Public Distribution System

Indias Public Distribution System (PDS) is a food security system with a network of about 4.89 lakh Fair Price Shops (FPS). It is the largest retail system of its type in the world, in terms of both coverage and public expenditure. Since 1951, public distribution of food grains has been retained as deliberate social policy by India with the objectives of 1) Providing food grains and other essential commodities to vulnerable sections of the society at reasonable (subsidized) prices 2) To put an indirect check on the open market prices of various items, and 3) To attempt socialization in the matter of distribution of essential commodities PDS is an important constituent of the strategy for poverty eradication and is intended to serve as a safety net for the poor who are nutritionally at risk.

Functioning of PDS
PDS is operated under the joint responsibility of the Central and State Governments. The Central government is responsible for the procurement and transportation of food grains up to the principal distribution centers of the Food Corporation of India (FCI). Thus, the Central governments role is limited to procurement, storage, transportation and bulk allocation of food grains. The Ministry of Consumer Affairs, Food and Public Distribution is the nodal ministry for PDS. FCI was established in 1965, to function as an autonomous organization, working on commercial lines, to undertake purchase, storage, movement, transport, distribution and sale of food grains and other food stuff. The implementation of the PDS remains the direct responsibility of the State governments, although operation details may vary from State to State. The state governments are responsible for identification of families below the poverty line, issue of ration cards, allocation of food grains within the State and the distribution of food grains to the vulnerable sections through FPSs. Though the policy of setting up of FPSs owes its initiation to national food policy, supervision and monitoring the functioning of FPSs rest with the State Governments. The Food and Civil Supplies Department of the State Government is mainly entrusted with the task of monitoring PDS in the state.

Evolution of PDS
PDS in India is more than half-a-century old as rationing was first introduced in 1939 in Bombay by the British Government as a measure to ensure equitable distribution of food grains to the urban consumers in the face of rising prices. Thus, rationing in

times of crises like famine was the historical precursor to the national policy of stabilization and management of food grains. PDS, with its focus on distribution of food grains in urban scarcity areas, emanated from the critical food shortages of the 1960s. PDS had substantially contributed to the containment of rise in food grains prices and ensured access of food to urban consumers. As the national agricultural production had grown in the aftermath of Green Revolution, the outreach of PDS was extended to tribal blocks and areas of high incidence of poverty in the 1970s and 1980s. PDS, until 1992, was a general entitlement scheme for all consumers with any specific target. Revamped Public Distribution System (RPDS) RPDS was launched in June 1992, with a view to strengthen and streamline the PDS and to focus on disadvantageous areas like far-flung, hilly, remote and inaccessible areas where a substantial number of poor live. It covered 1775 blocks wherein area specific programmes* were implemented and certain Designated Hill Areas (DHA) identified in consultation with State Governments for special focus, with respect to improvement of the PDS infrastructure. Food grains for distribution in RPDS areas were issued to the States at 50 paise below the Central Issue Price. The scale of issue was up to 20 kg per card. RPDS included area approach for ensuring effective reach of the PDS commodities, their delivery by the State Governments at the doorstep of FPSs in the identified areas, additional ration cards to the left out families, additional FPSs, additional storage capacity and additional commodities such as tea, salt, pulses, soap etc. for distribution.
(*such as the Drought Prone Area Programme (DPAP), Integrated Tribal Development Projects (ITDP), Desert Development Programme (DDP))

Targeted Public Distribution System (TPDS) PDS seems to have failed in serving its main objective of making food grains available to the population below the poverty line. Therefore, on the recommendation of the Chief Ministers Conference in 1996, TPDS was launched in 1997, as an effort to streamline the PDS. This system followed a two-tiered subsidized pricing structure: for families Below Poverty Line (BPL) and for those Above Poverty Line (APL). BPL population receives food grains at a high subsidized price (much lower price) whereas APL population is supplied at a price which is much higher and closer to the economic cost. The scale of issue under TPDS for BPL and AAY cardholders is 35 kg per family per month, while allocation for APL families is being made depending on the availability of food grains in the Central Pool. While BPL population were offered food grains at half the economic cost, the APL, who were not to have a fixed entitlement to food grains, were supplied grains at their economic cost.

Thus, TPDS intends to target subsidized provision of food grains to poor in all areas unlike RPDS, which laid stress on all in poor areas. Under the TPDS, the identification of BPL families was to be carried out by the State Governments as per the poverty estimates of Planning Commission based on the methodology of the Lakdawala Expert Group. Antodaya Anna Yojana (AAY) AAY was launched in December 2000 to make TDPS more focused and targeted towards the poorest of the poor sections of the population. AAY contemplated identification of 1 Crore, subsequently increased to 2.5 Crore, poorest of the poor families from amongst the BPL families covered under TDPS and providing them foodgrains at a highly subsidized rate (Rs 2 per kg of wheat, Rs 3 per kg of rice). The entire food subsidy is passed onto consumers in this scheme.

Challenges
India, at present finds itself in the midst of a paradoxical situation: endemic hunger and malnutrition co-existing with mounting food grain stocks. This shows that there is availability of food; the problem is distribution. There are many systemic challenges that plague the PDS and the key ones are described below 1) PDS Leakages a. Non-enrollment of genuine BPL families and therefore no access to ration cards b. Bogus ration cards (ghost cards) exist in BPL & AAY categories. Food therefore, does not reach the intended beneficiaries. Additionally, these bogus cards inflate the number of BPL and AAY cards in circulation and therefore reduce the amount of food available to every rightful beneficiary family c. Shadow ownership benefits being availed in the names of rightfully entitled families without their knowledge. This illustrates inefficiencies in ration card issuance and distribution d. Errors in categorization of families that lead to BPL families getting APL cards and vice versa e. Significant portion of benefits allocated for APL families are not availed by the intended beneficiaries and are instead diverted out of the system f. Identification of BPL families differs from state to state as some states follow their own criteria. For example, 70% of households in AP have ration cards. GOI spends Rs 3.65 to transfer Rs 1 to poor (Planning Commission, 2005) 57% of the PDS food grain does not reach the intended people (UIDAI, 2009) 2) FPSs a. The virtual exclusion of APL families under TDPS has led to a big decline in offtake. With fewer ration cards to serve, lower turnover, and

upper bounds of margins that can be charged to BPL consumers, the net profits of FPS owners and dealers are lower under TDPS than before b. Distribution and transportation of smaller quantities do not provide the benefits of economies of scale. This fall in economic viability of FSPs is incentivizing cheating c. FPSs are found to be open for only a few days in the month and beneficiaries who do no visit on these days are denied their right d. It was observed that FPS use excuses to charge higher rates and deliver reduced quantity of food grains e. Lack of transparency in appointment of dealers for FPSs f. FPS dealers resort to malpractice, illegal diversions of commodities, hoarding and black marketing due to the minimal salary received by them 3) Price Stabilization and Regional Allocation a. One of the objectives of PDS was to ensure price stabilization and regional allocation by transferring grain from cereal-surplus regions to cereal-deficit regions. TPDS undermines this objective, as demand for cereals is no longer determined by state governments (based on their requirement and in practical terms on past utilization) but on allocations decided by Central Government (based on poverty estimated determined by Planning Commission). This has led to imbalances between actual allocations and required allocations to meet the difference between cereal production and demand 4) System Transparency and Accountability a. The system lacks transparency and accountability making monitoring difficult 5) Grievance Redressal Mechanism a. Although entities like Vigilance Committtee, Anti-Hoarding Cells exist to ensure the smooth functioning of the PDS system, they are virtually defunct at the ground level

Measures taken to strengthen TPDS

The following measures were taken to strengthen TPDS and check diversion of food grains from TPDS 1) Citizens Charter a. A Citizens Charter has been issued in 1997 for adoption by State Governments to provide services in a transparent and accountable manner under PDS. b. Instructions were given to involve PRIs in identification of BPL families and in Vigilance Committee c. A revised Citizens Charter has been issued in 2007 as per provisions of Right to Information Act, 2005 2) PDS (Control) Order, 2001 a. The Order covers a range of areas like identification of BPL families, issue of ration cards, proper distribution and monitoring of PDS-related operations b. Contraventions of the provisions of this Order are punishable under the Essential Commodities Act, 1955

3) Area Officers Scheme a. It was launched in 2002 with the objective to provide a mechanism to coordinate with the State/UT Governments for regular and effective review and monitoring of the TPDS b. Officers of the rank of Deputy Secretary, Director and equivalent are nominated as Area Officers for different states/UTs c. The Area Officer is to visit two districts in their allotted territories once in a quarter and review the functioning of TPDS as per instructions/guidelines and a set of questionnaire d. They are required to submit their report within 10 days, clearly bringing out important issues, findings along with recommendation on actionable points e. The reports of Area Officers are sent to Food Secretaries of the concerned States/UTs for taking remedial action towards smooth functioning of TPDS 4) Meeting/Conferences a. A meeting of all state and UT Food Secretaries was held under the Chairmanship of the Union Food Secretary in 2008 to discuss the measures for reforming the PDS. The minutes of the said meeting were sent to all concerned for taking necessary action thereon

Revamping PDS
Certain systemic changes which have the capability to implement far-reaching reforms can be explored. Food Stamps (Food Coupons) Food stamp scheme was proposed in the Tenth Plan document of the Planning Commission Under the scheme, each eligible household will be given a subsidy entitlement card that specifies the number of household members, their age and entitlement Family size and composition will determine the number of stamps a household is entitled to get each month. These have to be collected every month from a prescribed distribution centre The households can then use these stamps at any food store to buy grain at a price below the market price. The state government is to reimburse the retailers Benefits This system will reduce the humongous task of procuring, storing, distributing and delivering the grains to FPSs, thereby reducing the extent of leakage caused There is less scope of corruption under the system of food stamps. Under the existing system, FPS owners declare on paper that they have sold a certain quantity of food to the poor at subsidized rates, when in fact, they have made huge profits by selling the food at market prices. Under the food stamp system, the retailers can claim food subsidy only by producing the food stamps acquired by selling the food to the poor at subsidized rates Informal trading of food stamps can convert food subsidy into income subsidy

This scheme helps in containing the level of food subsidy by plugging leakages, cutting costs at administrative and operational level and reducing the dependence on FPSs for delivery

Drawbacks Experience from other countries shows that food stamps have always been a means of narrow targeting or reducing the coverage of food distribution program Additional burden on the consumer, who has to collect the stamps at regular intervals and store them carefully. This will entail time and expenditure on the consumer Real value of food subsidy is reduced as food stamps entitle a household to a fixed value of purchase, not to a fixed quantity of grain. The nominal terms in which food stamps are denominated will have to bear the risk of inflation Food stamps do no guarantee physical availability of food or access to food. There is nothing to ensure that will be a retailer at a suitable location or that the nearest retailer will stock grains at subsidized prices Possibility of food stamps being counterfeited (Telgi Scam) and logistical problems while reimbursing subsidy to participating retailers Food Stamps system could be a viable solution when markets get better integrated in the long run and PDS functioning need not be restricted to FPS. Food Credit Card System The customers could use food credit/debit cards to buy subsidized food grains from the market and the retailers can claim the subsidy from the Government Though the initial cost of issuing a food credit card and setting up a leakageproof system are likely to be higher than for the existing ration card, the running costs of the system may be lower as the credit/debit card can be used in existing retail shops that accept such cards Besides, the cost would also be compensated by the elimination of leakage at all stages of the current food procurement, storage and distribution system (including the FCI) To minimize the cost, existing credit card companies could be persuaded to set up and run the food credit/debit card system at a cost, in return for advertisement rights to this social service Specialized credit card companies can also ensure that the food retailers are reimbursed on time, thus giving them an incentive to sell food to the poor The card can also be made applicable to all cereals including coarse grains. If desired, a different subsidy rate can be specified for different cereals. As coarse cereals are consumed mainly by the poor, the smart card will allow some self-selecting/self-targeting features to be built into the system The food debit/credit card can also have the in-built flexibility of changing over from a food subsidy to an income transfer system if there is a subsequent change in the policy The food debit/card card could also be integrated with a food-for-work programme without incurring the additional administrative and logistic costs of transporting food to each area where here is need to provide work.

Payment for the work would be done by adding the food grain to the food credit of the worker Once this system is set up, it can also be used to provide social security to the old, infirm, disabled and handicapped citizens

Direct Cash Transfer Program (DCT) Under DCT, government subsidies will be given directly to the beneficiaries in the form of cash rather than goods. DCTs can either be conditional or unconditional. Conditional cash transfers provide cash directly to poor households in response to fulfillment of certain conditions such as minimum attendance in schools Under unconditional schemes, cash is directly transferred to eligible households without any conditions. Ex: Pension schemes DCTs provide poor families the choice of using cash as they wish, thus relieving them of some financial constraints DCTs are simpler in design than other subsidy schemes. They have a huge fixed start-up cost of administration, while running costs are lower Under DCT, the recipient has to establish his identity and eligibility by opening an Aadhaar enabled bank account, which can be used to receive multiple welfare payments The scheme reduces rent-seeking by middlemen who siphon off part of the subsidy. Cash shall be transferred directly to the beneficiaries Key benefit of DCT system is to ensure better targeting of subsidies. However, the success of Aadhaar in weeding out ghost beneficiaries depends on mandatory enrollment. If enrollment is not mandatory, both authentication systems (identity card based and Aadhaar based) must coexist. In such a scenario, ghost beneficiaries and people with multiple cards will choose to opt out of the Aadhaar system DCT becomes superior to present subsidy schemes only when it comes to individual consumer subsidies. State-level subsidies, user-charges on merit goods, subsidies to producers, exporters and public sector enterprises cannot be handled through DCT In addition to these measures, certain other recommendations suggested by various committees and activists are roaming ration cards, choice of Fair price shops, choice of commodities available at FPS, universal PDS, encourage women and NGOs to participate in PDS (as licensed FPS dealers, maintaining community grain storage houses).

Ad v a nta g e sa n dd is a dv a n ta g e s of P D Sa n d oth e rd e liv e ry m e c ha n is m s

Me c h a n is m P D S Ad v a n ta g e s Insulates beneficiaries from inflation and price volatility Ensures entitlem ent is used for food g rains only Well-developed network of FPS ensures access to food grain even in rem ote areas D is a d v a n ta g e s Poor identification and targ eting of beneficiaries Low offtake of food grain from each household Large leakag es and diversions of subsidized food grain Adulteration of food grain Lack of viability of FPSs due to low m argins C a s h tra n s fe rs Cash in the hands of poor expands their choices Cash m ay relieve financial constraints faced by the poor, make it possible to form thrift societies and access credit Adm inistrative costs of cash transfer programs may be much less than that of centrally sponsored schem es Potential for fully electronic transfer F ood c ou p on s Household is given the freedom to choose where it buys food Increases incentive for com petitive prices and assured quality of food g rain am ong PDS stores PDS stores get full price for food grains from the poor; no incentive to turn the poor away Vulnerable to targeting errors Cash can be used to buy non- food item s May expose recipients volatility and inflation to price

There is poor access to banks and post offices in som e areas Vulnerable to targeting errors Food coupons are not indexed for inflation; m ay expose recipients to inflation Difficult to adm inister; known to have delays in issuing food coupons and reim bursing shops

Sources
http://www.prsindia.org/theprsblog/?tag=pds http://planningcommission.gov.in/plans/planrel/fiveyr/11th/11_v2/11v2_ch4.pdf http://indiabudget.nic.in/es2000-01/chap53.pdf http://pdscvc.nic.in/Annexure%20C.pdf http://hindu.com/2004/08/03/stories/2004080300331000.htm http://www.academia.edu/378216/Public_Distribution_System_in_India http://dfpd.nic.in/?q=node/101 http://www.slideshare.net/nidhisuthar/food-security-and-pds-system-in-india http://www.prsindia.org/theprsblog/?tag=direct-cash-transfer