Why Cash Transfers Should Not Replace Midday Meals in Schools

Admin Note: This is not a typical RQ post, in that this has no numbers. Yet, since this is policy related I think it makes sense to put it here

I’m normally a big fan of cash transfers. I’m glad that the Indian government has started implementing it for things like fuel subsidies and certain other benefits. After all, by simply providing the subsidy in cash (market price minus intended “subsidized price”) the government achieves the subsidy while not really having to bother about managing the supply chain. I would have been less unhappy with the Food Security Bill had it been designed as a cash transfer scheme, rather than giving further responsibility to the much-maligned Public Distribution System. With the midday meal system in schools, though, I make an exception.

Following the tragedy in the Bihar school this week, people have called for the government to scrap the midday meal scheme in schools and provide students a cash subsidy instead. Some people have argued against it quoting economies of scale (for example, ISKCON, under its Akshaya Patra scheme, provides midday meals to children in Bangalore schools at the cost of Rs. 6 per child per day, and that amount cannot but much food in the market). That aside, there is a fundamental economic argument against providing for children’s midday meal in the form of cash.

Every year, during Christmas time, journalist Tim Harford (of Financial Times, BBC Radio 4, etc.) writes an article that states that gifting induces a net weight loss, and the economically ideal way of gifting is to gift cash. For example, if I give you Rs. 100 in cash, you can do whatever you want with that cash. Instead, let us say that I use the Rs. 100 to buy you a gift (let’s say a pen). Now, irrespective of how much value you see in the pen, you don’t have the option any more of spending that Rs. 100 on anything except the pen I’ve got you. So you are in effect poorer than you would be had I simply given you the Rs. 100 rather than buying you the pen.

The question now is whether I want you to buy more pens or less. If for some reason I believe that buying more pens is good for your health, I can do my bit in encouraging that behaviour by gifting you pens rather than gifting cash. If on the other hand I don’t have a view on whether pens are good for you, I will gift you cash.

Government subsidies work the same way. If the government wants to encourage consumption of a particular good or service, it subsidizes it directly. If, on the other hand, the government doesn’t have a particularly strong view on whether a citizen should consume more or less of a particular good, but only wants the citizen to be able to afford that particular good, it provides cash. With the current form of the food security bill (where the government has promised to give foodgrain at subsidized prices) the government is implicitly stating that it wants to encourage people to eat more foodgrain (which flies in the face of data which shows that most Indians already eat too much cereal and too little of other nutritious foods). If the intention were only to ensure that people can afford food grains, a cash transfer would have sufficed. Similarly, by moving to a cash transfer scheme for cooking fuel, the government has signaled that it doesn’t particularly encourage the use of cooking fuel, but it simply wants to make it affordable for whoever wants to consume it (without distorting markets).

While the stated aim of many states in implementing the free mid-day meal in schools is to encourage attendance, there is a more fundamental reason to it. It is in the country’s interest to ensure good health and nutrition of children, in order to enhance their possible contribution to the economy when they grow up (studies have shown that malnutrition and poor health leads to lower educational attainment which leads to lower capacity to contribute to the economy). In this light, it is in the country’s direct interests that children are well fed, and the school is a location where children gather and can be fed (this is where the economies of scale bit comes in). That it encourages attendance is only a positive externality.

Now that it has been established that it is in the country’s interest for the child to be well fed, and that the midday meal in school is a good opportunity to thus feed the child, this presents a classic case for giving a “direct subsidy” rather than a cash transfer. That meals served within school premises are not tradable goods and hence won’t distort markets is a bonus.

4 thoughts on “Why Cash Transfers Should Not Replace Midday Meals in Schools”

  1. Your point is well taken – but I’d like to oppose it. Shifting to a cash transfer scheme for meals, instead of providing the meals directly also means a freeing up of state resources that were engaged in the production of meals.

    I theorise that ISKCON is able to implement the midday meal scheme because – and I could be horrendously wrong about this – ISKCON can be considered a private entity using (I hope) private resources to provide these meals as opposed to taxpayer money. And it is in using those resources judiciously that allows it achieve those cost savings.

    Yes, it helps to have a large density of school children gather in one place – but again – let private individuals worry about providing them with the food.

    Rather than the midday meal in its current form, I would propose the following:

    – Provide the children with cash
    – Shift the government role from providing food to providing oversight over the kind of food that can be served in schools
    -Let private individuals take up the task of providing that food – and selling at market price.

    1. See I agree that competition in service providers helps. I’m still trying to wrap my head around till what level we need to decentralize. I’m certain at best we can go up to the school level. But then if a number of schools in an area get together (like the ISKCON model) that leads to better economies of scale.

      So I’ll reframe your proposal as:
      – Notionally provide children with cash, but let it be paid to the school
      – The school is responsible for procurement of food and serving it to the students
      – Government regulates in terms of nutritional content, quality, etc.

      We need to figure out a mechanism for students and parents to have a say! It’s not an easy problem for sure.

  2. Nice article and concur with your views. Can you clarify the statement or provide a reference for: “gifting induces a net weight loss”? Or is it dead-weight loss?

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