Cash transfers: Lost in transactions

(The Centre for Equity Studies, Delhi, conducted a survey to gauge the impact of the switch to cash transfers on the consumption patterns of the poor in Chandigarh. The preference for kind vis-a-vis cash transfers was recorded. Importantly, public opinion found no place in the decision- making process.)

Feroza Begum had to make a choice between food security and her children’s education. Allow me to rephrase it: Feroza Begum had no choice. Her eight children, studying in classes II to IX, were forced to drop out of school when the Chandigarh Administration discontinued the sale of subsidised foodgrains. This family was receiving 30 kg wheat and 20 kg rice from the Public Distribution System (PDS), the market value of which, pegged at the reported prices, is Rs 1,080. A cash equivalent of these rations is promised to each beneficiary of the National Food Security Act (NFSA, 2013), including Feroza Begum. However, she has not received the entitlement in her bank account yet. Crisis hit this household as the income from casual labour was far from sufficient to sustain their erstwhile consumption level, made affordable by the PDS. An urgent need for additional income required the children to work for a contractor on a piece-rate basis.  Eight pairs of hands are now engaged in making paperbags (at a meagre net profit of Rs 35 per kg) in the pursuit of one goal: food security. In August 2015, the Department of Food and Supplies, Chandigarh, shut the doors of a network of Fair Price Shops (FPS) to give way to cash transfers. This cash-transfer model is set to transfer a sum of money, which by the government’s calculation should be sufficient to buy the same quantity of cereals that the households were purchasing from the FPS. The amount, recorded at Rs 94.5 per person per month, is transferred to the Aadhaar-linked bank accounts of the head of the household, who as per the NFSA is the eldest woman in the family. At present, 42,004 households are receiving cash transfers, although 55,917 households are eligible and entitled to the subsidy.As part of a study by Centre for Equity Studies, Delhi, a team of volunteers conducted a survey to understand the impact of this switch to cash transfers on the consumption patterns of the poor. The preference of kind vis-a-vis cash transfers was also recorded. Based on observations of the investigators, here are key insights with regard to the cash v/s kind debate; where the contention lies in the mode of transferring benefits accrued to the poor. Respondents were asked to state their preference for the medium in which they would like delivery of food subsidy. This preference was recorded on the following parameters, parenthesis indicate the proportion of respondents reporting preference for in-kind transfer: Personal preference (71 per cent), Curtailing corruption (44.5 per cent), Food security (74 per cent).By and large, the response was in favour of in-kind transfers, despite the fact that affordability accorded by cash transfers is, loosely speaking, preserved at the recorded market price (with a loss of Rs 13 borne by each member of the household). The reasons for such a vote are:Dissipation of Money: Households were concerned that the policy instrument in question (cash transfers) will not appropriately address the policy objective (ensuring food security) sufficiently. Respondents were convinced that the money could be frittered away not just on alcohol and other vice goods, but also on medicines, clothing or education. This, they argued robustly, would gradually affect their consumption pattern. However, the duality in this argument is worth noting. The fungibility associated with money, treated with suspicion by most, was recognised as a boon by others.  Some households receiving cash entitlement were saving this money for use in cases of emergency and using their erratic stream of income to buy grain in small quantities. Declining Quality: The pro-cash side of this debate argues that money would enable people to purchase better quality food grains in the open market. However, respondents complained that they were no longer able to afford better-quality grains that they received at the FPS. The market price of average quality rice was between Rs 30 and Rs 40 per kg and the transfer amount of Rs 94.5 per person per month is insufficient to sustain the average monthly consumption at these prices. A shift towards cheaper and poorer quality of rice was noticed where people were pleased with the quality of rice that the FPS provided. For migrant workers (particularly those from Bihar, chiefly consuming rice in a wheat-consuming belt), the loss of the PDS meant the loss of a good meal.Accessibility: Although access to the grain market was easily recognised, the FPS invariably beat the market and the bank in terms of distance, travelling cost and travelling time. In-kind transfers were rated above cash transfers on the “convenience” metric. Money is not enough: At the current market prices, (recorded to be stable in the implementation phase of the cash transfers), respondents did not perceive the cash entitlement to suffice. Most families reported a surge in credit purchases, indicating that cash entitlement was not enough to stabilise the consumption pattern. The erstwhile APL and BPL families were additionally entitled to 10 kg grain at the rate of Rs 7 per kg from the Chandigarh Administration, over and above their NFSA entitlement stipulated by the Central government. However, the UT Administration does not factor this additional requirement in the computation of cash transfers, as the subsidy is accrued only against the NFSA entitlement. The insufficiency, viewed in this light, was stark. Inflation: Respondents were not convinced that the government will keep up with the rate of inflation, given the notorious trend of inflation in pulses. Past experience with social security schemes like old-age pensions, reifies this belief as these transfers are known to be sticky in the face of rising prices.Mistrust: Respondents were either not receiving their entitlement in the bank accounts they were familiar with, or having received their entitlement, were mindful that their neighbours were not. This bred an environment of mistrust that the government could, at any point, retract assistance entirely. This was accentuated by an absence of their voice in the decision to implement the policy in the first place.Interdependent Preference: While households with stable and relatively higher incomes found cash transfers to be more convenient, yet their final call, in some cases, was in-kind transfers. A classic response would be along the lines, “We can manage, but where will the poor go?”The dismantling of the PDS is a direct attack on the living standards that the poor managed on the margins. Officials at the Department of Food and Supplies claimed to have conducted a survey to gauge people’s preferences in this matter. Requests to share the results of this poll were greeted with polite refusal. The people know their mind. The Administration is well aware of their call, we suspect. Attempts to suppress this voice must be given up and careful attention must be paid to a resounding vote against cash transfers.

(The writer was a part of the study conducted by the Centre for Equity Studies, in Chandigarh.)

Aarushi Kalra
MA (P)



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