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  1. 1. Reforming The Public Distribution System In IndiaPrepared by – 1. Abdul Bazi 2. Darshit Shah 3. Dhruv Motwani 4. Rahul Ranjan 5. Udbhav Prasad
  2. 2. Public Distribution System- A Perspective • British Government started the first structured PDS of cereals in India at the time of World War II through rationing system. • Department of Food was created in India in 1942 to co-ordinate the British initiated PDS System. • When the War ended, Rationing System was abolished by the British in 1943. • Later in the face of renewed inflationary pressures in the economy, govt. reintroduced rationing in 1950. • Govt. of India retained public distribution of food grains as a deliberate social policy, when it embarked on the path of planned economic development in 1951. • Creation of Food Corporation of India (FCI) & Agriculture Price Commission (APC) in 1965 consolidated the position of PDS. • Govt. announced a commitment for Minimum Support Price for wheat and paddy to procure quantities. • Further, the procurement became an integral part of the distribution chain. • Some years down the line, PDS, from mere rationing, evolved into an instrument of National Food Security. It’s biggest success was said to be overcoming the 1987 drought, considered to be the worst in the century.
  3. 3. An Insight to the prevailing Public Distribution System In India • PDS is an Indian food security system established to distribute subsidized food and non-food items to India’s poor. • Food Corporation of India, a govt. owned corporation, procures and maintains the Public Distribution System. • Both the central and state governments hold the responsibility of regulating the PDS. • While the central government is responsible for procurement, storage, transportation, and bulk allocation of food grains, state governments hold the responsibility for distributing the same to the consumers through the established network of Fair Price Shops (FPSs). • Furthermore, State governments are also responsible for operational responsibilities including allocation and identification of families below poverty line, issue of ration cards, supervision and monitoring the functioning of FPSs. • A BPL card holder should be given 35 kg of food grain and the card holder above BPL should be given 15 kg of food grain as per the norms of PDS. However, there are concerns about the efficiency of the distribution process. • The average level of consumption of PDS grains in India is only 1kg per person/month. • Often criticized for its urban bias and its failure to serve the poorer sections of the population effectively. • Today, India has the largest stock of grain in the world besides China. Government spends Rs.750 billion per year (almost 1% GDP), yet 21% population remains undernourished.
  4. 4. Facts & Figures • Worldwide around 852 million people are chronically hunger due to extreme poverty, while about 2 million people lack food security intermittently due to varying degrees of poverty. • Six million children die of hunger every year. 17000 children every day. • India is the only country that is endowed with 14 agro climatic zones which mean any crop at any time can be grown in India. • At the global level, the South Asian region is home to more chronically food insecure people than any other region in the world and India ranks 94th in the Global Hunger Index of 119 countries. Banglades h India Nepal Pakistan Sri Lanka Food Production 26924 174655 5839 24936 1938 Food Export 1.6 9490 11 2966 9.8 Food Import 2827 56 39 288 1307 Food Balance -4601 23826 57 3818 252 -20000 0 20000 40000 60000 80000 100000 120000 140000 160000 180000 200000 Food Security Scenario in South Asia Figures in thousand metric tones
  5. 5. The Challenges Faced • Leakage due to Illegal Diversion - Because of the price difference between subsidized grain and grain sold through regular marketing channels, there are powerful incentives to arbitrage and make illegal profits. • Excess Cost - All government agencies incur costs in purchase, transport, and distribution of subsidized food. Since this is an activity also done by private agents, it is useful to compare government costs with private costs to ascertain the efficiency of government interventions. • Mounting instances of the consumers receiving inferior quality food grains in ration shops. • Identification of households to be denoted status and distribution to granted PDS services has been highly irregular and diverse in various states. The recent development of Aadhar UIDAI cards has taken up the challenge of solving the problem of identification and distribution of PDS services along with Direct Cash Transfers. • Due to Inclusion & Exclusion error the genuinely poor being are excluded whilst the ineligible get several cards. Excess Cost Illegal Diversion Cost Income Transfer to Non Poor Income Transfer to Poor DECOMPOSITION OF SUBSIDY IN INDIA 0 10 20 30 40 50 60 70 80 2004 - 2005 1999 - 2000 % of Recipient who are non poor Exclusion Error % Participation Rate %
  6. 6. What Went Wrong in Implementation Fraudulent dealers replace good supplies received from the F.C.I (Food Corporation of India) with inferior stock and sell FCI stock in the black market. Illegitimate fair price shop owners have been found to create large number of fake cards to sell food grains in the open market. Commission being too low to generate moderate income. Many FPS dealers resort to malpractice, illegal diversions of commodities, hoarding and black marketing due to the minimal salary received by them. Poor supervision of FPS and lack of accountability have spurred a number of middlemen who consume a good proportion of the stock meant for the poor. There is also no clarity as to which families should be included in the BPL list and which excluded. This results in the genuinely poor being excluded whilst the ineligible get several cards. Many BPL families are not able to acquire ration cards either because they are seasonal migrant workers or because they live in unauthorized colonies.
  7. 7. Room for Improvement A Road for better Future • There will be substantial gain for FPS dealers if the cost involved in transportation of SFAs is based on actual cost in terms of tender floated by the Government. • The Department should take urgent action to rationalize the ration card position of the FPS and ensure that the present irregularity of unequal distribution of cards is reduced to the minimum. • End to end automated system in the PDS chain should be introduced to plug leakages and improve viability of the FPS. Further, recourse to E- banking is a favored option for cutting down delays in depositing money with FCI. • Incentive should be given to FPS dealers for selling other commodities in conjunction with SFAs. This will improve the viability of FPS. • Accountability should be fixed for any delay in delivery of SFAs. • The question of amalgamating Kerosene Oil Depots and FPS on the Maharashtra model and providing both the facilities to consumers through the FPS window needs to be examined to further improve the viability of FPS. • As far as the BPL category is concerned the State Government must bear the responsibility to provide door delivery of SFAs to the FPS at its own cost.
  8. 8. Integrating UID with the PDS • As per UIDAI, Implementing authentication at every exchange point using UID would enable governments to track the movement of food entitlements across the PDS chain, and identify bottlenecks and diversions in real- time. In the case of centralized procurement, such authentication would begin at the FCI warehouses through State and District FCS and to the Fair Price Shops(FPS). Stock Maintenan ce at National Level FCI State Level Stocks & Distribution Data State FPS District Level Stocks & Distribution Data District FPS Individual UID Tracking (Reaching Individuals not families) FPS UID Cards (Allotted amount of ration) Reside nt Material Flow Information Flow
  9. 9. Benefit of incorporating UID with PDS It will be a win-win situation for both UID and PDS program, sharing each others database and reaching the maximum population. Data Updating: UID data can be updated regularly with the help of changes and updating in the PDS data(which is a continuous process) and vice versa. Transparency in the system: Better Identification of individuals through UID will lead to better targeting and transparency into the PDS system. Improved Infrastructure: Integration with UID will lead to up gradation and computerization of PDS system. Better It infrastructure will help in controlling pilferages, and better management of food grain inventory. Elimination of duplicate and bogus ration cards. Expansion to other schemes –ICDS / Mid-day Meal Scheme.
  10. 10. Revolutionary Reforms in PDS – An Antidote to Corruption Proposed Usage of the UID Card as plastic money for purchasing food items. Proper Packaging with appropriate seal on them in order to avoid loose selling of food items. Spreading Awareness to buy only proper packaged food items (instead of loose ones) UID should be used to differentiate the APL. BPL & POPs in order to ensure that every person receives what he deserves. Avoidance of middle men in the PDS Chain such as “Private Storage Agent”, “Transporter” & “Millers” etc.
  11. 11. References 1. Jha and Ramaswami, How Can Food Subsidies Work Better? Answers from India and the Philippines (Asian Development Bank, 221, September 2010) 2. Justice Wadhwa Committee Report on PDS, August 2007. 3. Raghav Puri, Reforming the Public Distribution System: Lessons from Chhattisgarh, Economic & Political Weekly, 5, Vol. XLVII, February 2012. 4. Reetika Khera, Trends in Diversion of Grain from the Public Distribution System, Economic & Political Weekly, 21, Vol. XLVI, May 2011. 5. Shikha Tyagi, Innovative Management of Public Distribution System in Chhattisgarh (BJP Good Governance Cell Publication, 2011)
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