that it is best if the state decides what is good for the people and provides it. It is unlikely that in the mind of this government, that has not yet clearly articulated the full policy, cash transfers are designed to be like a negative income tax where freedom of choice is given to the individual and the family, which can buy what it chooses to. A badly designed cash transfer scheme would be one linked to consumption of specific items — food, education, kerosene, fertiliser, etc. Under this scheme, the choice of where to buy would lie with the household.

Currently, cash transfers are limited to a few small items like scholarships and pensions. They can be kept limited to these items and incrementally expanded to include a few more. Or, they could be expected to cover all subsidies, where an income subsidy amount is paid directly to the beneficiary, rather than through a price subsidy on particular items. If the logic of cash transfers was to be carried forward, each poor household would be given a sum to money to pull it above the poverty line. Like an income tax, which is paid by better-off households to the government, this would be a benefit or a “negative income tax” the government pays to households.

Giving poor households money is based on the belief that no one understands the needs and priorities of the household better than the individual and her family. If she chooses, a person below the poverty line could pay for the transport

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