I have a few questions on the basic working of DBT (Direct Benefit Transfer) which is to replace the PDS (Public Distribution System) of foodgrains. Currently, the PDS shops provide foodgrains at a subsidized rate [pls note all examples used are hypothetical nos, and may or may not be the correct ones]. So if the actual procurement price of 1 kg rice is Rs. 10 for FCI, then PDS price may be say Rs. 3 per kg. This leads to a subsidy of Rs. 7 per kg.
The DBT scheme now proposes to transfer this amt. of Rs. 7 directly to the customer so that he can purchase from the market himself.
This is explained here: http://vikaspedia.in/social-welfare/dir ... t-transfer
in Public Distribution System (PDS), Food Corporation of India (FCI) is the Government agent responsible for procurement, movement, storage and distribution of food grains to Fair Price Shops. FCI issues the food grains at subsidised rates, as fixed by the Government. The rates so fixed do not cover the full economic cost incurred by the Corporation. The difference represents the consumer subsidy for the PDS, and is paid to the Corporation by the Government of India.
But the market price will definitely be higher than the procurement price of FCI. Whereas the consumer will get the DBT only to the extent of what FCI would have paid, so net net the consumer would tend to out lose by having to a market rate which is much higher than the sum of subsidy received plus the subsidized rate that he would have otherwise paid. So how will this issue be resolved?
Secondly, at the time of temporary spikes in prices, the PDS customer is insulated as the PDS price does not vary so much. However when PDS is done away with and DBT kicks in fully, then that consumer would be more prone to the vagaries of market prices. And as these are the most vulnerable section of society (economically), hence the pain they would feel would be more. Will the DBT payout be more in such cases? How will track prices and to what level of micro-markets?
Of course, there are many flaws with the PDS such as unscrupulous PDS retailers hoarding good quality grains and giving poor quality stock to PDS consumers. But will dismantling the PDS lead to more problems than it solves?
Any thoughts on this?