Centre readies direct cash transfer process

The central government has worked out an elaborate plan to disburse food subsidy to beneficiaries directly in states and Union Territories.

The programme worked out by the food ministry is to be launched in the Andaman and Nicobar Islands, Chandigarh, Dadra and Nagar Haveli, Daman & Diu and Lakshadweep from April 1.

According to the plan, the Targeted Public Distribution System wouldn't be dismantled after the direct cash transfer mechanism is launched.

Instead, foodgrain would be supplied to the states at an "appropriate cost", determined by the Centre from time to time.

This would be somewhere between the economic cost and the cost of acquiring grain. Economic cost is the purchase price, plus transport and other operational expenses associated with storage.

Once this cost is fixed, the identified states and UTs would lift the grain from the central government

and add or absorb their own transaction cost to it while supplying it to ration shops.

The shop owner will then sell the grain at the appropriate cost plus the transaction cost, adding his margin to the final beneficiary.

The calculation of subsidy will depend on the central issue price, that is the price fixed for ration shops, and "appropriate cost". The CIP for wheat, for example, is Rs 4.15 a kg.

The difference between appropriate cost and CIP would be the subsidy amount and it would be transferred to the beneficiary's bank account a month in advance.

The addition to the appropriate cost by state governments and ration shop owners will not be subsidised by the Centre. States will have to work out a mechanism for this.

If it is found that despite the credited amount, the beneficiary has failed to lift the grain for two months in succession, the transfer will be stopped.

"But the amount already credited would have to be written off as no beneficiary will return it," an official said.