Coupons and cash transfers give people a choice unlike the PDS

This is a part of a series of articles on the proposal to shift from PDS to coupons or cash transfers. To see the introduction, click here.

Another strong argument for coupons or cash is that the recipients will have the choice to spend it on what matters most to them.  Proponents of reform have argued that the Indian policymakers tend to be paternalistic, and often argue that if the government gives cash instead of grains, poor people may misuse it, including by drinking it away.  They have argued that it’s important to trust poor people to make choices that matter most to them.  I fully subscribe to that argument.  Even if there is a condition that beneficiaries should only buy food using the cash transfer, having the option of buying cheaper grains instead of rice or wheat offered in the PDS could be attractive to many a poor family.   Ashok Gulati argued that such choice could also bring about diversity in diet, which is a desirable goal.

If choice is something that we really care about, it is possible to introduce it in a limited extent in the ration shop itself.  Beneficiaries often have the choice of getting rice or wheat, choosing kerosene over other alternatives, et cetera.  The range of goods that are sold through the PDS could be increased, and a limited set of choice could be easily introduced within that system.  PDS reformers of a different brand have argued for a long time that the range of goods available through the PDS should be expanded, some of which should be sold commercially, in order to make the ration shop the more viable.  Such a system exists in Kerala.  While the range of choices may be increased at the ration shop, cash transfers are clearly superior alternative from the perspective of choice.

Poor people will use the cash transfer for the intended purpose

In response to the argument that men in poor families may use the cash for alcohol instead of food some have pointed out that 92% of the people who received cash to buy bicycles bought them in Bihar.  This was given as an incentive to send girl children to higher secondary school.  The assessment that money was used to buy-cycles as intended seems to be correct.  That said, it is a poor analogy to how cash transfers for food will be used.  In the example, girl children were expected to buy bicycles and provide proof of the purchase to the school teachers.  Such a mechanism would be totally infeasible in the case of monthly quota of food grains.

Kaushik Basu among others have argued that cash transfers should be made to adult women in the household, and this has proved around the world to result in higher spending by the families on food, education, health and other desirable ends.  I feel that this is a much more serious basis of arguing for cash transfers than the bicycle example.  Similarly, I am sympathetic to the argument that we have to trust the beneficiaries to use it for what they consider are the best reasons, even though it will result in some cases of what the society can judge reasonably to be a misuse of such benefits.

Coupons give a choice of shops

Another choice argument made by the proponents of reform is that cash transfers and coupons make it possible for the beneficiaries to go to an alternative shop in case the one that they’re dealing with is corrupt.  Today people are tied to a particular ration shop, and if the shop does not deliver they cannot do much about it.  The idea that people should be allowed to take their entitlements to a different place is powerful, and that can actually put a lot of pressure on corruption.  While that idea is powerful, it has strong limitations in a lot of rural areas that are serviced by very few shops.

The coupon system in particular will be vulnerable because of the fact that a private shopkeeper will have to recover her money from the government by providing the coupons, which could involve delays, corruption, et cetera.  This may prevent most shopkeepers from taking coupons, while the rest can merrily charge what they want without any accountability to the holders of the coupons.  Shopkeepers can cite this as an excuse and charge what they want from the coupon holders.  Since there will be no obligation for the shopkeepers to sell the goods at a particular price, they can hold the coupon holders to ransom without any legal accountability .  In other words, they can do exactly what a ration shop dealer would do in terms of charging excess price but the act will be totally legal.  It would be a case of eliminating a crime by eliminating the law.

The coupon system makes corruption a very attractive proposition since legal accountability is considerably reduced in public-private partnerships.  The argument of choice of shops hinges on the idea that there will be unrestrained competition between shops.  In most areas the choice of shops will be limited and the possibility of collusion is large.  Further, officials can easily ensure that honest shopkeepers do not get reimbursed on time and thus keep them away from the system.  If the profit motive of a shopkeeper will drive competition, it can also drive collusion and corruption to the last penny that can be extracted.  The removal of legal accountability, accounting norms and other features that now govern ration shops will only increase the attractiveness of corruption with the coupon arrangement.

Such a risk will be lower in the case of cash transfers, though it is possible that beneficiaries will be tied to either a bank or some intermediary from where they will have to collect the benefits; instead of paying a bribe at the ration shop, they will pay this at a different place.

The idea of giving a choice of shops could be done in a limited fashion within the PDS without compromising on accountability mechanisms.  In urban areas, users can be given the choice of going to any ration shop, and this can be made possible easily with the use of smart cards.  An official in Tamil Nadu told me that they consider such a proposal within the current PDS with respect to Kerosene, where the subsidy is high.  They proposed to open kerosene bunks that can provide an alternative to ration shops, and under measurement could be controlled more easily in mechanised kerosene bunks.  Running ration shop involves overheads, and the possibility that people may go to some other ration shop to collect their entitlements will threaten excessively corrupt ration dealers, and create a similar kind of pressure that coupons and cash transfers will accomplish.

About Vivek Srinivasan

