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SUBJECT : ECONOMICS

ROLL NUMBER: 86

SUBMITTED TO: DR. SHWETA MOHAN

PUBLIC

DISTRIBUTION

SYSTEM

A FAILURE of food supply

SAGAR KUSHWAH

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TABLE OF CONTENTS

INTRODUCTION ........................................................................................................................3

OBJECTIVES................................................................................................................................3

CASE STUDY OF KERALA........................................................................................................4

RESEARCH QUESTIONS...........................................................................................................6

SUGGESTIONS FOR IMPROVEMENT...................................................................................6

POLICY AND PROCEDURAL REFORM.................…………………………………………7

CONCLUSION.............................................................................................................................10

REFERENCES............................................................................................................................11

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INTRODUCTION

PDS is primarily a social welfare and antipoverty programme of the Government of India.

Essential commodities like rice, wheat, sugar, kerosene and the like are supplied to the

people under the PDS at subsidized prices. It has been one of the most important elements

in India’s safety net system for almost 50-years and also the most far reaching in terms of

coverage as well as public expenditure on subsidies. PDS provides rationed amounts of

basic food items (rice, wheat, sugar, edible oils) and other non-food products (kerosene,

coal, standard cloth) at below market prices to consumers through a network of fair price

shops spreading over the countries. The scale of the programme is evident from the fact

that it handles 15 per cent of the total availability of rice and wheat. With a network of

more than 400,000 Fair Price Shops (FPS), the Public Distribution System (PDS) in India

is perhaps the largest distribution machinery of its type in the world. The PDS is said to

distribute commodities worth more than Rs 15,000 core to about 16 crore families each

year. The success of this huge network is dependent on its ability to translate a macro

level self-sufficiency to a micro level, by ensuring availability of food grains for poor

households The Public Distribution System is considered as the principal instrument in

the hands of government for providing a safety net to the poor and the downtrodden. The

system serves triple objectives namely protecting the poor, enhancing the nutritional

status and generating a moderate influence on market prices.

MAIN OBJECTIVES OF THE PUBLIC DISTRIBUTION SYSTEM

Maintaining price stability

Raising the welfare of the poor (by providing access to basic foods at reasonable prices to

the vulnerable population)

Rationing during situations of scarcity, and

Keeping a check on private trade.

But whether or not these objectives are being met is the question of the hour. Can the enormous

public expenditure on this system for the procurement, transportation, storage and distribution of

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commodities are justified? The system itself should be made redundant and that the time has

come for an entirely different scheme to ensure food security. In this paper we aim to study the

PDS in Kerala- a State which has gone from being considered as a model for the implementation

of the programme to a State

Where 70% of the population no longer uses the PDS, where black marketeering and corruption

is rampant and where the system has now become more or less redundant after the shift in 1997

from the Universal PDS system to the Targeted PDS system. What caused this reversal and what

can be done about it? These are some of the questions we hope to explore in our paper?

Case studies of Kerala

KERALA

It is well known that before liberalization Kerala had one of the best run and most effective PDS

networks in India. It is important to remember that the setting up of an effective PDS was the

was directly the consequence of mass action and government response. So there was tremendous

public demand for rationing. Later, after 1957, the first Communist Ministry took up the task of

providing an effective system of delivery of food grain though out the State. In 1964, during the

food shortage, political demands led to a further expansion of the system of fair price shops.

Political struggles were critical in establishing and strengthening the PDS in Kerala.

MAIN FEATURES OF THE PDS IN KERALA BEFORE THE

INTRODUCTION OF TARGETING.

Kerala has been the only state in India with a near universal coverage of the PDS. All

house- holds that did not have land holdings sufficient to produce food grain for their

own consumption were eligible for a ration card. In 1991, around 95 per cent of all

households were covered by the PDS and possessed a ration card.

The monthly entitlement of food grain per adult was 13.8 kg in Kerala (or 460 grams per

day), satisfying the minimum requirement of 370 gems of cereals per person per day

recommended by the Indian Council of Medical Research. 1

1 (ICMR, 1990).

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The quantity of food grain purchased from the PDS has been higher than in most other

States, making a significant contribution to household nutrition. In 1991, the annual of

take of food grain from the PDS averaged 69.6 kg per person in Kerala. annual purchase

of grain from the PDS in Kerala provided about one-half of the cereal requirements of a

person.

Poor depended relatively more on the PDS than the rich parts of the country and this is

reflected in consumer surveys. Given the scale and effectiveness of the PDS, it has been

noted that the PDS has contributed to an improvement in consumption and nutrition in

Kerala.

TPDS has changed in a big way the share of the PDS in the total grain requirements of

Kerala. is has implications for domestic availability and prices.

the Kerala government has identified 42 per cent of households as BPL households (in

contrast to the central government poverty ratio of 25 per cent) and is providing the

BPL subsidy to these households from the state budget.

The Kerala government has continued to provide additional grain to BPL households as

well as maintained its entitlements for APL households. There is a State subsidy on

sales to APL households. Wheat of around 2 million tons in 1991 and 1992, the off take

in 1999 was 1.6 million tons and in 2000 it fell further to 0.71 million tones. There

have been sharp cuts in allocations for APL households in 2006 and 2007.

Before TPDS was introduced, the average monthly sale of cereals was 7,500 kg of rice

and 2,000 kg of wheat per ration shop. By 2001, these figures had fallen to 1,400 kg of

rice and 200 kg of wheat leading to losses for many fair price shops.

According to an official estimate by the Government of Kerala, the gross earnings per

fair price shop fell from Rs 3,711 before March 2000 to Rs 1,493 in August 2001, and

the net income of the average fair price shop dealer became negative. 2

2 (Government of India, 2002).

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Kerala was in a class of its own both in terms of participation in the PDS and in terms of the

quantity of food grain distributed. Kerala has suffered from the policy of narrow targeting

introduced in 1996.

RESEARCH QUESTION

Whether public distribution system brought about the indented results to the marginalized and

deprived section of the society?

SUGGESTIONS FOR IMPROVEMENT

IDENTIFYING THE PROBLEMS

To sum up, TPDS, targeting around 400 million people and budgeted around for Rs.25,000 crore

annually, is affected by targeting errors (both inclusion and exclusion errors), spurious

beneficiaries, diversion and pilferage and even location specific availability. The problems

associated with PDS have been identified in this note, and for the sake of clarity are again being

summarized below.

1. Large errors of exclusion of BPL families and inclusion of above poverty line (APL)

families

2. Prevalence of ghost BPL/AAY cards.

3. Diversion of subsidized grains to unintended beneficiaries.

4. Section of the APL households not lifting their ration quota and thus a part of the

entitlement of these households leaking out of the PDS supply chain.

5. The present procedure for selection of BPL beneficiaries is opaque, bureaucratic, and

does not involve gram sabhas. The basis on which village wise cap on the maximum

number of entitled beneficiaries is fixed, is not clear and not well defined.

6. Some states, such as Bihar, Jharkhand and UP are not being released the APL quota on

the ground that they did not lift it in the past when the market price was low. This policy

favors the southern states which have been subsidizing the APL quota out of state funds,

and punishes the poorer states.

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7. Selection procedure of FPS dealers is not transparent, and often based on patronage or

bribes.

8. Some poor states such as Bihar and Orissa are not able to lift their entire quota.

9. Inadequate storage capacity with FCI in some districts.

10. Poor financial condition of many State Food Corporations.

11. Allocations from GOI are valid only for a month, and if the state government is not able

to lift within that time, its quota lapses.

12. The poor do not have cash to buy 35 kg at a time, and often they are not permitted to buy

in installments.

13. Low quality of food grains.

14. Weak monitoring, lack of transparency and inadequate accountability of officials

implementing the scheme.

15. Price charged exceeds the official price by 10 to 14%

16. The shop does not open for more than 2-3 days in a month, and the card holders are not

allowed to lift their quota of previous months, or in installments during a month.

17. Ration cards are mortgaged to ration shop owners

18. No grievance redressal mechanism

19. A large number of homeless and poor living in unauthorized colonies in urban areas have

been denied ration cards, and are thus not able to avail of PDS, despite being Indian

citizens.

20. Seasonal and temporary migrants face problems in receiving their entitlements during the

period they are out from the village.

Policy and procedural reforms

The following procedural reforms may help in improving both the off take of PDS rations and

availability for the poor:

Improving procedure for selection of BPL

The present procedure for selection of BPL beneficiaries is opaque, bureaucratic, and does not

involve gram sabhas. The basis on which village wise cap on the maximum number of entitled

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beneficiaries is fixed, is not clear and not well defined. A white paper should be prepared on the

subject, and clear policy laid down by the Ministry of Rural Development.

Reducing paper work and transaction costs

Due to cumbersome procedures, often there is a time difference of several days between the FPS

dealer depositing his bank draft and the grain being released to him. This unnecessarily blocks

the money of the dealer. It is suggested that the dealer should deposit advance directly in the bank

account of the SFC/FCI, and there is no necessity of the bank draft being handled physically. The

SFC/FCI should put its account number on the web so that anyone can see which dealer has

deposited, when, and how much. On the same page SFC/FCI should issue an electronic release

order. On the same day SFC/FCI should issue a manual release order too, as not all shop keepers

will have computer facility at present. This will bring transparency in the entire operation, and

anyone can see where delay is taking place.

Fixation of APL quota

The norm for release of APL quota should be transparent and realistic. Some states, such as

Bihar, Jharkhand and UP are not being released the APL quota on the ground that they did not lift

it in the past when the market price was low. This policy favors the southern states which have

been subsidizing the APL quota out of state funds, and punishes the poorer states .

Leakages in APL quota

One of the main reasons for the black marketing of the APL quota is the fact that GOI does not

release full quota as per the number of APL cards, which gives a handle to the dealer to refuse

supplies on the ground that the limited quota has already been lifted. In case GOI does not release

full quota for APL, the cardholders’ entitlement should be reduced accordingly, and this fact

must be given due publicity. In other words, there should be food grain for each APL card,

though the quantity may be much less than 35 kg.

Elimination of Ghost Ration Cards

All card holders must be photographed, and their details along with their photographs should be

in the public domain. This will make it easy for the civil society or consumers to check the list.

There should be only one annual order from the district indicating quota of

each dealer

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so that the dealer does not have to wait every month for the district to issue allotment order.

Government should also issue just one order in the beginning of the year in which quota of all the

dealers can be mentioned.

Making it obligatory for dealers to sell non-cereal items

Dealers should be asked to improve their viability by selling items of mass consumption other

than wheat and rice. They should be encouraged to do so by issuing a specific order to that effect.

Gujarat has made FPS multi-product shops, but no such order exists in many states. The dealers’

psychology is that “everything is prohibited unless specifically permitted”.

Making SFC transport grain to the FPS

SFC should be asked to transport food grains up to the shop, and if necessary, state government

should either give some subsidy to the SFC, or partly increase the retail issue price by about 0.10

Rs per kg.

Selecting FPS dealer

In many states the selection needs approval by the Minister or a committee of MLAs and thus the

process is highly subjective and opaque. There is no involvement of civil society or consumers

in the selection, nor involvement for them in operation of FPS. FPS should be allotted to people

who are already running a viable shop in the area. This will ensure that the shop remains open on

all working days. The present system of choosing unemployed youth etc. acts against the interests

of the consumers, as the selected candidates do not possess entrepreneurial capabilities, and end

up by selling the shop to others. In Delhi most dealers run more than ten shops, although the shop

may be in someone else’s name. The existing shopkeeper may be given a year’s time to start

selling other items, and the annual turnover from those items should be at least twice from the

allotted food grains. If he/she fails to fulfill this condition, his license may be cancelled.

Reduce control of inspectors over shops

Whereas government should set up and strengthen transparent arrangements for social audit, it

may be desirable to remove some of the irritants, such as no distribution can take place unless the

arrival of the stock has been verified by the Inspector. The Inspectors should on the other hand

meet the consumers regularly and collect Report Cards from them as regards satisfaction.

Take photographs of the stock in the shop

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Supply Inspectors should be supplied with cheap digital cameras so that they can show the stocks

at the FPS along with that day’s newspaper and consumers, and send it to their superiors with a

copy to the dealer. This would show that the grain had actually reached the shop, which often

does not happen in the rural areas.

Oversight by citizens

There should be quarterly meeting of the dealer with all consumers which should be attended by

senior staff. A list of responsible citizens should be prepared in the open meeting (its photographs

should be taken to record the size of the gathering). These people should be permitted to inspect

the shop (preferably in group of two or three people, so as to avoid the complaint of favoritism).

Involve civil society

Many states have a large number of reputed NGOs. Their list may be prepared in a transparent

manner, and localities/villages may then be divided amongst them. They should be authorized to

inspect the shops, meet the people and take their grievances to the higher authorities.

Develop grievance redressal mechanism

State Governments should provide a free toll number, where complaints can be registered online.

The entire operation should be outsourced and web-enabled, so that anyone could see how many

complaints have come from each shop, and how many been satisfactorily disposed off.

Launch a drive to cover the poorest

A large number of homeless and poor living in unauthorized colonies in urban areas have been

denied ration cards, and are thus not able to avail of PDS, despite being Indian citizens. A drive

should be launched in collaboration with civil society to cover them in a time bound manner with

ration cards, preferably Antyodaya cards.

CONCLUSION

Procedural and policy reforms should be encouraged. Banking and Information technologies have

advanced rapidly and should enable governments to bring transparency and speed in all

applications without extra expenditure. In addition, computerization can help in modernizing the

PDS. A number of states are already innovating in PDS implementation, and improved

performance can be seen in some cases. Although the introduction of modern tools such as smart

cards may not be a panacea for all the evils, it can solve many of the problems particularly that of

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pilferage and spurious beneficiaries. They are like low hanging fruits which can be picked up

easily.

REFERENCES

1. BOOKS

a) Indian economy by Mishra and Puri

b) Food security in India by Gopal krishna

2. ARTICLES

a) Krishnakumar, R, Frontline Vol. 14, No. 21, Oct. 18 - 31, 1997 “A successful

system under threat”

b) Tenth Plan Document

c) N.C. Saxena report on food security

3. WEBSITES

a) A Study on the Effectiveness of Public Distribution SystemIn Rural kerala Submitted by

Dr. S. Nakkiran Principal (Retd.) TBML Collage,Porayar-609307 kerala December-2004,

http://planningcommission.nic.in/reports/sereport/ser/std_pdstn.pdf

b) The Targeted Public Distribution System: Problems and Scope for Reform

http://fcamin.nic.in/dfpd/EventDetails.asp?EventId=210&Section=High%20Level

%20Committee%20Report&ParentID=0&Parent=1&check=0

a) http://indiaeconomywatch.blogspot.com/2008/05/rice-production-inkerala.

html

BY-SAGAR KUSHWAH,

1ST SEM,NUSRL,RANCHI

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