Direct transfer for food subsidy can help govt save Rs 25,000 crore, Crisil says

Implementing direct benefit transfer (DBT) for food subsidy will help government save Rs 25,000 crore by eliminating costs associated with procurement, distribution and storage of foodgrains, ratings agency Crisil said.

Apart from saving money for the government, implementing the DBT, which would entail cash transfers into beneficiary accounts in lieu of food material, will also push up consumption in the economy, Crisil Research said.

At 2015-16 prices, a family of five will get Rs 5,800 per year in cash transfers into their bank accounts, which Crisil said is higher than the reported total annual expenditure (food +non-food) of the poorest 5 per cent of the rural households and more than half the annual expenditure of the poorest 10 per cent of urban households.

"Such a significant unconditional cash transfer will undoubtedly raise discretionary spending of the recipient households, providing a consumption boost the economy," it said.
Families having higher income level will spend the money on protein-rich food like milk, egg, fish and meat, clothing and footwear, rent and conveyance, medical and education expenses, it said.

"DBT could go a long way towards raising social welfare through better nutritional intake and higher spending on health and education," it said, adding that the scheme fits well into the concept of "Pareto improvement" which hurts none and helps at least one person.

It however, flagged that the "actual success" of the scheme and its impact on consumption patterns depends on rightly identifying the eligible beneficiaries and speed of implementation.