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ECONOMICS PROJECTVARIOUS ISSUES OF PUBLIC DISTRIBUTION IN INDIA
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PUBLIC DISTRIBUTION SYSTEM IN INDIA: A Success Story?
PROJECT
Submitted
For the partial fulfillment for the degree of
B.B.A.LL.B./B.A.LL.B.
Submitted to: Submitted by:
Ms. Reeta Rautela Avishek Pradhan
Economics Faculty B.A.LL.B. 3rdSem.
Siddhartha Law College, Dehradun
(Affiliated to Uttarakhand Technical University, Dehradun)
PREFACE
India is a country which has the second largest population in the world. The main dominant
economy in our country is agro based. In spite of this, a large number of populations in our
country suffers from malnutrition and have no source of attaining their daily basic needs. To
overcome this, the Indian Government has introduced a system called the Public Distribution
System. This system tries to protect and help secure the individuals living in below poverty line
in the country to attain the basic needs such as food.
This paper tries to study the way the Public Distribution System works, point out its loop-holes,
and tries to discuss the various issues that needs to be tackled and also gives suggestions that
could be incorporated with the existing strategies.
This project will be helpful to students who are currently pursuing B.A. LLB. 5 years integrated
degree.
I would like to thank our economics teacher, Ms. Reeta Rautela, and several others who have
contributed in this project.
Thanking You All
Researcher
2
CONTENTS
Topic. Page no.
1. Abstract………………………………………………………………….……4
2. Introduction……………………………………………………………….….5
3. Historical Background of Public Distribution in India………….……………………………………………….…….………..…5-7
4. Objectives of research paper………………………………………………...…7
5. Characteristics of Public Distribution System..........................................…...8-9
6. The Organization and Working of the Public Distribution System……...…9-11
Food Corporation of India (FCI)………………………..……………....9-10 Central Warehousing Corporations (CWC)…………………………...10-11
7. The Organizational Design of Public Distribution System in India…………..12
8. Public Distribution System & Corruption………………………………....13-15
Stage 1…………………………………………………………………….13 Stage 2………………………………………………………………….....13 Stage 3…………………………………………………………………….13 Stage 4………………………………………………………………....14-15
9. Methods to control Corruption in Public Distribution System………………..16
10. Conclusion………………………………………………………………..….17
11. References………………………………………………………………...…18
3
PUBLIC DISTRIBUTION SYSTEM IN INDIA: A Success Story?
-Avishek Pradhan*
A BSTRACT
Food is one of the basic requirements of life. A person has to earn his bread in order to survive in
this cruel and ruthless world. But what if due to several reasons like, illiteracy, unemployment,
lack of opportunity etc. one is not able to earn and therefore fulfill his needs. To rescue a person
from such a situation, The Food Corporation of India (FCI) and the Indian Government has taken
the initiative of the P.D.S. or Public Distribution System in the country. This system is a joint
endeavor of the Central and the State Governments in India. It works as a backbone for the
people in need, in the country who cannot afford to buy three square meal a day and other goods
which are a necessity of life. The needy get all the necessities of life like food etc. at a subsidized
rate through this programme. This paper attempts to analyze the current Public Distribution
System in the country, and also discusses the various issues that need to be tackled and also gives
suggestions that could be incorporated with the existing strategies.
Keywords: Country, Food, Government, Necessities, Public Distribution System, System.
*Student of B.A.L.L.B. 3rd Semester | Email id. - [email protected]
4
I NTRODUCTION
“There are so many people in the world so hungry, that God cannot appear to them except in the
form of bread.”
-Mohandas Karamchand Gandhi (Mahatma Gandhi)
Food has always been the biggest reason and the most important cause for all the wars and
conflict in the human history. Its security has been one of the biggest concerns of the
Governments of various countries so that even in bitter impoverished conditions, food is never
found to be scarce and it is available to all. To achieve this, The Government of India established
what is called the Public Distribution System or PDS in India. The journey of the Public
Distribution System (PDS) has been a total roller coaster ride with a lot of ups and downs. This
paper tries to study how the system of PDS has helped or rather tried to help the needy in the
country who still dreams of having three square meals a day without worrying on how to attain
it.
H ISTORICAL B ACKGROUND O F T HE P UBLIC D ISTRIBUTION S YSTEM I N
I NDIA
The Genesis of the modern system of the Public Distribution was the gift from the Britishers who
during the World War II gave a structured view of publically distributing cereals in the form of
rationing firstly in Bombay (Mumbai) and then spread it further to several other cities in India.
Later after the Second World War came to an end, this system was abolished. But it was
reintroduced in around 1960-1970 again to combat the inflationary pressures and this brought
major changes in the already once existed PDS system. This system of PDS continued till mid
90’s when the Government of India decided to take several major changes in the existing system
by changing the ways of securing food, procuring it as well and also providing new methods of
storage. From 1991 to the present, the policy of universal PDS has been replaced by a targeted
policy in line with the objectives of economic liberalization.
5
Thus, over the entire period, the PDS grew from a rationing scheme in selected cities to a
national universal programme of food distribution and then to a policy targeted at the income-
poor. The Essential Commodities (EC) Act, 1955 that came into force on that very year was
meant to facilitate Government regulation of trade and commerce. The EC Act, 1955 empowered
The Public Officials in enforcing the Public Distribution System. The 1955 Act however was not
the first one for imposition of controls on trade and distribution. It was however the first one in
Independent India. The British Colonial Government under the Defense of India Rules had
implemented some control measures. Since 1946 there came legislation in the form of the
Essential Supplies (Temporary Powers) Act, 1946 which was in fact replaced by the EC Act
of 1955. The number of commodities declared essential under the Act has rapidly increased from
10 items in 1955 to 60 in 1992. In August 1992, it was decided to 9 items to extend the EC
(Special Provisions) Act, 1992 by another five years.
In 1997, following the advice given in an influential World Bank document (World Bank, 1996)
the Government of India introduced what is called the Targeted Public Distribution System
(TPDS) in order to focus on the needs of the poorer sections of the Indian Society (GOI, 1997)1.
The policy initiated targeting of households on the basis of an income criterion that used the
income poverty line to demarcate “poor” and “non-poor” households and classified them as APL
i.e. Above Poverty Line, and, BPL i.e. Below Poverty Line families. But, the bottom line was
that the Indian PDS is plagued by various problems such as corruption, diversion of
commodities, inclusion of people above the poverty line and exclusion of the desired candidates
and wastage of supplies. In order to make Targeted Public Distribution System (TPDS) more
focused and targeted towards this category of population, the “Antyodaya Anna Yojana”
(AAY) was launched in December, 2000 for one crore poorest of the poor families. Since then
the scheme has been expanded thrice. The first expansion took place on 5th June, 2003, second
expansion on 3rd August, 2004 and third expansion on 12th May 2005, increasing the number of
families by 50 lakhs at each expansion, thus raising the total coverage of AAY families to 2.50
crores.
1Targeted Public Distribution System, Government of India, 1997, Department of Food and Distribution,
http://dfpd.nic.in/?q=node/101
6
So, PDS is a huge scheme, which is operated under the joint responsibility of the Central and
State Governments, with the former responsible for procurement, storage, transportation (Up to
the district headquarters) and bulk allocation of food grains. The state Governments are
responsible for distributing these food-grains to consumers through a network of Fair Price
Shops. This responsibility includes identification of families below poverty line (BPL), issue of
BPL cards, and supervision and monitoring of the functioning of the Fair Price Shops. States are
responsible for movement of food grains from the district headquarters to the PDS shop, which
requires storage at the sub-district level. As food was always a non-plan subject, such an
infrastructure is often weak in the northern states.2
O BJECTIVES O F T HE S TUDY
We are going to study the objectives of the PDS that the Government of India has promised to
fulfill and whether they have really kept their promise or have just been flaring the trumpets loud
without much care to fulfill it or not. The objectives that we are going to discuss here are:
To analyze the functioning of the Public Distribution System.
Has PDS really been able to fulfill its real goal for which it had been established i.e.
serving the interests of the poor and being an easy access to all of those who need it?
The impact of Corruption in the PDS, which has caused a large strain over the poor and
the needy.
The need to make changes or continue with the existing system of PDS.
2 Department of Food and Distribution, India, FAQ’s, http://dfpd.nic.in/?q=node/101
7
C HARACTERISTICS O F P UBLIC D ISTRIBUTION S YSTEM
What once started as a programme of food supplies to the famine and drought victims in 1939 by
the Britishers, PDS has increased its scope of work to include a larger sphere of operations for
procurement, and distribution of food grains and other civil supplies, pricing policies and so on.
The essential features of the PDS can be summarized as follows under these points:
1. Public Distribution System is a system of distribution of essential goods through the fair
price shops (commonly known as ration shops or co-operatives, which are usually owned
by the Government, which are operated by private dealers under the Government's
control and direction.
2. Rice, wheat and sugar have continued to occupy a predominant position throughout the
period. The other important items are kerosene, edible oil etc.
3. The working of the PDS has not caused any hindrance to the functioning of the free
market mechanism except in the limited statutory rationing areas but where it works
along with it. Hence, this way of working could be viewed as a "dual economy" in the
essential commodities. Consumers are left free either to purchase through Fair Price
Shops or in the open market.
4. The Government through internal procurement and or through imports obtains the
required amounts of food grains and other items and a buffer stock is maintained with a
view to meet scarcity situation. The Government feeds the PDS with supplies, bears the
cost of subsidy, decides as to which goods to supply, at what rates, what amount to be
sold per head or per family etc.
5. The aim is to provide at least a basic minimum quantity of essential items at reasonable
prices especially to the more vulnerable sections' of population and also to stabilize their
open market prices or at least to prevent an undue rise in such prices under conditions of
shortage. The prices charged are usually lower than open market prices and also lower
than the procurement and other costs incurred by the Government.
8
6. It has been primarily an urban oriented system. Its genesis as well as growth has been in
those sensitive urban areas where a shortage of food grains and other essential
commodities could become political liabilities of Government.3
T HE O RGANIZATION A ND W ORKING O F T HE P UBLIC D ISTRIBUTION
S YSTEM
According to Pal, B in his research says, in order to have a smooth functioning of the Public
Distribution System, the Government has introduced two major bodies which are to look and
organize this system properly. They are: Ministry of Consumer Affairs and Food and Public
Distribution. The ministry has also been divided into two important departments i.e., Department
of Food and Public Distribution and Department of Consumer Affairs. The department of Food
and Public Distribution is again divided into two parts for the purchase and storage of food
grain.4
F OOD C ORPORATION O F I NDIA (FCI)
Food Corporation of India of the FCI was setup on 14th January 1965 and its headquarters is at
Chennai, which is made under the Food Corporations Act 1964 to implement the under-
mentioned objectives of the National Food Policy:
Healthy and efficient price support operations for preserving the interests of the farmers.
Distribution of food grains throughout the country by the system of Public Distribution
System and
Maintaining satisfactory level of operational and buffer stocks of food grains to ensure
National Food Security even during the time of scarcity and need.
FCI is one of the largest Corporation in India and probably the largest supply chain management
in Asia even today. It operates through 5 zonal offices and 26 regional offices. Each year, the
Food Corporation of India purchases roughly 15-20 per cent of India's wheat output and 12-15
3 Pal, B, 2011, Organization and Working of Public Distribution System India: A Critical Analysis, vol. 1 no.1, p. 5-4Ibid 3
9
per cent of its rice output5. The purchases are made from the farmers at the rates declared by the
Government of India. This rate is also known as MSP (Minimum support Price). There is no
limit for procurement in terms of volume; any quantity can be procured by FCI provided the
stock satisfies FAQ (Fair Average Quality) specifications with respect to FCI. The stocks are
supplied throughout India and issued to the State Government nominees at the rates affirmed by
the Government of India for further distribution under the PDS for the use of the ration
cardholders. FCI itself does not directly deal out any stock under PDS and its operation end at
the way out of the stock from its depots. The Union Government in the form of Food Subsidy
reimburses the difference between the purchase price and sale price, along with internal costs. At
present the annual subsidy is around $14 billion (Year 2013)6. FCI by itself is not a Decision
making authority; it does not decide anything about the MSP, imports or exports. It just
implements the decisions made by the Ministry of Food and Ministry of Agriculture.
C ENTRAL W AREHOUSING C ORPORATIONS (CWC)
There is a policy proposed to attain certain heights when PDS is the question that is discussed.
This policy is purposed to produce available storage ability necessary for:
A. Buffering and making ready stock of food grains to supply to the Public Distribution
System and,
B. General Warehousing.
The attempt is to update storage ability and to decrease dependence on the capacity under Cover
and Plinth (CAP). There are three agencies in the public sector, which are engaged in building
large-scale storage/ warehousing capacity, namely, Food Corporation of India (FCI), Central
Warehousing Corporation (CWC) and 17 State Warehousing Corporations (SWCs). While the
ability accessible with FCI is used mainly for storage of food grains, but CWC and SWCs is used
for storage of food grains and also other notified commodities.
5Performance Evaluation of Targeted Public Distribution System (TPDS), Programme Evaluation Organization
Planning Commission Government of India New Delhi, March 2005
6Ministry of Finance, Department of Economic Affairs, Economic Division
10
The Warehousing (Development and Regulation) Act 2007 was enacted and notified in
September 2007. The Act ensures that the farmers are able to keep their goods in certified
warehouses and use warehouses receipt as a negotiable instrument. With the full execution of
this Act, farmers would find it easy to take loans from commercial banks against negotiable
warehouse receipts and not resort to distress sales to take care of their urgent cash needs. The Act
has since been given effect to in September 2010. A regulatory Authority namely Warehousing
Development & Regulatory Authority (WDRA) has been set up on 26.10.2010 under the Act to
register and regulate warehouses issuing negotiable warehouse receipts and to implement other
Provision of the Act. The Department of Food & Public Distribution has finalized a special
scheme for construction of godowns in the North Eastern Region by FCI. Earlier, the Planning
Commission had approved an outlay of Rs.149.00 crores which included Rs.125 crores as equity
to FCI for construction of godowns in the North Eastern States as well as some other deficit
States and Rs.24.00 crores to be released to the State Governments of North-East (NE) States as
Grants in Aid.
The present scheme is revision of the existing scheme envisaging construction of godowns to
create a total additional storage space of 5.4 lakh tonne in the NE States by the FCI with an
allocation of Rs.568.17 crores, which has since been approved by the Planning Commission /
Ministry of Finance. For the areas other than NE Region for the 12 th Five Year Plan, an Rs.20.00
crores has been proposed for creation of storage godowns. BE for 2012-13 for this scheme is
Rs.60.00 crores.7
7 Annual Plan 2012-13, Department of Food & Public Distribution Plan Schemes (Continuing)
11
T HE O RGANISATIONAL D ESIGN O F P UBLIC D ISTRIBUTION S YSTEM I N I NDIA
The design/structure of the Public Distribution System, which is followed by India, is given
below:
Source: Tyagi& V.S Vyas (1990): Increasing Access to Food: The Asian Experience, Sage Publications, and New
Delhi.
P UBLIC D ISTRIBUTION S YSTEM & C ORRUPTION
12
Public Distribution system has been one of the biggest and the most controversial projects that it
had ever introduced. Corruption in India is one of the biggest problems that has crept into our
society and this is to be dealt with. But the chain of Corruption in the public Distribution System
begins at the sourcing stage itself. Some of the produce that is sourced by the Government for
public distribution finds its way into the open market. Then, there are issues related to obtaining
a ration card, and the quality of service at the ration shops.
Stage 1. The Politics of Support prices:
The Government allocates funds for the Public Distribution scheme. The scheme aims to provide
food grains and commodities to poor people at affordable prices. The Government sources
produce for the system from farmers; it sets a minimum support price to do so. The MSP is
usually governed by factors such as the monsoon, crop yield, and vote-bank politics.
Stage 2. Procurement and Pilferage:
The Government-owned Food Corporation of India procures farm produce. Sometimes, the
support price is so low that it can only attract low-quality produce; the rest goes to the open
market. The Government tries to avoid this by upping the support price if it looks like it cannot
procure the amount of grain it needs. Still, a portion of the procured grain sometimes finds its
way into the open market. The study says that in Nagaland, 100% of the grain procured ends up
in the open market. The figure is 70% for Punjab.
Stage 3. Identification, Inclusion and Exclusion:
Ration cards are supposed to be issued to people living below or on the verge of the poverty line.
The process of issuing cards is, again, rife with corruption. Money and influence are the usual
determinants of who gets ration cards, and who doesn't. Worse, bogus cards are often used to
divert supplies to the open market. And it takes a lot to effect changes in ration cards.
13
Stage 4. Pain at the Point of Sale:
People have difficulty in getting whatever little reaches ration shops. Shop-owners usually get
Licenses to run shops on the basis of political patronage or outright bribes. The only way they
can earn profits is by diverting produce to the open market. Result: people get less than they are
entitled to, or are charged more for what they get8.
All these stages lead to the loss of the public at large and this is not correct as all have their right
to get what they deserve. An instance of corruption was printed in the Times of India, which is
one of the leading news papers in the country which said:
“On one hand, the Union government is thinking of enacting the Food Security Act. On the other
hand, a committee appointed by the Supreme Court (SC) to suggest ways to revamp the public
distribution system (PDS) feels that it is next to impossible to eradicate corruption from PDS.
This statement comes even before the committee completes public hearings and starts work on
its final report.
The central vigilance committee under retired SC judge DP Wadhwa is touring the entire country
to take suggestions from consumers to improve PDS. It held a public hearing at Deshpande Hall
on Wednesday. Many ration shop owners admitted during the hearing that they resorted to
corrupt practices because of low commission, and claimed that if it were increased to satisfactory
levels the malpractices would stop automatically.
Justice Wadhwa, however, told the media after the hearing that due to huge difference in PDS
and market rates it was difficult to put an end to corruption. "It is human nature. Why do people
buy pirated DVDs when original ones are available? The shopkeepers cannot earn much if they
run their shops honestly, so they resort to malpractices. A Punjab minister told me that nobody
could run a PDS shop profitably if he was honest," he said frankly.
Replying to a query, Wadhwa said that increasing commission would not stop corruption. "West
Bengal gives 30 paise per kg commission while Maharashtra gives 50 paise per kg. This has not
made any difference in corruption."8 http://www.livemint.com/r/LiveMint/Period1/oldpdf/a348945b-1ec7-4808-8d72e5ed35a26be2.pdf
14
Commenting on the district-level PDS vigilance committees, the ex-SC judge said that they had
proved to be parasites in Tamil Nadu. "In Bihar, the non-official members did not bother to
attend meetings until the government started paying them Rs 100 allowance per meeting."
While he has a negative view of PDS in the country, justice Wadhwa feels that Gujarat and
Chhattisgarh's PDS were the best. "The case of Tamil Nadu is different, because there PDS is
universal."
On common complaints received from consumers so far, he said that corruption was the biggest
complaint. People were not getting rations on time and in some areas it was not available at all.
"In many places only 50% of allotted quantity reaches the end users. Diversion takes place
during transport as well as at shops. Longer the transport distance, higher is the quantum of
diversion of PDS items," he said.
The judge feels that use of information technology is the only way to reduce corruption in the
system, as human intervention was useless. He is also exploring other mechanisms to devise the
best possible system for PDS.”9
Corruption in PDS is almost impossible to eliminate, as per this article. This means we need to
chalk out other mechanisms for PDS. As rightly pointed out by the ex SC-judge, used of IT in
this system may be useful. There are certain other ways to protect the masses from corrupt
officials which could be used or experimented in order to see whether the rights of the
individuals especially living in below poverty line is not ignored and they are given full benefits
of this system.
M ETHODS T O C ONTROL C ORRUPTION I N P UBLIC D ISTRIBUTION S YSTEM
1. Food vouchers:
9The Times of India, 'Corruption in PDS can't be stopped'- Ashish Roy, TNN Feb 17, 2011, 12.05am IST
15
The current system makes ration cardholder’s captive customers of specified ration shops. The
government could consider issuing food vouchers to cardholders. These vouchers can be
exchanged for food from any shop. The owners of these shops can trade these vouchers in for
cash. The quality of the produce, its price, and the way shop-owners (private shop owners)
procure their supplies will all be market-determined, as will be the quality of customer service
and efficiency, from procurement to distribution.
2. Local procurement and distribution:
One reason for the inefficiencies and corruption that plague the current system is the long
distribution chain. Food supplies go waste or are diverted at each step of the process. It also takes
a long time for food produce to reach ends of the chain (this also increases the cost of managing
the public distribution system). If the local administration takes charge of procurement (unless
certain foods are not available locally), it can collect food produce locally. This can then be
distributed locally to eligible households.
3. Community grain fund:
The problems can also be addressed by involving local people in the process. Thus, procurement
and storage of grain is done at the local level, and could be managed by local women. These
locals also identify eligible households through a participatory wealth ranking process. This
addresses issues related to exclusion and inclusion, a major problem in the current public
distribution system. The fund can also lend money to farmers to cultivate crops and take a part of
the produce as repayment in kind, further simplifying the procurement process.10
C ONCLUSION
10 The methods have been used as a reference from the website: www.livemint.com
16
This paper tries to bring forward the areas of utter concern with respect to the policy reforms in
the context of PDS and securitization of food in India. The areas of concern which we found out
were the unorganized supply chain performance, corruption and identification and the level of IT
intervention in the current system. One thing has been concluded that a well functioning PDS is
still needed in the nation and can be the only means to ensure adequate physical access to food at
the local and household levels. There are a number of states who are already trying to innovate a
lot of new ideas in PDS execution, and improved performance can be seen in some cases. Lastly
what we can figure about this system in India is that it has become more of a bloated acting
propaganda, a mere blasphemy, than a success story which one can share without much effort.
R EFERENCES
17
Books:
Tyagi& V.S Vyas, 1990, Increasing Access to Food: The Asian Experience, Sage
Publications, New Delhi
Journals:
Khera, Reetika(2011) 'India's Public Distribution System: Utilization and Impact', Journal
of Development Studies, First published on: 07 March 2011 (iFirst)
Majumdar, B, 2011, Public Distribution System of Essential Commodities as a Social
Safety Net -A Study of the District of Allahabad, Uttar Pradesh
Pal, B, 2011, Organization and Working of Public Distribution System India: A Critical
Analysis, vol. 1 no.1, p. 5-6.
Reports:
Programme Evaluation Organization, Planning Commission, Government of India, 2005,
Performance Evaluation of Targeted Public Distribution System (TPDS)
Websites:
Department of Food & Public Distribution, Annual Report 2012-13, http://dfpd.nic.in/?
q=node/1241 (September 17, 2013)
Department of Food & Public Distribution, TPDS, http://dfpd.nic.in/?q=node/999
(September 20, 2013)
Live mint, Corruption Catalogue, Public Distribution system,
http://www.livemint.com/r/LiveMint/Period1/oldpdf/a348945b-1ec7-4808-
8d72e5ed35a26be2.pdf (September 26, 2013)
Newspaper Articles:
Roy, A., 2011, Corruption in PDS can’t be stopped, The Times of India,
http://articles.timesofindia.indiatimes.com/2011-02-17/nagpur/28554198_1_pds-shop-
food-security-act-public-distribution-system (September 25, 2013)
18