A committee appointed by the Supreme Court did not pull any punches when it lashed out at corruption in the public distribution system, or PDS, through which the poor get subsidized food and fuel from ration shops. The committee said on Tuesday that the system had been hijacked by a “vicious cartel of bureaucrats, fair price shop owners and middlemen”. It also called for a radical overhaul of the food subsidy regime rather than the usual band-aid solutions.
This report comes at a time when a new food security law is on the cards, to provide every poor family 25kg of rice or wheat at a subsidized price of Rs3 per kg. It is likely that these entitlements will be administered through the existing network of ration shops and are thus very likely to be misused. The issue is not one of morality but of economic incentives.
Illustration: Jayachandran / Mint
The current system is an open invitation for corruption. The ration shop owner gets subsidized grain from the government while open market prices are much higher. The arbitrage opportunity is too juicy for a rational individual to ignore. The ration shop owner is very likely to sell PDS grain in the open market at a profit and add sawdust to what he gives the poor against their ration cards. Consumers who depend on this system cannot vote with their feet since they have to compulsorily buy grain from a designated ration shop near their home. The net result is that a lot of food is sucked out of the PDS while the poor end up consuming adulterated stuff.
It is time the basic process by which the government gives subsidized food to the poor is overhauled. The two most obvious options are direct cash transfers to poor families or providing them with food vouchers that they can redeem at any retail outlet. The advantage of both options is that it gives poor families the basics of consumer choice: decide what to buy and where to buy. Food security will then be based on a system that builds on the strengths of a market process.
The PDS framework has played a part in protecting the incomes of the poor from inflation, even though this has meant a rising food subsidy bill. But it is time that newer alternatives such as food vouchers and cash transfers are brought into play, in tandem with better targeting of such subsidies with the help of the ambitious unique identification project that is being led by Nandan Nilekani.
Is it time to replace the PDS? What are the options? Tell us at firstname.lastname@example.org