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Does Computerisation Reduce PDS Leakage?Lessons from Karnataka

Silvia Masiero, Amit Prakash

Our research work has been funded by the International Institute of Information Technology Bangalore, and by the Bagri fellowship awarded by the LSE Asia Research Centre. We are immensely grateful to these institutions. We are also thankful to the anonymous referee for helpful comments.

Silvia Masiero (s.masiero@lse.ac.uk) is Fellow at the Department of International Development, London School of Economics and Political Science, London, Amit Prakash (amitprakash@iiitb.ac.in) teaches at the International Institute of Information Technology, Bangalore.

The idea that end-to-end computerisation can reduce public distribution system leakage has been theorised, but not yet examined in practice. This note tries to fi ll the gap by conducting a case study of the information technology system for PDS in Karnataka, which includes back-end software as well as a front-end interface. It reveals three drawbacks: machines can be tampered, there is limited monitoring of the early stages of the supply chain, and policy shifts cannot be achieved by technology alone. It concludes by drawing lessons for other states computerising their PDS.

In spite of the policy changes occu-rred over the last decades, the public distribution system (PDS) remains at

the core of India’s food security agenda. Enforcement of the National Food Secu-rity Act (NFSA) is predicated on good functioning of the PDS, which has further increased the programme’s relevance (Choitani and Pritchard 2015). Discus-sion of the PDS and its effectiveness is to-day as heated as ever: the debate con-cerns not only the estimates of leakage, but also their policy implications, rang-ing between substitution of PDS with cash transfers and improvement of the system through state-level reform. It is, hence, important to examine existing policy measures, and assess their capability to increase effectiveness of the programme.

Among the diverse streams of reform, computerisation has been one of the most discussed. End-to-end computerisation of the programme, from procurement to delivery of goods in ration shops, has been linked to its greater effectiveness and accountability, for example, in Chhattisgarh and Gujarat (commended by the Justice Wadhwa Committee on Public Distribution System Report on the State of Karnataka 2010).1 In particular, computerisation has been devised to combat leakage, especially in the form of illegal diversion of PDS goods to private markets. The idea of computerisation as a means to increase transparency of gov-ernance has been theorised (Bhatnagar 2004; Madon 2009), but not yet exam-ined with reference to the PDS.

Our objective, as scholars of information technology (IT) for anti-poverty systems, has been that of observing the mechanisms through which computerisation can detect and prevent PDS leakage. To do so, we needed to focus on a state with a fairly well-conceived digital PDS. We have hence conducted a study in Karnataka, a

state in which, in six districts out of 29, computerisation starts from auth o rised wholesale dealers (AWDs) and rea ches to the ration shops, equi pped with biometric weighing-cum-point of sale machines. A digital PDS as mature as that allowed us to observe the mechanisms that comput-erisation involves, and assess the impli-cations of its practical functioning.

The article is based on a single, ethno-graphically-led case study of Karnataka, conducted between January and Sep-tember 2014. Semi-structured interviews have been conducted with senior offi -cials, IT implementers (based at the National Informatics Centre and Essae Teraoka, the company providing mac-hines to ration shops), and the godowns and ration shops in which the system is run. In addition, participant observation was conducted in six godowns and 18 ration shops in Bengaluru Central, Benga-luru East, Bengaluru South, and in the districts of Tumkur and Kolar. This has enabled us to witness the system at work, and to collect extensive narratives from PDS benefi ciaries (met in the ration shops) utilising the system. Interview data have been coded through content-based nar-rative analysis (Riessman 2008), and inte-grated with government data on the PDS.2 The ethnographic method, allowing us to participate in the system’s enactment, has been an ideal way to answer our research questions, as it allowed us to focus on the real-life dynamics of com-puterisation within the PDS.

First, we describe the IT system for the Karnataka PDS, articulated in two back-end components and a front-end one. Then we explain the advantages of the IT system, consisting in a threefold acco-untability mechanism. We observe that the system has problems at three levels: these lie in the machines’ tamperability, the paucity of monitoring before the ration shop level, and technology’s limited capa-bility to lead to structural reform. We con-clude by drawing lessons for policy and for other states computeri sing their PDS.

Composite IT System

Overall, and in comparison with other states, Karnataka’s PDS has been a rela-tively well-functioning one. As noted by Mooij (1998), the state system already

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featured special provisions for the poor—a “green card” scheme, meaning greater subsidies for poorer house-holds—prior to the national shift to a targeted PDS in 1997. In addition, usage of the programme has been high across the years, and leakage, while still pre-sent, has consistently been below the Indian average (Khera 2011a).

Yet, leakage remains a major issue in the Karnataka PDS, estimated as 46.4% of the offtake in 2011–12 (Gulati and Saini 2015: 7). The term “leakage” indi-cates the goods subtracted from the PDS supply chain, a large share of which is illegally diverted to the market (Khera 2011b). The dual price regime, of PDS goods vs the market, makes it possible to make illicit profi ts from diversion of goods. Large quantities of rice, wheat, sugar, and other commodities are diver-ted every year, which drastically reduce effectiveness of the PDS (Balasubrama-niam Committee Report 2011).

Computerisation of the Karnataka PDS started in 2005, and was conceived as a direct response to leakage. The initial idea was that of constructing a database of all the households entitled to the PDS. In this way, assignation of ration cards would have proceeded correctly, pre-venting “bogus cards” from being gener-ated. The next passage was that of en-forcing a targeted system, by linking the database to households’ records in the ration shops. This idea is at the basis of the current digital infrastructure, developed by the National Informatics Centre (NIC) Karnataka, which consists of three modules.

The fi rst module, known as Ahara,3 consists exactly in a ration card database, storing details of all cardholders regis-tered in the state. Construction of the database was a problem initially, after outsourcing to a private vendor ended up in unsuccessful results. At that time, an examination by Justice Wadhwa Com-mittee, appointed by the Supreme Court for the PDS in Karnataka (2010), upon request by citizens, found that, “tempo-rary ration cards” were being released, without proper verifi cation of details. As a result, the committee found that ration cards in Karnataka largely excee-ded the number of existing households.

In this situation, under the then ad-ministration of the Department of Food and Civil Supplies, a system was desig-ned to cancel bogus ration cards, and guarantee the authenticity of existing ones. Two routes were created: urban households had to provide a RR meter number, meaning a valid electricity con-nection, and rural households had to provide their property identifi cation number. The government also devised an exception handling system in cases where more than one RR number or property ID was linked to multiple ration cards, or when entitled households did not have electricity connection or prop-erty for genuine reasons. The database is now up and running, and can be accessed in real time from any location.4

The second module, known as the Financial and Stock Accounting System (FIST), which is a software for supply chain monitoring, aimed at tracing the amount of goods received by the PDS godowns (AWDs) and lifted by ration dealers from them. The PDS commodi-ties, procured by the Food Corporation of India (FCI) and private producers,5 are distributed through godowns at the dis-trict level, and then lifted by the ration dealers to be sold to benefi ciaries. The FIST software is operated on computers located in the godowns, and registers the amount of goods received by them as well as quantities lifted by every ration dealer on a monthly basis. All these data are entered in the system by the staff at godowns, who have personal login details.

These two modules are integrated by biometric point-of-sale machines, which work as follows. Benefi ciaries, as they approach ration dealers, are identifi ed through their ration card number, which is entered fi rst, and their thumb impres-sion. The machine recognises them, and displays their card number and entitle-ment on the screen. As the ration dealer weighs commodities, the machine’s speakers announce in Kannada the type and quantity of goods, and a bill is print-ed. On a monthly basis, the machine reg-isters all sales conducted at each ration shop. The closing balance is then submit-ted to FIST, and the allocation for the next month is then determined after the quantity is verifi ed by offi cers at the

taluk and district levels and approved by the commissioner.

The digital PDS in Karnataka is there-fore a composite IT system, resulting from two back-end modules—the Ahara database and the FIST software—and the weighing-cum-point of sale machines. Each part of it plays a key functional role: Ahara registers citizens ensuring that only those entitled have a ration card. FIST checks transactions in the early stages of the supply chain, and ration shop machines, connected to Ahara and FIST, ensure that goods are only sold to genuinely entitled benefi ciaries.

Advantages of Digital PDS

Is the Karnataka IT system effective in combating leakage? The answer is predi-cated on the mechanisms that link the IT artefact to its intended outcome. In this case, there are at least three mecha-nisms linking the IT system to detection and prevention of leakage from the PDS.

First, the point of sale machine should prevent users from misappropriating PDS goods, that is, accessing subsidised goods to which they are not entitled. Misappropriation had become widespread after the shift to a targeted PDS, and was reportedly used as a coping strategy by many of the households excluded from the below poverty line (BPL) category.6 During our interviews, senior offi cials who manage PDS have strongly re-marked the importance of preventing misappropriation: impeding the use of bogus cards, which diffused quickly in the state when “temporary” cards were rele-ased is a priority for the system. The sys-tem focuses on preventing the inclusion error, through secure identifi cation at the point of sale, rather than on the exclu-sion error, due to which entitled house-holds may be denied access to the PDS.

Second, the machine is also designed to prevent ration dealers from diverting foodgrains. This happens in two ways: fi rst, the machine’s speakers announce the quantities being sold, so that users (even if unable to read the printed bill) should know how much they are receiving. Second, all transactions need to refer to an existing biometric ID, corresponding to a household registered in the Ahara database, hence, bogus ID numbers are

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not recognised. As government offi cials remark, ration dealers’ monitoring is at the core of digital PDS.

This is backed by a third accountability mechanism, aimed at targeting the earlier stages of the supply chain, which is what the FIST software does. Flows of foodgrains managed by the godowns, where PDS items are stored, are checked by the software. Food inspectors, in charge of verifying the legality of transactions, are enabled to deal with computerised records, which replace handwritten account books. This makes it easier to detect diversion, as suspicious foodgrain movements are fl agged by the system. While the implementation of FIST (as we see below) is still partial across the state, this software is designed as the ideal complement to ration shop monitoring.

The presence of three accountability mechanisms, linking the IT system to prevention of PDS leakage, constitutes the main advantage of the digital PDS. Differently from other states, the majority of ration shops in Karnataka is managed by private agents, rather than by cooper-atives or state-owned entities: under the threat of unviability, corruption does indeed constitute an attractive means to attain a profi t. Computerisation could then be interpreted as a manifestation of the state’s commitment to the fi ght against leakage, and hence, to the pursuit of a more effective and transparent PDS.

Three Levels of Concern

So far we have reviewed the IT system design, as it is on paper where techno-logy embodies a wider political project, which is that of combating leakage at several levels of action. Is this system’s design properly translated into practice? As we see below, this is not always the case. Our investigation has revealed problems at three different levels—the weighing-cum-point of sale machines, the back-end software, and the limits of the IT system as a whole unit.

At the fi rst level, the main drawback, observed in a substantial number of ration shops relates to tamperability of the machines. Ration dealers, as they use them for transactions, have quite a high discretion in manipulating them. In effect, senior offi cials agree that ration

dealers can alter the weighing mecha-nism, refuse to provide bills to benefi -ciaries, or mute speakers (the latter was actually the case in most of the ration shops we have visited). Vigilance com-mittees, through which citizens should be able to voice their concerns and issues (Khera 2011a), are almost totally absent from this scenario, and this leaves the problem of how to guarantee downward accountability to benefi ciaries.

The point is what leads ration dealers to engage in illicit behaviour? As noted above, the explanation lies in PDS history: ration dealers were hit severely by the shift to a targeted PDS, especially in South Indian states, where reduction in allocated commodities (as compared to the pretar -geting scenario) was greatest (Krishna-kumar 2000; Swaminathan 2008; Masi-ero 2015). In some states, a wave of ra-tion dealers’ suicides actually followed the introduction of targeting, because with the massive shrink of their customer basis, repaying debt became impossible (Suchitra 2004). Ration dealers, put under severe strain by the policy change, resorted to market diversion: corruption has become, in many cases, a “require-ment of economic survival” for ration shops (Khera 2011b: 1058). The IT system has been constructed to monitor them, but does not provide them with alter-natives to secure viability, which leaves un-altered their incentive to tamper with the machines and increase their profi ts.

Another problem with ration shop machines is that, when biometric recog-nition is not performed correctly, the system does not recognise citizens’ records. In some ration shops, we found that account books are actually used as a back-up mechanism, so that if the machine does not work, transactions are performed manually. However, this was not the case in most of the Bengaluru shops, in some of which we have wit-nessed ration dealers denying rations to benefi ciaries for that.7 This casts doubts on the view of the PDS technology as empowering, as distribution can now be blocked by the technology itself.

At the second level, the software that should monitor godown transactions is in an even higher predicament. In fact, in our visits to PDS godowns, we found

little evidence of actual use of it: while in some godowns the interface was actu-ally utilised, in others the system was not yet implemented. Even when the sys-tem was used, staff reported that food inspectors are more likely to check the account books, as they are “more used” to the paper form of accounts. Unfortu-nately, this still leaves room for diver-sion and lax behaviour in inspections.

Another point on which back-end monitoring is perceived as absent is that of foodgrain quality. This is a problem that technology could attempt to solve, as it is all about constructing a quality control mechanism for PDS foodgrains before and after storage. Unfortunately, this is not the case, and quality control is the “big absentee” from digital PDS. A lot is done to make sure that ration dealers do not steal, but nothing guarantees that quality of goods is of acceptable standards. We have personally witnessed the presence of impurities in wheat bags aro und Tum-kur District, and the quality concern is one of the most recurrent in citizens’ nar-ratives (some reported feeding PDS rice to their goats or chicken, simply because quality is too low for consumption).

A third set of issues relates to work by Khera (2011c): talking about the Aadhaar project, she pointed out that bio metric technology could not solve all problems in the PDS, and policy reform could not be conducted by technology alone. This is exactly the scenario that we found in Karnataka. Technology has been con-structed to enact existing policy, but the problem may well be with the policy design itself—which IT cannot modify. More specifi cally, there are at least two policies that should be corrected, tow ards which IT design has little or no power.

First, the system has been constructed to tackle an inclusion error—that is, making sure that those not entitled to the PDS cannot access it. However, no explicit provision has been taken towards the exclusion error, which has been sys-tematically recognised (Swaminathan 2008; Khera 2011a) as one of the most severe problems that arose after 1997. In today’s Karnataka, obtaining recogni-tion of poverty status is still reported to be a complex process: in the Anna Bhagya Scheme, above the poverty line citizens

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are not entitled to any subsidy on food-grains, and this leaves those not recog-nised as BPL or Antyodaya Anna Yojana (AAY) out of the PDS. Technology pre-vents erroneous inclusion, but can do lit-tle towards the exclusion of the needful.

Second, technology monitors ration dealers’ behaviour, but does not remove their incentive to diversion. Karnataka’s PDS is strongly targeted to the BPL/AAY, and the customer basis for ration dealers remains very narrow. Many ration deal-ers still fi nd themselves in hardship: in a scenario of non-profi tability, corruption remains very attractive, and IT alone can-not remove the incentive to it. A monitor-ing system threatens ration dealers with sanctions for diversion, but if no other intervention is taken, they will always be pushed to fi nd a way to bypass technology.

Conclusions

Overall, in an all-India perspective, Kar-nataka provides a positive note on the potential of computerisation against leakage. This is refl ected in the stories of other states, ranging from Chhattisgarh to Odisha (Drèze and Khera 2013; Himanshu 2013), that have used some form of digital infrastructure to improve their PDS. The Karnataka IT system illus-trates intelligent monitoring mecha-nisms, and reveals that IT-based meas-ures can be taken to strengthen the PDS, potentially avoiding the shift to cash transfers that many PDS users are preoc-cupied about (for example, Puri 2012; Khera 2014; Drèze and Khera 2015).

However, for the potential of digital PDS to become real, several conditions need to be satisfi ed. First, substantial commitment to technical intervention is required, especially to prevent machine failure at the ration shop level. Technical problems need to be taken very seriously, which Karnataka is already doing, through enlisting commitment of the providers managing the machines. In addition, our fi eldwork has demons-trated the importance of an effective supplementary system, to enable trans-actions in case of machine failure—for now, this is done (in some ration shops) through the paper-based account books.

Second, the idea of holistic monito-ring—already present in Karnataka’s

system design—should be effectively imple mented into practice. An error which states can commit is that of focusing too much on the ration shops, as compared to monitoring the rest of the supply chain, as ration dealers are often accused of cor-ruption, and visible measures, like point of sale machines in the shops, tend to en-joy greater political popularity. Still, di-version is present at earlier stages of the supply chain too: control of these stages should not be neglected, as it is here that a great deal of commodities can be trad-ed and diverted outside the system. States should devise appropriate back-end systems to monitor fl ows of PDS goods before they reach the ration shops.

Third, structural problems still affect key dimensions of the PDS. Exclusion of needful households and unviability of ration shops funded through PDS sales only, still constitutes incentives to misap-propriation and diversion, undermining sustainability on the long term. To tackle these issues, the programme needs policy measures to redesign its user basis: the NFSA moves exactly in this direction. We submit that technology, while unable to make policy per se, can positively accom-modate this policy shift, provided that system design is thoroughly translated into practical implementation. This may, however, require a better understanding of the structural problems that continue to exist in the PDS supply chain.

In the present historical phase, com-puterisation features strongly in the PDS debate. We hope that, with this study, we have shed light on the mechanisms through which it can possibly reduce leakage, and lead to a better functioning of India’s food security net.

Notes

1 In 2012, the East Godavari District of Andhra Pradesh ran a pilot project based on biometric access to the PDS. The project, which received substantial coverage in the media, was never scaled up at the state level, see Justice Wadhwa Committee on Public Distribution System (2010).

2 Up-to-date statistics on the PDS in Karnataka can be found at http://ahara.kar.nic.in/fcsstat/

3 “Ahara” means “food” in the local language.4 See http://ahara.kar.nic.in.5 In Karnataka, foodgrains are provided by the

FCI, whereas sugar is procured by private pro-viders; kerosene is supplied by public oil com-panies, while still procured through the PDS supply chain. Karnataka has also started issu-ing ragi and jowar under the PDS, which are procured directly by private suppliers.

6 As Swaminathan (2008) demonstrated, vulnera-ble social groups (Scheduled Caste/Scheduled Tribe/Other Backward Class, lower earners, and landless) were among the most affected by exclusion from the programme.

7 In one shop, in particular, two users claimed having been denied their rations for four months in a row, as the system did not recog-nise their records.

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