Role of Public Distribution System in Food Security

          A large public distribution system (PDS), supplemented by arrangements for moderating prices in the open market and concerted efforts for achieving self - sufficiency in food-grains, coupled with measures for maximising procurement from surplus areas, have been the twin objectives of food policy in modern India, ever since the Bengal famine of 1943. The PDS is one of the instruments for improving food security at the household level in India.

          The PDS ensures availability of essential commodities like rice, wheat, edible oils, and kerosene to the consumers through a network of outlets or fair price shops. These commodities are supplied at below market prices to consumers. With a network of more than 28 462,000 fair price shops (FPS) distributing commodities worth more than Rs. 300 billion annually to about 160 million families, the PDS in India is perhaps the largest distribution network of its kind in the world.

          The PDS evolved as an important instrument of government policy for management of scarcity and for distribution of food-grains at affordable prices. Supplemental in nature, the scheme is not intended to make available the entire requirements of food-grains of the households. Self-sufficiency of food-grains at national level and availability of food-grains at affordable cost at local level have not got translated into household level food security for the poor.

          The PDS that existed till recently has been widely criticised for its failure to serve the population below the poverty line (BPL) , its urban bias, iniquitous distribution as reflected in the poor coverage in the States with the highest concentration of the poor, lack of transparent and accountable arrangements for delivery and the consequent heavy leakages. Realising this, the Government has streamlined the PDS by targeting it to the BPL population at specially subsidised prices and with better monitoring of the delivery system. The new system, named Targeted Public Distribution System (TPDS), has come into operation with effect from 1st June, 1997.

            The Targeted PDS (TPDS) was introduced in 1997 and under this scheme special cards were issued to families below poverty line (BPL) and food-grains were distributed at a lower price for these families compared to those above the poverty line (known as APL families). The entire population was divided into three categories – BPL (Below Poverty Line), APL (Above Poverty Line) and AAY – Antyodaya Anna Yojana (for destitutes).

          The BPL population are provided 35 kg of food-grains per month at subsidized price. Under AAY, the destitute households (part of BPL households) are provided a monthly provision of 35 kg of food-grains at specially-subsidized rates (Rs. 2 per kg for wheat and Rs. 3 for rice). About 25 million (38 per cent of BPL) people have been covered under AAY. The central government allocates food-grains to different states of India based on poverty ratios. States in turn distribute food-grains based on the BPL list.

          PDS providing food-grains at affordable prices is one of the key elements of the Government's Food Security system. In spite of obvious limitations PDS did play a role in improving regional food security, specially in drought prone areas. In an attempt to improve availability of food to population living in most vulnerable areas (remote, tribal and drought-prone regions), the revamped public distribution system gave priority for establishment of PDS in such vulnerable areas. In spite of mounting food subsidies, evaluation studies indicate that supply of subsidised food given through PDS has not resulted in improvement in household level food security.

Impact of Public Distribution System (PDS):

          The main purpose of the PDS was to act as a price support programme for the consumer in 1960s. Those were the years of food shortage. The basic items covered were rice, wheat, sugar, edible oil, and kerosene to be sold at subsidized prices.       There had been a growing feeling that the non-poor were the beneficiaries of PDS in large numbers, especially in respect of sugar and Kerosene oil.

          The PDS has remained very ill-manned, expensive and largely untargeted programme. The very poor are unable to take the benefit of the PDS for a variety of reasons. They do not have a regular income. They are unable to lift a month or a fortnight’s quota at one time for want of enough money.

          At one extreme, economists advocate replacing the PDS in its entirety with cash transfers, others have suggested the implementation of cash transfers without dismantling the PDS or moving to a system of food coupons. States like Andhra, Rajasthan, and recently Bihar have introduced food coupons and considerable improvements have been reported as a result. This measure has helped in reducing the number of bogus ration cards and has been effective in checking PDS grains from being diverted into the open market. An alternative viewpoint emphasises that the solution is to strengthen the PDS and make it more inclusive rather than undermining it, especially given the impressive improvements in its functioning in many parts of the country.

           

          Cash transfers are, in theory, cost-effective because they have lower transaction costs and avoid the problem of having to procure, store, transport and distribute commodities. They also offer beneficiaries the freedom to direct the cash to particular household needs. In the context of food, for instance, this could imply a more diverse diet or better quality grain. Cash is also deemed to have multiplier effects that could potentially support local market development. In the Indian context, most proponents of cash transfers as a replacement for the PDS see it as a cost-effective alternative that is less prone to leakage or corruption.

          A recent survey found that in states where the PDS functions reasonably well, an overwhelming proportion of the respondents are in its favour and are averse to a cash transfer system. Overall, more than two-thirds preferred food and less than a fifth preferred cash, with the others either having a conditional preference for one or the other or no clear preference at all. The greatest support for cash transfers was in states where the PDS does not function well, with people suggesting that they would be happy with an equivalent amount of cash.

          It is not surprising that this variation across states in performance of the PDS is highly correlated with poor performance of other programmes as well. In particular, Bihar, which performs poorly in the PDS also topped the states in perceived corruption in the public sector in general. A silver lining, therefore, is that there are improvements even in states that have routinely had a poor record in the implementation of welfare programmes.

          Among states where the PDS functions effectively, a shared feature has been the use of IT-based transparency measures, starting with a simple computerised record-keeping system of the entire supply chain. Combined with Global Positioning System (GPS) tracking of delivery trucks and Short Messaging Service (SMS)-based transmission of information to users, there are checks and balances that make diversion of food-grains to the open market very difficult.

          In Tamil Nadu, consumers can obtain the stocks position via SMS, and in Chattisgarh, the timing of the arrival of the supplies to the fair price shop. Tamil Nadu and Chattisgarh also have functional grievance redressal mechanisms. Chhattisgarh has a system for tracking the entire chain from farmer to consumer of PDS grain in its local procurement operations. The use of digital smart cards at PDS outlets in Andhra Pradesh and coupons in Rajasthan for PDS are known to have been effective in curtailing leakages in the ‘last mile’, although more rigorous research is required to understand the efficacy of these latter measures.

          Attempts to use technological solutions to curb leakages have been initiated both by the national government as well as by individual states. While the national government's focus has been overwhelmingly on a unique biometric identification project, which would eventually require real-time authentication of the beneficiary, various states have experimented with more user-friendly alternatives like smart cards that work on point of sale devices and using the unique biometric identification merely to weed out duplicates and ghost cards.

          There must be focus on ways the food delivery system can be overhauled to reduce costs along the supply chain, procurement, storage and delivery. Local procurement of food-grains, where feasible, is likely to significantly bring down transaction costs. Chattisgarh's experiment with local procurement offers scope to examine the economics of localising food-grain procurement and the feasibility of restricting long hauls only to transfer grain from food surplus to food deficit regions.

          While Public Distribution System (PDS) does provide some immediate relief, it fails to provide enduring food security to the poor. It would be more appropriate to focus on strategies that reduce poverty and stabilize prices of food grains. There is need for certain reforms in procurement and distribution for better functioning of TPDS. These are:

(i)                decentralization of procurement and distribution;

(ii)              involving panchayats (elected village representatives) in PDS;

(iii)           streamlining FCI and involvement of private sector farmers’ cooperatives, SHGs, etc. in procurement and distribution;

(iv)           viability of FPSs, giving them higher margin, making monitoring compulsory;

(v)              computerization of records for cross-checking, opening of grievance cells, and strengthening the role of Panchayats and NGOs;

(vi)           devising an appropriate criterion for selection and strict enforcement of the criterion; and

(vii)        punishment system for the defaulters.

            An ambitious and holistic programme of food security necessarily requires adequate supply of food at the macro level to meet the effective demand of the country as a whole, but also one that ensures superior dietary quality. Although detractors perceive this to be an expensive and largely wasteful exercise that hinges on a faulty mechanism for procurement and distribution via fair price shops under the PDS, supporters suggest that this is the best way to ensure food access to the disadvantaged. The immediate challenges for India lie in revisiting operational aspects of food procurement and distribution for a more cost-effective and nimble system.

          A well targeted and subsidised Public Distribution System (PDS) is an important constituent of the strategy for poverty alleviation. A subsidised PDS should essentially be viewed as a mechanism for income transfer to low income segments of the population. While conceptually the function of income transfer to the low income groups can be better performed by food coupons, for several reasons it may not be workable in the Indian situation.

          First, dismantling of the PDS implicit in food coupons system may not be acceptable. Second, PDS is linked to the system of support prices and procurement operations as a part of the current agricultural price policy. The time is not yet ripe to disband the price support operations and therefore, the PDS which provides an outlet for offloading the food-grains procured from surplus areas to deficit areas.

          Third, food coupon system is fraught with unmanageable administrative problems associated with security printing of coupons, fraud prevention, fresh issue of stamps due to periodic indexation etc. Fourth, food coupons have characteristics similar to cash and are liable to be misused. Fifth, and more important, it has been argued that coupons (equivalent to cash) would typically enhance the demand for highly subsidised food-grains (due to shift in the demand curve to the right) while the supply remains the same. This will cause food prices to rise. Increase in food price would mean deterioration in the well being of those who are left out of the coupon programme. Under the circumstances, a poverty-based targeting of PDS is a better option from the point of view of ensuring the food security of the poor.

          In view of the fact that the poor devote a substantial part of their expenditure on food-grains, it is essential to protect them from a continuous upward pressure on food-grains prices. If the poor are not protected from the impact of ever increasing prices of food-grains, the effects of many of the poverty alleviation measures and programmes would get neutralised. In other words, a system of food subsidy becomes an essential element of food security.

          The challenge, however, is to contain the total food subsidy to the minimum necessary through a system of targeting, so that the subsidies benefit only those sections whom the State wants to protect. With the proposed NFSA (National Food Security Act), the improved functioning of the PDS would become most essential and concerted efforts would have to be made in effectively plugging leakages and ensuring a streamlined functioning of the PDS.