Much to the dismay of several NGOs that want strengthening of the public distribution system (PDS) in India, the World Bank in its latest report has favoured cash transfers.

“In the medium to long term, the report recommends offering households the option of a cash transfer while continuing food-based support for specific situations…,” the bank said in the report titled ‘Social Protection for a Changing India’.

It also favoured an active role of private players, allowing more privatisation in various sector like public grain distribution. “…there is room for much more active engagement with the commercial private sector also, including in areas such as public grain distribution, targeted credit and livelihood interventions for the poor…,” it held.

The report also said the "large internal bureaucracy" of the Food Corporation of India (FCI) was resisting the reforms in PDS. “The FCI alone employs 450,000 people in India…This in itself is a strong lobby which is likely to resist any changes in the PDS.”

However, talking to reporters, World Bank chief economist John Blomquist, who released the report, appeared to be defensive. “We do realise that there are challenges there in terms of the size of institutions and vested interests.” 

He also said, “I am not going to leave the impression that there should be complete abolishment of PDS but in future one may think about a more cash-based system.”

Ration Vyvastha Sudhar Abhiyan, a Delhi-based NGO, last month released a report that said Delhi slums dwellers do not want cash transfer. “Ninety–nine percent of Delhi’s slums want an improvement in the PDS system and not cash transfer,” it said.

The World Bank report added that no country in the world has a well-functioning PDS system. It says “India is not exception. PDS costs one percent of GDP, covers up to 23 percent of households but effect on poverty reduction is low due to high leakages.”

Taking government data of 2004-05, the Bank noted, “Leakage and diversion of grains from the PDS are high. Only 41 percent of grain released by government reached households in 2004-05.”

There is capacity constraints in the poor states due to which schemes are not properly implemented, Blomquist commented.

The overall returns to spending in terms of poverty reduction and social protection policies have not reached its potential, the World Bank report noted. "The poor are not able to reap the full benefits of such large investments despite India spending over two per cent of GDP in social protection schemes,” it said.

However, the report lauded the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) for a number of innovations such as social audits of its performance in states like Andhra Pradesh and Rajasthan. It, however, also pointed to “uneven implementation” of MNREGS across states. It also praised the targeted health insurance scheme for the poor known as the Rashstriya Swasthya Bima Yojana (RSBY).
 
The report, prepared at the request of the planning commission, is the first comprehensive review by the World Bank of the performance of India’s key anti-poverty and social protection programmes.