Cash vs. in-kind transfers: the role of self-targeting in reforming the Indian food subsidy program

Marta Kozicka (), Regine Weber and Matthias Kalkuhl
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Marta Kozicka: Bioversity International
Regine Weber: University of Bonn

Food Security: The Science, Sociology and Economics of Food Production and Access to Food, 2019, vol. 11, issue 4, No 11, 915-927

Abstract: Abstract Historically, India has relied on subsidizing staple food as a major instrument in improving food security. Recently, however, cash transfers have entered the debate as an alternative, as they are associated with lower market distortions, leakages and fiscal costs. This study contributes to this debate by analyzing India’s Targeted Public Distribution System (TPDS). Our main objective was to explain the under-purchase, or low take-up, from the TPDS, which is typically attributed to ‘leakage’, i.e. the diversion of food grains from eligible consumers. We provide an alternative solution based on self-targeting; while poorer households increase their consumption from the TPDS, wealthier households restrain from consuming subsidized commodities. Using a large household dataset, we estimated that such a voluntary opt-out system, based on income, would save a minimum of 6.5% of grains released through the TPDS. Besides these demand-driven aspects, our analysis indicates that poor regions perform better at lowering the diversion of grains and that large targeting errors exist among female-led households. Finally, we find substantial regional price differences that would benefit the poor and rural population under a uniform cash-transfer system that does not correct for regional price levels.

Keywords: Food security; Policies; India; Targeted public distribution system; Self-targeting; Cash transfers (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s12571-019-00942-x

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