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Targeted food stamps

By Madhura Swaminathan

In a country like India where the target group is very large, and where it is clearly important to focus on ensuring that the malnourished are reached, a universal scheme is better than a narrowly targeted one.

IN ITS Common Minimum Programme (CMP), the United Progressive Alliance Government announced that it would develop a "comprehensive medium-term strategy for food and nutrition security." The announcement by P. Chidambaram, Finance Minister, in his budget speech, of a food stamp scheme is contrary to this commitment. After stating that "Fair Price shops constitute the backbone of the food security system," the Finance Minister went on to suggest a food stamp scheme, a sure way of dismantling the system of fair price shops.

Food security is defined as physical and economic access, at all times, to sufficient, safe and nutritious food for people to meet their dietary needs and food preferences for an active and healthy life. India, today, has more people living in hunger than any other country, whether that hunger is measured by consumption indicators or by anthropometric indicators of malnutrition. The experience of other less developed countries clearly shows that if the objective is to achieve food security for the people, a targeted food stamp programme is a dangerous path to tread. Such a scheme will exclude a large number of needy persons from the food distribution system, erode the value of the subsidy to those who receive benefits and undermine the existing network of fair price shops.

The food stamp scheme proposed in the Tenth Plan document of the Planning Commission recommends that each eligible household be given a subsidy entitlement card that specifies the number of household members, their age and entitlement. Family size and composition will determine the number of stamps a household is entitled to get each month. The food stamps have to be collected every month from a prescribed distribution centre. The household can then use these stamps at any food store to "buy food grain (rice and wheat) at a price below the market price." The State Government is to reimburse retailers.

Food stamps (and food coupons) have always been a means of narrow targeting or reducing the coverage of food distribution programmes. In all countries in which food stamps have been introduced, there has been a sharp fall in the number of recipients of food subsidy. The major consequence, carefully documented in countries such as Sri Lanka, Jamaica and Tunisia, was a rise in nutritional risk among the worst-off sections of national populations.

In judging whether or not the public distribution system (or indeed any welfare programme) should be targeted or universal, our first concern must be the size of the needy or vulnerable population. We know that about 50 per cent of the Indian population is malnourished. In the United States, the only industrialised country with a major food stamp programme (the programme has an annual budget of over $18 billion), a household is eligible for food subsidy when its income is roughly three times the cost of a nutritionally adequate diet. In other words, if a family spends more than one-third of its total expenditure on food, it qualifies for subsidised food. By this criterion, more than 95 per cent of the Indian population should be eligible for a food security scheme.

In a country like India where the target group is very large, and where it is clearly important to focus on ensuring that the malnourished are reached, a universal scheme is better than a narrowly targeted scheme.

Targeted schemes are more difficult to administer than universal schemes, and the administrative costs involved are proportionately higher than for a universal scheme. The administration of a food stamp scheme is complex and costly. The experience of other developing countries shows huge problems in respect of issuing food stamps regularly and in respect of retail stores accepting stamps and being able to reimburse them easily. A delivery mechanism for the regular issue of stamps and extensive bookkeeping are required. Stamps have to be re-validated from time to the time; the possibility of exchanging them at various stores has to be worked out. The occurrence of fraud (such as by printing counterfeit stamps) has to be checked, and so on. The administration of food stamps is not an easy matter.

The Planning Commission appears to believe that these administrative problems are "minuscule compared to the problems of physically procuring, storing, transporting and delivering grain to Fair Price shops." On the contrary, all official and independent evaluations of the Food Corporation of India (FCI) agree that, whatever its weaknesses, the FCI has succeeded in the task of physically procuring, storing, transporting and distributing foodgrain throughout the country.

The food stamp scheme also puts an additional burden on consumers, who have to collect the stamps at regular intervals, and store them carefully. If the collection centres are not in the vicinity, this will entail time and expenditure on the part of the consumer.

A critical problem with food stamps is that it is a means of reducing the real value of the food subsidy. In all countries that have food stamp schemes, food stamps entitle a household to a fixed value of purchase, not to a fixed quantity of grain. Food stamps are denominated in nominal terms and with inflation, the real value in terms of grain that can be purchased by the consumer falls. Even without inflation, there is no guarantee that all retail stores will sell grain at the specified subsidised price. The Planning Commission document on food stamp programmes does not deal with this issue of inflation at all

The international experience shows that the real value of the food subsidy is eroded when food stamps are introduced. In Jamaica, the real value of food stamps fell by 17 per cent within a year. In Zambia, the expenditure on maize for an average household of six persons increased 417 per cent in three years, while the value of food stamps remained unchanged. In Sri Lanka, the per capita food subsidy, at constant prices, fell from Rs.62 in 1979 under a system of rations to a third of its value, Rs.20, in 1982 after a shift to food stamps.

It should be clear that the distribution of food stamps does not ensure the physical availability of food or access to food. In Zambia, many stores did not stock the commodity that could be purchased with stamps, as they did not want to participate in the programme. There is nothing to ensure either that there will be a retailer at a suitable location (once the fair price shops close down) or that the nearest retailer will stock rice and wheat at a subsidised price.

There are problems as well with food coupon schemes denominated in quantity terms, and there are lessons here from nearer home. The Government of Tamil Nadu introduced coupons in July 2002. The "success" of the scheme can be gauged from the fact that the Chief Minister, J. Jayalalithaa, withdrew the scheme after the electoral debacle of her party in May 2004. She also announced that new ration cards would be issued, and that the income eligibility requirement (of income less than Rs.5000 a month) for use of the PDS would be withdrawn.

In Andhra Pradesh, a food coupon system was started a few years ago, and, as expected, the introduction of coupons became a means of targeting food assistance. The Tenth Plan document notes that the coupon system led to a reduction of 8 lakh white (BPL or Below Poverty Line) cards. Coupons could be collected only by the member of the household whose photograph was on the ration card, thus causing further inconvenience and potential under-utilisation. Coupons for 18 months were issued at one go to a cardholder. Women's activists found that poor families faced enormous problems in acquiring and preserving these flimsy paper coupons without damage or loss. Following strong people's protests against the food coupons, the scheme was withdrawn before the general elections of 2004.

To conclude, a review of the experience with food stamps in less developed countries shows very clearly that if the criterion for judging policy reform is the extent of protection given to vulnerable individuals, then food stamps have failed miserably. In all these countries, the introduction of food stamps had adverse consequences for consumption and nutrition among the poor. The Tenth Plan document of the Planning Commission states very clearly that the food stamp scheme has been proposed "in order to contain the level of food subsidy." Surely, food policy must be a means of achieving food and nutrition security for all, not a means of cutting costs?

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