Woes and Worries of Public Distribution System

India may be the second fastest growing economy in the world, but Global Hunger Index 2011 prepared by the International Food Policy Research Institute shows that India ranks 67th in a list of 81 nations and lags behind both China and Pakistan. Hunger, however is not a problem of lack of food. West Bengal has the highest percentage of households (10.6%) not getting enough to eat during some months of the year as per report of NSSO survey 2004-05. In the category of household remaining hungry throughout the year West Bengal and Odisha jointly occupy the second position; each having 1.3% of starving population rural household during all months of the year. The reason being the high percentage of starving population would apparently seem to be lack of food availability. But unfortunately it is not. There are low foodgain producing states like Madhya Pradesh and Uttar Pradesh and Chhattisgarh with some almost no starvation like Haryana and Punjab. Thus there is not much correlation between starvation and per capita food gain availability. Hence the problem is not of production but of distribution.

The Sixth Five Year Plan (1980-85) had, inter alia envisaged that Public Distribution System would "have to be developed so that it remains hereafter a stable and permanent feature of our strategy to control prices, reduce fluctuations in them and achieve equitable distribution of essential consumer goods." The Targeted Public Distribution System (TPDS) was introduced w.e.f. June 1 1997. TPDS envisaged that the Below Poverty Line (BPL) population would be identified in every state and every BPL family would be entitled to a certain quantity of food grains (20 Kg. w.e.f April 2000) at specially subsidized prices. While BPL population were offered food grains at half the economic cost, the Above Poverty Line (APL) population, who were not to have a fixed entitlement to food grains were to be supplied grains at their economic cost from the transitory allocation i.e. quantity in excess of BPL entitlement.

To assess its efficiency and effectiveness in achieving the objectives and independent evaluation of performance was conducted by Programme Evaluation Organization, Planning Commission in 2001. 

The study finds that about 58% of the subsidized food grains issued from the Central Pool do not reach BPL families owing to leakages and diversion. Over 36% of the budgetary subsidies on food are siphoned off the supply chain and another 21% reaches the APL households. The PDS is supposed to become an important instrument of policy aimed at poverty alleviation; the cost of income transfer to poor through it is much higher than that through other modes. It suggests that for one rupee worth of income transfer to poor the Government of India spends Rs. 3.65 indicating that one rupee of budgetary consumer subsidy is worth only 27 paise to poor. The implementation of TPDS is plagued by targeting error, prevalence of ghost cards and unidentified households.

There are high exclusion errors implying low coverage of the target group ex- Assam (47%), Gujarat (46%), Maharashtra (33%). It also suffers from division of subsidized grain to unintended beneficiaries (APL households) because of Error of Inclusion, which constitute a large proportion ex- Tamil Nadu (50%), Karnataka (42%), Andhra Pradesh (36%), Kerala (21%), Himachal Pradesh (20%). A section of the APL households holding BPL cards actually do not lift their ration quota. Thus a part of the entitlement of the APL households holding BPL cards is actually leaked out of the PDS supply chain. Secondly, the Government machinery has not done well in identifying the poor.
Planning Commission estimates poverty by using annual household survey data gathered by National Sample Survey Organisation. The poverty line defines or is supposed to define, in rupees the minimum amount of calories required to sustain an individual. Those with an income below it are labeled as poor. The NSSO survey collects reported household expenditure. However, higher expenditure may not reflect a movement out of poverty, as daily wage earners often pay 200-300 per cent more for their food items by buying in small quantities. Besides many households grow and consume their own food which is difficult to convert into expenditure value due to price related data problems. The findings of the study suggests that large sections of population who have kept out of the target group because of their income level are potentially food insecure household.

Similarly many poor marginal/small farmers who produce a part of (or full) their cereal consumption needs and have been issued BPL cards do not need the full quota of subsidized grains from TPDS. Poverty figure do not identify the poor with social, economic and geographical characteristics. So, there is a need to de-link BPL identification survey from official methodology of poverty estimates. Poverty research must not only know how many are poor but also who are the poor and how to identify them.

The report reveals that share of BPL cards in the total cards handled by an FPS (Fair Price Shop) is much below the share of total number of BPL cards in the total number of ration cards in circulation in almost all the states implying the existence of ghost BPL card. Moreover, owing to irregular delivery schedule of FPS quota and several other reasons like irregular income, wage payment in food grains and low market price in harvest season etc. many BPL families do not lift their ration quota regularly/fully. Thus in most states the average off take by BPL cardholders is less than their entitlements. Also many APL families who have been included in the target group do not regularly lift ration grain in some states because the prevailing market price of the same quality of food grains is less than the economic cost. The beneficiaries of these leakages are primarily the retail FPS owner.

To minimize leakages and divisions of subsidized grains there is need for bringing down the Economic Cost of grains through rationalization of cost structure of handling food grains (procurement, storage, transport etc.) through public agencies, the report suggest.
One of important revelation of the report was that only about 22.7% of FPS was found to be earning a return of 12% on capital and financially viable. The rest remain in business through diversion of subsidized grain. The Government should take measure to make FPS financially viable which will minimize leakage and bring transparency.

Thus the two factors contributing to failure of the system are identification of BPL families and flaws in the delivery mechanism. The second factor is more important and there is collusion between the various agencies to divert a large part of the subsidized grain from supply chain of PDS.

In this connection it is important to see the characteristics of the delivery mechanism of those states that have shown relatively low leakages at FPS level (interestingly West Bengal is one of them). Some of these factors are the general awareness level and existence or otherwise of strong grass root level organization, etc. as in the case of Tamil Nadu.
Elimination of private retail outlets from supply chain would also improve the distribution system. Further, doorstep delivery to retail outlets authenticated by the pros, release of ration quota to the beneficiaries in weekly installment and efficient monitoring system will also improve the delivery system.