Food debate #1: Cash or kind?

What should be the mode of food subsidy delivery? Should the government dole out cash instead of food? Or use coupons instead? The first post in the food debate series focuses on this ongoing debate in the government

Food debate #1: Cash or kind?
-Tushar Vashisht

The people in the right of center say, let’s abolish the food distribution system. After all, the govt shouldn’t be in the logistics/supply chain business. Their solution is to deposit cash in a poor person’s (lets call him Natha) bank account. Clearly, bank account income delivery works in NREGA. Delhi state government has tried this indeed, but counter-intuitively, received resistance from many poor families that prefer food over cash. [2]. The people left of center justify the resistance by saying that Natha might drink it away; at least in the current system, despite its leakages, Natha’s wife or family gets whatever it does get. There are other middle path seekers who are trying their hands on food coupons such as Madhya Pradesh and Bihar [3]. In fact, corporate food services company Sodexo was one of the bidders for Madhya Pradesh. The believers in the coupon system advocate that it makes the system demand led, empowering the end beneficiary, and could lead to choice at the hands of the customers as they could theoretically withdraw food from any fair price shop or perhaps even private retailers. However, perhaps what the government doesn’t realize is that coupons have the same, or at times even worse, problems as cash. If the Sodexo coupon experience in urban areas should teach us anything, it’s that it can be traded easily for cash at any outlet. In fact, given that it has less security features than cash, it can be easily duplicated as well.

My liberal western education wants to support the right of center view. Our recent findings into the costs of addiction wants to support the view left of center. Common sense teaches that coupons system could be worse than both in the current form. So I go back to the building blocks of growing mobile phones, mobile connectivity and the UID number (please see the food debate intro post for details) and ask how we can leverage these for PDS. And the answer I find is in having “virtual food coupons” or using “online food accounts”. Wait what? Let me take a step back and try to explain these.

Virtual food coupons would exactly be like food coupons, except that they are digitally delivered to residents’ mobile phones, using a One Time Pin code (OTP) that contains information on how much food a resident’s family is allotted. This should curb the problem of duplication of coupons, lower the costs of distribution, and accommodate future changes in the system or allocations. How will it play out? In a typical scenario, the beneficiary would receive an OTP on his/her mobile phone via SMS and displays that code to the fair price shop or any other retailer of the government’s choosing. The retailer registers that code in his/her mobile phone, sends that as an SMS or USSD msg to the state PDS server, and provides the beneficiary the alloted ration. This way the government knows how much ration has been withdrawn and by which beneficiary, and the beneficiary could get the receipt of the same on their mobile phones.

The “Online food account” system, on the other hand, is an innovation over the virtual food coupon that removes the need for the One Time Pins. It is an account linked to the family member’s UID number (or any other unique ID chosen by a state government) from which the beneficiary could debit their ration. Much like a bank account, this would be an account for food. All the government has to do is to push the beneficiary’s food allotment each month to their “food account”, from which the beneficiaries can withdraw from (post authentication) at any fair price shop or any retailer of the government’s choosing that act as “Food ATMs”. These ATMs could technically be as simple as mobile phones. Chhattisgarh, the leader in cutting edge PDS reforms is also currently experimenting with a similar solution as part of its Centralised Online Real-time Electronic(CORE) PDS. If the account is linked to the UID, even a biometric authentication can be done at these terminals to ensure that the correct beneficiary is receiving the ration. More description on this system can be found on the UIDAI website.

Neither system is fool proof. But in the debate of where in between cash and kind the government needle should lie, those two are my preferred solutions that I believe will empower the beneficiary and reduce leakages most effectively. Regardless of which, or a combination of two, is the right solution, the one thing that bothers me the most is that even as the government is busy debating policies at length about what the right food policy needs to be, the poor, hungry Natha (for those who don’t get the Peepli Live reference – that movie is a must see!) starves to death. Lets hope the government executes on the solutions quickly and saves him before it’s too late.

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8 Responses to “Food debate #1: Cash or kind?”

  1. It sounds marvellous in theory. But are we assuming away the tech-savviness of the masses? Are older, less educated people comfortable with using SMS as a medium (though mobile phone use is widespread, people mostly use it for calls)? What do you think?

  2. maybe i’m missing something but i guess someone who earns rs.32 a day will not be able to afford a mobile phone?

    • at rs. 32/day, you’d have to borrow the money for a mobile phone. However, once the device is in hand, you’d be able to afford sending SMSes. In Bangalore, we were able to get an SMS plan that had a one time fee of Rs. 52. With this plan, we could send upto 100 SMSes a day for a total cost of Rs. 0.60/day.

      Having said that, we do realize that mobile expenses are quite expensive. We have noted here – http://rs100aday.com/2011/10/20/missed-call-planning-commission/ – that mobile expenses were not factored into the Planning Commission’s analysis for Rs. 32/day.

  3. Try and not focus on Rs 32/day and focus on a system that solves the PDS problem. There are many recipients with BPL (Below Poverty Lines) privileges. Aadhar is a key foundation on which there are a plethora of digital systems that can be developed. It could encompass phones, a card, a finger print scanning system. The provider could have a finger print scanning device connected to his mobile phone. Person gives Aadhar #, provider keys it in, recipient presses thumb or any of his/her ten fingers that gets recognized. Provider keys in what was delivered. Cumbersome? Yes. More efficient systems can be developed? Yes. Multiple solutions at multiple price points can be provided.

  4. Why not run experiments? Take two similar villages and test cash transfers vs. food vouchers. Test health and well being after a certain period. The development community seems to systematically underestimate the ability of poor people to make good decisions for themselves but experiments suggest that bottoms up cash transfers can be as effective as top-down paternalistic interventions. Obviously cash transfers have significantly less cost to deliver and less potential for abuse. Is there reason to believe that India would be different than Mexico, in the case below?
    http://www.cepr.org/meets/wkcn/7/783/papers/Cunha.PDF
    Perhaps the relative status of women in India is what would make it different (women generally make better financial decisions than men but tend not to make financial decisions)? Regardless, wouldn’t it be worth experimenting to find out?

    • Hi Vimal, certainly a good experiment to try. The government is trying pilots of this nature in places – Delhi govt being one of them. But there are concerns about “the cash being abused” for alcohol – not sure what the statistical evidence is, but clearly there is anecdotal strength to the argument. This is covered in our blog post Cash or Kind, where we think electronic food coupons could be a good solution, having advantages of cash, without the inefficiencies of actual food delivery. Something that can perhaps even naturally evolve to a cash based system in the future.

  5. Congratulations on your experiment.

    When I was young and traveling two years in Europe I had
    the exact some idea – we must have a law requiring adequate
    nutrition for every citizen.

    We in America, and even India, are lands of abundance —

    where we throw away millions of pounds of nutritious food every day,

    where we pay billions of dollars to farmers NOT to grow food,

    Only an insanely selfish and greedy culture that would allow a person
    to starve to death – and throw away good nutrition with the other hand.

    Is that us?

    One alternative not on your list is to avoid money
    (and coupons which are easily converted to money) ideas
    and problems entirely – and give out food to people who show up.

    That’s how non-profits / NGO’s in America (and I suspect
    elsewhere) distribute food to homeless.

    They’ve already solved all the problems with recipients and
    distributors cheating. I suggest you see how they do it
    and start with the best existing solutions.

    With my best wishes for success of your project,
    -David

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