Casting the DBT net wide: Puducherry’s experience

It’s close to noon on a warmer-than-usual October day, and Ramalingam is at a fair price shop (FPS) at Sedarapet, in Puducherry. A mason, he is here to get his monthly quota of rice and wheat. He takes out his weathered ‘red’ ration card booklet and a smartcard and patiently waits his turn.

Ramalingam has been doing this for years and, on the face of it, it may seem that nothing has changed in the way he buys his foodgrain. But, everything — well, almost everything — has.

Since September, Ramalingam — and almost 1.5 lakh other Puducherry residents — have been getting part of their foodgrain subsidy as cash.

The daily wager gets food subsidies from the Centre as well as the State government.

While the State government gives him 10 kg of rice and 5 kg of wheat free every month, the Centre till now provided Ramalingam with 20 kg of rice. A family with the Antyodaya Anna Yojana (AAY) card used to get 35 kg.

But the Centre’s subsidy has now changed form. Instead of foodgrain, a red card-holder like Ramalingam gets ₹115 per household member (aged 14 and above); AAY beneficiaries get ₹809 per household per month.

“About 1,37,000 beneficiaries have received cash transfers directly to their accounts. The balance of 40,000 beneficiaries will be included by the end of this month,” said Priyatarshini, Additional Secretary-cum-Director at Puducherry’s Department of Civil Supplies and Consumer Affairs.

Apart from Puducherry, Chandigarh is the only one among the country’s States and Union Territories to have adopted the new system.

The Puducherry government, led by Chief Minister N Rangasamy, was among the first to respond to the Centre’s Direct Benefit Transfer (DBT) programme. The Union Territory claims 100 per cent financial inclusion, which means each of its citizens has a bank account. It also has about 95 per cent Aadhaar enrolment. Additionally, its supply chain, from grain storage to distribution, has been computerised, and the list of beneficiaries is available online, making the switch to DBT easier.

The new system also benefitted from the Supreme Court’s October 16 verdict, which ruled that a beneficiary no longer needs to produce his Aadhaar card to avail of social security schemes.

The DBT system has helped in reducing duplication, a rampant complaint in the traditional system of distributing foodgrains. In Puducherry, the system has eliminated about 25,000 bogus ration card-holders.

And, if States opt to completely do away with FPSs, as Chandigarh plans to, they can save on procurement, distribution and demurrage charges. Puducherry, for instance, spends ₹2 for every kilo of grain that it handles.

Puducherry is among the few Union Territories, or States, that run the dual public distribution system (PDS). It suits the people here, who prefer the rice provided by the State government.

“People prefer the single boiled rice distributed by the local government over that which is provided by the Food Corporation of India (FCI) through the Central scheme,” said Priyatarshini.

The rice supplied by the FCI is double-boiled, which, while easier to store and transport, is of poorer quality and does not match local taste.

The Central scheme now moving to the DBT system is a blessing for the people of Puducherry. They will continue to get the preferred variety of rice (under the local government’s scheme), and additional money under the Central scheme of direct transfers.

For other States who might be weighing the option of shifting to DBT, Puducherry’s experience holds valuable lessons.

In a bid to replace the Union Territory’s distribution of rice with direct cash transfer — similar to the Central scheme — Chief Minister Rangasamy had launched a pilot project in March.

Instead of the monthly ration of 10 kg rice and 5 kg wheat, the Puducherry government transferred ₹300 to the bank account of every household’s head. He, or she, didn’t have to come to the FPS, but could use the money to buy the rice from any shop.

This scheme, however, faced one too many challenges.

Ramalingam, for instance, preferred getting the foodgrains. “I might drink away the money,” he reasoned with an apologetic smile. Nearby, at another FPS, Manjula had a similar view. “It (collecting rice) is easier for us,” she said.

“With the bank transfer, I have to first check with the bank to see if my account has been credited, then come to the shop.”

For AAY card-holders and some red card-holders who might work for daily wages, a trip to the bank to draw the money, followed by one to the market to procure foodgrains, may cost a day’s earning.

Access to bank branches poses yet another problem. The waiting periods are long, since the ratio of bank branches to PDS shops is roughly 1:2 in Puducherry.

Most cash transfers and subsequent cash withdrawals at the bank branches tend to bunch up at the beginning of the month, stressing out bank staff. “Our elite customers also complain,” said a senior official at the local branch of a nationalised bank.

The DBT is done through the National Payments Corporation of India. This means a cash transfer is possible only if the user has an account with a bank that has a Core Banking System (CBS), and the account is seeded with Aadhaar. For households that hold accounts with co-operative banks without CBS, or who do not have an Aadhaar card yet, DBT cannot take place.

Critics also wonder if the money transferred is enough. The rates are fixed at 1.25 times the Minimum Support Price (MSP), which is always lesser than the market price.

“Therefore, in the absence of PDS or fair price shops, if customers are expected to buy from the open market, there is a possibility that they may not meet their macro-nutritional requirements,” said Outtiresvarne, President of the Humanity Service Centre, a voluntary consumer organisation in Puducherry.

A complete shift to a DBT system will displace the existing infrastructure of transporters, distributers and warehouses, all of whom depend on the current system of distribution for their livelihoods.

In Puducherry, 1,200 people are employed by the system.

Chief Minister Rangasamy discontinued the pilot project after two months.

Despite the challenges, there are ways to improve the DBT experience for the likes of Ramalingam.

States that decide to retain FPSs should stock the variety of grains that is preferred by the local population.

“Also, the transfer of money should be conditional,” said a senior government official who requested anonymity. Beneficiaries could be provided with a pre-loaded card that can be used in a select set of shops to purchase food. This would reduce the burden on bank branches and make sure the money is spent on food and other necessities, rather than on temptation goods such as liquor.

The biggest concern for the poor is the loss of a day’s wages when forced to visit a bank to collect the money.

“They should expand the branch network and become people-friendly. The poor find a trip to the bank intimidating. They need to be made comfortable,” said the official.

(With inputs from TE Raja Simhan)

Jayshree Venkatesan works as an independent consultant in financial inclusion