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Research shows cash transfers to be more effective for food security

Feb 12, 2014

The four country study conducted by the International Food Policy Research Institute showed that compared to direct provision of food, cash transfers were generally more effective in providing food security to beneficiaries.

In the context of the National Food Security Act, the question of how food is to be provided to 67% of India’s population has become extremely important. A raging debate has emerged with one side arguing for direct provision of food to beneficiaries through the Public Distribution System (PDS). The other side argues that the PDS is filled with leakages and unable to deliver food effectively and therefore a better option would be to provide cash to beneficiaries so that they can purchase food from the market.

A policy seminar conducted by IFPRI on social protection, poverty and nutrition shed new light on this debate. John Hoddinott, Deputy Director of the Poverty, Health and Nutrition Division at IFPRI presented a four country study conducted in Yemen, Ecuador, Niger and Uganda comparing the impact of cash transfers and direct food provision on food security of the population. The study showed that cash transfers were often but not always more effective, seen by improvements in the Food Consumption Score (FCS), an internationally accepted standard used for measuring nutrition. From the supply side, cash is also cheaper to provide to beneficiaries compared to food and the reduced costs enable a 15% potential increase in coverage. Cash performed better than food even when both mechanisms were supplemented with behaviour change communication.

The misuse of cash by beneficiaries is one of the most frequent criticisms of the mechanism. However the study showed little evidence that cash increased social tensions and alcohol consumption.

The arguments for cash transfers however did not go uncontested. Reetika Khera, a development economist at IIT Delhi raised a series of objections to the cash transfer mechanism. She argued that field surveys indicated concerns among some beneficiaries regarding ‘indexing’ or the linkage of the cash to local prices. There was also apprehension on the increased burden on beneficiaries to obtain food from markets, especially in poorly connected areas where markets were far away. Some also felt that they would be unable to manage the money properly and spend it on non-food items.

The discussion on the contrary option of direct provision of food centred around the PDS. Khera argued that it was witnessing an unquestioned revival with states like Odisha, Chhattisgarh, Tamil Nadu and Andhra Pradesh taking several reform initiatives such as computerisation, decentralised and public management of ration shops, official commissions that examined poor functioning and delivery of food grains to the local level. This resulted in a significant reduction in the proportion of households reporting no PDS purchase, with an all India drop from 73% to 55%. The improved access resulted in increased offtake of rice and enhanced diet diversity. Avinash Kishore, a researcher at IFPRI, argued that this ‘new style PDS’ inspired the National Food Security Act.

However the question of leakages was persistent. According to Hoddinott, it was possible to design resilient systems that significantly reduced leakages. An example was given from Bangladesh where at the time of the cash transfer from the government official to the beneficiary, an SMS is sent by the bank to the beneficiary verifying his/her presence and requiring a PIN number authentication before the transaction can be completed. The simple step of computerisation also went a long way in reducing leakages in India. The important thing was to keep in mind the context and ensure that questions of policy were not divorced from questions of implementation.

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