Targeted PDS in India

PDS began as a Universal Programme in India due to food shortages of the mid 1960’s. But, since 1997 it has been exclusively targeted towards the poor, providing Wheat, Rice, Sugar and Kerosene at a highly subsidised to the below poverty line households.

The objective was to help very poor families buy food grains at a reasonably low cost to enable them to improve their nutrition standards and attain food security. The new system followed a two-tier subsidised pricing structure: one for BPL families, and another for Above the Poverty Line (APL) families.

How Cheap Food Grains ensure Nutritional Security?

In both the cases, whether Substitution dominates or the Income effect dominates, the end result will be an increase in calories intake by consumer’s and reduction in nutritional deficiencies.

Note for Students:

In order to make Targeted PDS more effective the Government had launched the Antyodaya Anna Yojana in December 2000.

Antyodaya Anna Yojana (AAY): The objective of the scheme was to identify the poorest households among the BPL category and to provide each of them with the following:

• Total 25 KG of food grains per month @ fixed price of RS 2 per KG for Wheat and RS 3 Per KG for Rice.

Individuals in the following priority groups are entitled to an AAY card, including:

1. landless agricultural labourers,
2. marginal farmers,
3. rural artisans/craftsmen such as potters and tanners,
4. slum dwellers,
5. persons earning their livelihood on a daily basis in the informal sector such as porters, rickshaw pullers, cobblers,
6. destitute,
7. households headed by widows or terminally ill persons, disabled persons, persons aged 60 years or more with no assured means of subsistence, and
8. all primitive tribal households.

The Food Corporation of India (FCI) is the nodal agency at the centre that is responsible for transporting food grains to the state godowns. Specifically, FCI is responsible for:

1. procuring grains at the MSP from farmers,
2. maintaining operational and buffer stocks of grains to ensure food security,
3. allocating grains to states,
4. distributing and transporting grains to the state depots,
5. selling the grains to states at the central issue price to be eventually passed on to the beneficiaries.

Important Prices Related to the PDS

How to Strengthen the Public Distribution System.

Aadhaar Based Enrolment.

The key problem in the efficient functioning of the PDS is the inclusion errors and the exclusion errors. Aadhaar cards could be used to identify the real poor households, thereby eliminating the inclusion errors. The use of Aadhar would also help in eliminating the duplicate and ghost beneficiaries.

Use of E-Technology and ICT.

Technology based reforms would help in reducing the leakages. The current system of manual recording the beneficiary is prone to corruption and tampering. The computerisation of records will resolve this problem. The end-to-end computerisation could curb large-scale diversion of grains to the open markets and help track the delivery of food grains from state depots to beneficiaries.

Technology based reforms undertaken by States:

Removing the Urban Bias.

It has been found that most of the Ration shops are situated in the urban areas of cities rather than the backward areas and slums, where most of the people poor live. The poor often have to travel miles to procure their quota of grains. The situation of Ration shops in the Urban centres also increase the risk of inclusion errors as urban middle class have a strong incentive to enrol themselves in the local Ration shops. If the ration shops are restricted to slums than the urban middle class will find it difficult to travel to slums to buy grains. Thereby eliminating the wrongful inclusions.

Choice of Commodities sold.

The PDS in India provides cereals like Wheat and Rice to the poor. However, various studies have found that the poor generally prefers coarse grains like ragi, maize, Jowar and Bajra. These cereals are not only rich in carbohydrates and protein but are also less consumed by the rich and urban middle class. If coarse cereals are sold in the PDS shops, then the rich will automatically stop using ration shops. Thereby eliminating the inclusion problem.

Decentralisation of the PDS.

The current system of centralised PDS where the centre procures the grain and then distribute it to each state is highly inefficient. The centralised PDS further adds to the unbearable administrative cost of transporting the grains from FCI to the state depots. It would be better if the states are given the power to procure and distribute grains on their own at the MSP and CIP decided by the centre.

Alternative to the PDS

Universal PDS:

Under the Universal PDS the grains are provided to every household of the state irrespective of the income level. The non-classification of the households eliminates the risk of inclusion and exclusion errors. It also reduced the cost of running the scheme as it reduced the administrative cost of identifying the poor and cost of monitoring the scheme.

Food Coupons:

Food Coupons are another alternative to PDS. Beneficiary are provided with food coupons which are equivalent to money. The food coupons are used to buy grains from local markets and grocery stores.

Retailers or grocery shop owners take these coupons to the local bank and are reimbursed with money. According to the Economic Survey 2009-10 reports, such a system will reduce administrative costs. Food coupons also decrease the scope for corruption since the store owner gets the same price from all buyers and has no incentive to turn the poor buyers away. Moreover, BPL customers have more choice; they can avoid stores that try to sell them poor-quality grain.

Direct Benefit Transfer:

DBT provides for cash transfers to the poor. Under DBT, beneficiaries will be given money by the government in their respective bank accounts which can be used to but grains from the open markets. Under the DBT system the government will provide money directly to the target group usually poor households. The identification of the poor households are much easier under the DBT system, since the bank accounts are linked with Aadhaar and can be easily monitored.

Some of the potential advantages of these programmes include: (i) reduced administrative costs, (ii) expanded choices for beneficiaries, and (iii) competitive pricing among grocery stores.

• In PDS leakage arises due to ghost ration cards. Under DBT “the identity of a person is known and ration cards will be Aadhaar-verified, due to which, only the right beneficiaries will get the subsidy.
• The savings from DBT on food subsidy is expected to be much larger than that for LPG. According to budget estimates, India’s food subsidies for the 2015-16 will be Rs.1.24 trillion. So, if government manages to save 40% of the subsidy, it will be around Rs.50,000 crore annually.
• The saved money could be invested by Government in Infrastructure, health or education where social returns would be much higher.
• Usually the PDS grains are of inferior quality. DBT would ensure that the poor families will buy good quality grain from the open market. This would certainly improve the nutritional outcome for the people and will be a step towards equality.
• Currently More than 40% of the foodgrains in PDS are diverted to open markets. High diversion of PDS items, pilferage, transport cost ,administration cost and graft issues would be avoided under DBT.
• Providing subsidies directly to the poor would both bypass brokers as well as reduce the waste and holding costs of storing grains in government silos.
• Cash transfers would help reduce fiscal deficit by curbing expenditures earmarked for the PDS that are siphoned off through corruption, as well as avoiding substantially higher costs of transferring food rather than cash.
• DBT system Respects the autonomy of beneficiaries and ensures that the person has choice in terms of spending the money in-accordance with his priorities and cultural preferences.
• DBT will ensure that Ensures that the inefficient and corruption-prone procurement regime of government is done away.

Some issues with the DBT:

• Cash transfers may expose recipients to price fluctuation, if they are not frequently adjusted for inflation.
• Additionally, since cash transfers include the transfer of money directly to the beneficiary, poor access to banks and post offices in some areas may reduce their effectiveness.
• It is also possible for people to spend cash transfers not on more nutritious food, as proponents suggest, but instead on non-food items, which would decrease the amount of household money left for buying food.

Advantages of PDS and DBT: A Comparison

Disadvantage of PDS and DBT: A Comparison

The National Food Security Act

The NFSA was passed in the Parliament in the year 2013, the NFSA seeks to provide the food to all individuals by making it a statutory right.

A comparison of existing TDPS and NFSA