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Symposium 2009

Proposal - Cash transfers and affordable food

The Challenge

Poverty reduction has become the central objective of development policy, as reflected in the United Nations’ Millennium Development Goals (MDGs). While economic growth is seen as an important ing ...

Poverty reduction has become the central objective of development policy, as reflected in the United Nations’ Millennium Development Goals (MDGs). While economic growth is seen as an important ingredient in achieving sustainable poverty reduction, the emerging consensus is that growth has to be pro-poor to reach such ambitious targets as the MDGs.

One of the most significant policy initiative in India in the recent times reforming food policy was the introduction of the targeted public distribution system (TPDS) in 1997. In the TPDS, subsidies are restricted to below poverty line (BPL) households. Critics of TPDS, however, believe that identification is a difficult process and would lead to large exclusion errors. Moreover, by shrinking the public distribution system (PDS) to serve the poor, they fear that it would affect the economic viability of the PDS retail outlets. A feature of India’s food subsidy programme is the deep involvement of the government and its agencies in physically handling the grain. The government buys the grain, stores it in its warehouses, transports it to different depots in the country and distributes it to authorised retail outlets. Agencies of the central and state governments carry out this operation.

An alternative to such an arrangement is the system of food stamps. In this scheme, the purchase, storage, movement and distribution of grain is performed by the private sector. A food stamp is a cash voucher, which can be exchanged by the recipient for only food. It is usual to restrict the list of foods by excluding alcoholic beverages, snack foods and other processed food. Here consider food stamps that can be only used to purchase foodgrains. Could this be superior to the existing PDS?

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