The devil is in the delivery

The devil is in the delivery
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First Published: Mon, Jul 23 2007. 12 15 AM IST
Updated: Mon, Jul 23 2007. 12 15 AM IST
Following a public interest litigation in the Supreme Court about the functioning of the public distribution system (PDS), the court had appointed an expert to submit a report on the PDS. This, as well as the recent NSSO survey report, have been in the media in the last week. What we now know is that less than half of rural households have ration cards, and only a small proportion of those going to the fair price shops actually get what the government promises. In fact, BPL cards are held by only 26.5% of rural households and 10.5% of urban households. In all, a fairly dismal report on the administration, implementation and effectiveness of the PDS. It is an indictment on the inability of public institutions to deliver, even after 60 years, basic entitlements to the needy.
The stated objectives of the PDS have been numerous and, in some cases, even conflicting. There have been several policy changes, both at the Central and state levels. These changes relate to procurement, movement, storage and distribution of food grains, as well as administration of food subsidies, and inter-state trade and commerce in, and supply and distribution of, a host of commodities such as sugar, edible oils, vanaspati and even oil cakes and fats. In these, the focus on the consumer has been fairly ad hoc, veering only from targeted distribution to universal PDS.
The present consensus is that the prime objective of the PDS is the provision of food security at subsidized prices for the poor. Till their purchasing power is high enough to purchase foodgrains at market prices, the PDS would continue as a responsibility of the Union and the state governments. Meanwhile, a high-powered committee appointed by the government has concluded that as the targeted PDS has been a failure, a universal PDS should be introduced. At the same time, recent reports suggest that the government plans to increase the prices of PDS goods for APL families, in order to reduce the subsidy burden, a measure that would go against the arguments for a universal PDS.
A recent study of the PDS in Tamil Nadu, while recognizing the successes in implementation, points to the weaknesses in the system. It reports that around 4 million bogus cards circulate along with around 15 million genuine cards, and that the system is sustained by politicians, bureaucrats, rice millers and smugglers. Since the genuine cardholder gets his supplies regularly, he doesn’t squeal. Supplies from the bogus card are sold in the market, and the spoils are shared among different categories. As a result, the food subsidy bill of Tamil Nadu has grown from Rs1,000 crore in 2000 to Rs2,000 crore today. Thus, the cost of effective delivery is the bogus card—in short, institutionalized corruption. That this is the position in the state that ranks number one in the PDS is a reflection on the condition in other states.
There are obviously two aspects to the PDS—procurement and supply of foodgrains and delivery to users. That we have not been able to get either right is evident. On the delivery side, the debate between government shops, cooperatives and the private sector continues. West Bengal surprisingly uses only private shops, while Tamil Nadu uses only government shops or cooperatives. More important is the debate on entitlement, whether it should be universal or targeted. Many academics have recommended food stamps to reduce the costs of the PDS and to minimize the irregularities in the system. These stamps would be issued to families at regular intervals, with the entitlement being measured in quantitative terms. These would be redeemable at private shops, which can get reimbursed by the government. The system would reduce administrative costs as well as the need to procure, store and distribute foodgrains. It would give flexibility to individuals both in terms of timing and location of purchase. As a targeting mechanism, however, it does not do away with the need to identify and register beneficiaries. Apart from the obvious risk of counterfeiting, the huge bureaucracy of reimbursement and the problem of fixing the rates of reimbursement (monthly average, or the latest prices) would still remain.
It is difficult to imagine that a universal PDS can be delivered without a substantial increase in the capability of public institutions. The procurement of foodgrains would then have to be the total production, and the management of quality, logistics and distribution is likely to place a very heavy burden on the exchequer. One is not certain that the public authorities, as calculated on theoretical basis, can even procure the required amounts. Yet, there can be no denying that the PDS, as a measure of food and livelihood security, should continue to be a responsibility of the state. Perhaps the only alternative is the Tamil Nadu model—allow adequate corruption to ensure that the average cardholder gets his entitlement!
S. Narayan is a former finance secretary and economic adviser to the Prime Minister. Comments are welcome at policytrack@livemint.com
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First Published: Mon, Jul 23 2007. 12 15 AM IST