In his essay named “The Political Economy of the State”, Devesh Kapur states that there are three key reasons why India’s innumerous poverty reduction programs have failed:
- Administrative costs: A large share of the resources set aside for poverty reduction programs is lost in either the administrative costs or are siphoned off.
- Corruption: The public functionaries have a lot of discretionary power — they can decide who are eligible for the program and they also have control over the actual disbursement of subsidies. As a result, they can easily engage in corrupt behavior.
- Lack of accountability
Let’s take example of the public distribution scheme (PDS) in India — it checks all above boxes. In the current system, the Food Corporation of India (FCI) provides grains which are distributed below market price to the poor, through fair price shops a.k.a. ration shops. This system is highly inefficient.
- It has high administrative costs: In 2012, the Indian union government spent 750 billion rupees on the PDS; however 21% of the country remained malnourished. In the two decades prior to 2012, the food production in India increased by 50%; however; there was little decrease in malnourishment levels.
- It is highly corrupt: In fact, it is perceived to be the most corrupt public delivery system in India. The beneficiaries receive benefits worth only 12% of the money allocated.
- There is no accountability
The structure of PDS needs to be overhauled to make the system more efficient:
- Instead of indirect subsidies, implement direct cash transfer: In the current system, the government provides an indirect subsidy by providing food items below the market price through FCI. Subsidies are also given to the ration shop operators. Many such shop operators sell the FCI-provided food items in the black market and sell sub-standard grains in their shops. The government should transfer the money directly into the beneficiaries’ bank accounts. This will eliminate any possibility of corruption by the shop operators.
- Close the ration shops: Instead of distributing grains through ration shops, the government should let poor buy food from the open market e.g. through retail shops. The amount of direct cash transfer should be linked to the market prices of grains and food items. Closing of ration shops will eliminate leakages in the system.
- Aadhar cards and Pradhan Mantri Jan Dhan Yojana should be pushed aggressively. An Aadhar card will ensure that poor people have an identification document which they can use to open a bank account. The Pradhan Mantri Jan Dhan Yojana relaxes the bank account norms such as minimum balance, so that poor people are brought on board the banking system.
The National Food Security Bill, 2011 mentions some of these mechanisms; however unfortunately, the bill wasn’t passed in the parliament. However, the government has already implemented direct cash transfer to replace few subsidies — most notable being the LPG subsidy. Therefore, one can be hopeful that it will come to PDS as well.
Sources:
1. Devesh Kapur, “The Political Economy of the State” (Oxford, 2010)
2. “As Grain Piles Up, India’s Poor Still Go Hungry”, The New York Times, 7 June 2012, link, accessed 1 November 2015
3. “No proof required: PDS or NREGA, corruption must go on”, The Indian Express, 1 November 2014, link, accessed 1 November 2015
4. “The National Food Security Bill, 2011”, PRS Legislative Research, link, accessed 1 November 2015
5. “Direct Cash Transfer will be very beneficial to the people, says Chidambaram”, NDTV, 27 November 2012, link, accessed 1 November 2015
6. “Cash subsidy on LPG world’s largest direct benefit transfer scheme”, The Economic Times, 25 December 2014, link, accessed 1 November 2015
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