Financial Daily
from THE HINDU group of publications

Monday, August 13, 2001



Opinion | Next

PDS and India's food security

M. G. Devasahayam

IF WE care about true food security, an efficient and effective mechanism to reach food to all people at all times at affordable prices is an essential prerequisite. This is also crucial to alleviate poverty.

In the context of national food security and poverty alleviation, it is essential to take a look at the ``efficiency and efficacy'' of the public distribution system (PDS), which has been operating as the food access mechanism for several decades. Propon ents of the rationing system and its successor, the PDS, claim that these two measures have played an important role in ensuring higher levels of household food security and ``completely eliminating the threat of famines''.

It was the compulsions at the time of World War II that forced the then British Government to introduce the first structured public distribution of cereals in India through the rationing system -- sale of a fixed quantity of ration (rice or wheat) to ent itled families (ration cardholders) in specified cities/towns. The Department of Food, under the Government of India, was created in 1942 to co-ordinate this arrangement. When the War ended, India, like many other countries, abolished the rationing syste m in 1943.

In the face of renewed inflationary pressures in the economy immediately after Independence, the Government had to reintroduce rationing in 1950. India retained public distribution of foodgrains as a deliberate social policy, when it embarked on the path of planned economic development in 1951. In the First Plan, the system, which was essentially urban-based till then, was extended to all such rural areas which suffered from chronic food shortages. Towards the end of the First Plan (1956), rationing had started losing its relevance due to comfortable foodgrains availability.

However, true to its cyclic nature, food production dropped in 1958, when the Second Plan had just commenced. This forced the Government to restart the procurement of foodgrain and cereals and impose control on trading of foodgrains. It also decided to r e-introduce PDS.

The creation of the Food Corporation of India and the Agricultural Prices Commission in 1965 consolidated the position of the PDS. The Government was now committed to announce a minimum support price for wheat and paddy and procure quantities that could not fetch even such minimum prices in the market. Foodgrains thus procured were to be used to maintain distribution through the PDS with a portion used to create and maintain buffer stocks. PDS was sustained as a deliberate social policy of the Governmen t with the objectives of:

* Providing foodgrains and other essential items to vulnerable sections of society at reasonable (subsidised) prices;

* Having a moderating influence on the open market prices of cereals, the distribution of which constitutes a fairly big share of the total marketable surplus; and

* ensuring equity in the matter of distribution of essential commodities;

In short, PDS, from mere rationing, had evolved into the National Food Security System.

Ministry-level evaluation of PDS

Though PDS has become the nation's food security system, functioning for more than four decades now, there has been no dispassionate review of the system with reference to food security and poverty alleviation. Nevertheless, a ``Ministry-level evaluation '' of PDS carried out in 1991 had brought out the ``merits and demerits'' of the system as it has been operating. The greatest achievement of PDS was claimed to be ``preventing any more famines in India''. Overcoming the 1987 drought, considered the wors t in the century, with dignity and effectiveness has been seen as the PDS's biggest success.

However, the evaluation pointed out several shortcomings in the functioning of PDS. These include the urban and pro-rich bias of the system and its ineffectiveness in reaching the poor; the lack of effective contribution towards household food security; PDS is not cost-effective and its operations are too costly due to `wasteful' movements of grain and high storage losses. Another valid deficiency was its marginal impact, as far as income transfer to poor households is concerned.

Despite such flaws in the PDS, official circles adopted the typical insensitive approach and declared that, ``the system has, however, come to stay, notwithstanding its shortcomings, because millions of India's poor derive direct or indirect benefits fro m the very existence of this system''. All they suggested was some tinkering.

Tinkering with PDS

These changes were made in 1991-92 through a crash programme designated ``Revamped PDS'' (RPDS), with components such as opening of several new Fair Price Shops (FPS) to improve physical access of beneficiaries; mounting of special campaigns by the State governments to cancel the bogus entitlement cards and to issue new cards to households found to be without them; progressively bringing more and more FPS under the system doorstep delivery of PDS commodities; setting up vigilance committees of local peo ple with substantial representation of women for each FPS at the village and higher levels; improving the supply chain by constructing or hiring small intermediary godowns; and introducing additional commodities through FPS, in these areas.

PDS has not provided food security

RPDS, nevertheless, was only a temporary reprieve. It could not reform a system that had grown so enormous and bureaucratic. The ultimate solution was to reform the PDS by changing its universal character and targeting it to the really poor and deserving . Accordingly, a Targeted Public Distribution System (TPDS) to directly and effectively benefit those Below the Poverty Line (BPL) was set in motion in June, 1997. Under this programme:

a) BPL families, as estimated by an expert group set up by the Planning Commission, were to get an assured supply of 10 kg of foodgrains a month. The rate fixed for this quantity was Rs 2.50 per kg for wheat and Rs 3.50 per kg for rice. This marked a red uction of the issue price by Rs 1.52 for wheat and Rs 1.87 for rice from the existing levels; and

b) APL families were to get only that part of the allocation to each State, decided on a new formula, after meeting the assured supplies to the BPL families. The quantity to be allocated to each State was fixed at its average offtake between 1985-86 and 1995-96.

This new system was lauded on two counts:

(i) With the introduction of the TPDS, for the first time, an attempt was made to target the really poor and provide them an assured supply of foodgrains; and

(ii) The price at which the foodgrains were supplied to the BPL families was within the affordable range of the really poor.

But an informal evaluation carried out by two officials of the Agricultural Prices Commission (The Hindu Business Line) reveal that these reforms have not worked and there are several lacunae and shortcomings in the TPDS. First, the quota of 10 kg of foo dgrains per month per family, irrespective of the household size, was grossly inadequate and meagre in proportion to the quantity required for consumption.

Rice being the staple food of this area and given the family size and per capita consumption, the household requirement in this region was 70-80 kg per month. By slashing the ration scale drastically to 10 kg per family per month, the TPDS not only nulli fied the reduced issue price but also forced the poor to buy the rest of their cereal requirements from the open market at a much higher price. This negated the fundamental principle of food access and security.

Second, the identification of the BPL families was itself based on questionable grounds. To take delivery of the BPL quota, the State governments had first to match the number of BPL families in their States with that estimated by the expert group of the Planning Commission. Most State governments found that the number of BPL families in their States was higher than the expert group's estimate, while some states, such as Haryana, found it less. But in a dynamic economy, a family categorised as BPL one d ay can become APL the next, and vice-versa.

At the behest of the World Bank, concerned with the efficacy of India's PDS as a safety net for the poor in the context of the ongoing economic reforms, a comprehensive study was undertaken recently by a team of researchers. The summary of their findings are:

* PDS in India is the oldest and one of the most comprehensive anti-poverty programmes in terms of budgetary expenditure of the Central and State governments. From the mid-1960s, it has evolved into a price support, rationing and subsidy programme.

* Although the food situation in the country has undergone drastic changes, from recurring scarcity to a food surplus situation today, the PDS is continuing more or less unchanged.

* There is a serious regional mistargeting of PDS. That is, in Kerala and Andhra Pradesh, where the level of poverty is substantially low, the offtake from PDS is better, whereas in Orissa and Madhya Pradesh, where the level of poverty is substantially h igh, the offtake is poor, thereby confirming the widely held view that there is limited access of the poor to India's PDS.

* The cost of PDS operation is too high. A rupee of income transfer through food and non-food items sold through PDS involves a fiscal cost of Rs 4.27 to the government, making the scheme grossly unsustainable.

* Welfare gain from PDS is negligible. On per capita terms, it works out to Rs 2.01 per month in rural areas and Rs 3.40 per month in urban areas. For the country as a whole, the reduction in poverty due to PDS is hardly two percentage points of the pove rty ratio.

Based on these findings, the study made three major recommendations:

* The PDS should be disbanded. The ration shops may be converted into normal grain retail outlets like other private retail shops;

* Government control on the foodgrains market should be phased out. The Food Corporation of India (FCI), which undertakes procurement stock-keeping and allocations to State governments, should stop all these activities. However, it may be assigned a mini mal role of purchasing foodgrains from the open market in competition with the private trade for the purpose of price stabilisation through open market releases;

* The subsidy saved due to the phasing out of FCI and PDS may be utilised for distributing food stamps to the poor, linking it with the existing rural development schemes.

These are similar to the conclusions of the Report of the High Power Committee on Agricultural Policies and Programmes submitted to the Government in 1990. Obviously, this report was not available to the researchers.

According to recent estimates, approximately 36 per cent of the population lived below the poverty line. This means their income is not sufficient to buy enough food. About 80 per cent of these poor people live in the rural areas. The Government and most State governments have formulated and implemented various schemes to alleviate poverty and improve the social security of these deprived people. These schemes aim to enhance self-employment, generate wage employment or transfer income to the poor.

PDS, which is the largest among these schemes, is a massive food-rationing programme meant to reduce food insecurity and improve the welfare of the poor. On this programme, the 1998-99 Budget allocation was Rs 9,000 crore. By January 1999, the actual exp enditure was around Rs 10,500 crore, compelling the Government to announce a price hike on commodities supplied to BPL consumers, thereby nullifying the cardinal principle of food security and poverty alleviation.

Despite such a huge cost to the exchequer and burden to the taxpayer, PDS and, by extension, the FCI, have not achieved any of the primary requirements of food security and poverty alleviation.

None of the assumptions made by mandarins while formulating policies for food security -- that targeting will help reduce the food subsidy Bill; that all the poor in the poor States will benefit if foodgrain allocation to these States is increased and fo odgrains become cheaper; that the delivery system is able to cope with targeting and it is possible to ensure a proper selection of beneficiaries -- have come true. This is primarily because of the vast chasm that exists between policy formulation and im plementation.

Food policies are shaped by Central politicians and senior civil servants who are not well aware of the practical and political difficulties at the local level resulting from their policies. Unless the present moth-eaten administrative system is drastica lly overhauled, this malady will continue, accelerating the socio-economic convulsions.

So, what is the alternative? Given the liberalised atmosphere and comfortable foodgrain situation, it is better to rely on the personal involvement of the stakeholders, who are the producers, and the open market mechanism that influences the consumption for India's food security. At the same time, the farmer and the consumer need to be protected against the vagaries of production and the market forces to enhance agricultural productivity and ensure fair prices. This can be done by vesting effective inte rventionary powers in the hands of the Government in times of need to protect the interests of producers or consumers.

The delivery system would also be efficient since it has to be competitive and competent. The huge saving thus accruing to the Government could be utilised to step up public investments in rural and urban infrastructure and services, thereby generating e mployment and income opportunities -- both directly and indirectly. For the genuinely needy, `food vouchers/stamps' could be supplied through the Panchayat Raj or local government machinery that could be strengthened and empowered for the purpose.

Related links:
An alternative food security system
FCI: De(stabilising) food security?

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