REviving PDS

8/2/2019 REviving PDS

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Public Distribution System

Social issue of Economic relevance


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The proposed National Food Security Act (NFSA) has raised some

important concerns about the future of the public distributionsystem (PDS) in India. Many have taken this opportunity to

advocate cash transfers or food coupons as a possible alternative

to the PDS by highlighting the large-scale diversion of food grains

in states such as Bihar and Uttar Pradesh.

The targeted public distribution system, intended to provide

subsidised food to poor households, is the largest welfare

programme in India, with a budget corresponding to about 1% ofthe net national product. Several studies have found the system

to be inefficient and costly in assisting the poor.

There are others who feel that a reformed PDS that extends

benefits to all households irrespective of income is essential for

ensuring food security.


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Reformed PDS System

&

Cash Transfer


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Reformed PDS System

Lessons from Chhattisgarh


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The findings from 12 randomly selected villages inMahasamund and Sarguja districts of Chhattisgarh aspart of the PDS Survey 2011. Of the 144 householdsthey interviewed, 97% had received their full

entitlement of foodgrains in the previous threemonths (March, April and May 2011) and 95%preferred the PDS to a system involving cashtransfers.


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The Raman Singh-led government that came to power in the

state in late 2003.

Turnaround of the PDS

One of the first steps taken by Chief Minister Raman Singhs

government was passing the Chhattisgarh Public Distribution

System (Control) Order, 2004, which shifted the management of

ration shops from private dealers to community-based

organisations such as gram panchayats, self-help groups (SHGs)and cooperatives.

All 12 shops were either in a PDS building or the panchayat

bhavan.

8 run by cooperatives, 3 run by gram panchayats and 1 run by a

womens SHG.

The new system had led to better accountability because those

running the shops were from the villages.


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The second step was addressing the problem of diversion of

foodgrains while they were being transported from government

godowns to PDS outlets in private trucks. To reduce leakages, the

government decided to dispense with private players and directlydeliver foodgrains to ration shops. To make this process

transparent, the government trucks engaged in doorstep

delivery of PDS foodgrains were painted yellow. This, combined

with a government order that made it mandatory for foodgrains toreach ration shops by the seventh of every month, helped plug

leaks as well as ensure the timely distribution of rations .

Third, a significant reform initiated by the state government wasthe launch of the Mukhyamantri Khadyann Sahayata Yojana (MKSY,

or the chiefministers food relief scheme) in April 2007.


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1.33 million households in Chhattisgarh that were receiving

subsidised foodgrains from the central government

MKSY added 1.9 million households who could purchase

foodgrains subsidised by the state government

Once again, the impact of this reform was evident during ourinterviews, as approximately 63% of households were receiving

subsidised foodgrains under the MKSY. This state-level initiative

helped Chhattisgarh make the transition from a targeted to a

quasi-universal PDS, one that covers approximately 80% of thestates rural population.


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While these reforms have played a pivotal role in the revival of

the PDS in Chhattisgarh, ration shop managers and gram

panchayat representatives we interviewed mentioned some

other initiatives that the state government had taken to reduceleakages and improve transparency.

These included:-

Increasing the commission paid to ration shopowners from Rs8 to Rs 30 per quintal of rice

Procuring more foodgrains from farmers in the state to

encourage them to raise outputs,

Making electronic weighing scales mandatory in all ration

shops and

Conducting verification drives to identify and cancel bogus

ration cards.


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Room for Improvement

Extension counters are vital for improving the outreach of

the PDS as some of the most vulnerable groups, such as the

so-called primitive tribal groups, often live in areas that are

not easily accessible.

As rice is the staple food in Chhattisgarh, many households

were unhappy with the 10 kg of wheat that is provided as

part of the 35 kg foodgrain entitlement and wanted it to be

replaced with rice.

Households with more than four members suggested thatfoodgrain entitlements should be based on the number of

individuals because 35 kg was not adequate for their monthly

consumption.


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The majority (95%) is in favour of an in-kind transfer of PDS foodgrains

Choose between foodgrains from the PDS and

a cash transfer to bank/post office accounts

Yes

95%

No

5%

PDS foodgrain transfer VS Cash Transfer


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Result of the actions for State Government

Some even felt that it was the

turnaround of the PDS thathad been responsible for the

Bharatiya Janata Party beingvoted back power in 2008


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Cash Transfers

Case for & Against


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The Case for Cash Transfers

The main advantages with the differentiated CT scheme suggested here arethat

(1) About two-thirds of all households can be covered

(2) The transfers to the poorest are huge compared to the actual transfers

embedded in the TPDS,

(3) The impact on income distribution is progressive,(4) The risk of large exclusion errors is eliminated,

(5) The scope for corruption and fraud is diminished,

(6) Operational costs are slashed,

(7) No poverty lines,

(8) No central caps are required,(9) Objections from the one-third of households left out

would probably be muted as they may prefer not to be brandished

as poor, and

(10) The overall budget can be held at the level of the present TPDS.


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Subsidised foodgrains means that households have the effortless and costless option

to cut down on open-market purchases of grains and use the money thus freed to

buy whatever they prefer

Process to transfer the cash to household

It is hard to believe that India, with its world-class software industry, will

not be able to find the technical solutions required for distributing cash

electronically to poor households in a CT scheme.

It is not clear how transfers of cash to the poor would allow them to buy grains

from the open market in times of steep inflation

Providing cash rather than tying the transfer to food subsidies may lead to

unwarranted consumption, such as tobacco and alcohol

A major concern with regard to cash transfers was the remoteness of banks and

markets

Several respondents told us that if the system changed to cash transfers, they would have

to make frequent trips to the bank and market whereas the PDS now provides rations in

the village itself.

The Case against Cash Transfers


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A common reason for the lack of trust in cash transfers was peoples unsatisfactory

experiences with government schemes involving direct transfers of money to

beneficiaries.

Some cited delayed payments under the MGNREGS as their reason for preferring the

PDS

A concern voiced by many respondents was that there was no guarantee that rice would

be available in the market even if they received the money on time.

Lean season, prices of foodgrains in the open market rise due to erratic supply and the

local ration shop is often the only hope for many.

What bothered most respondents was the thought of giving up the food security offered

by the PDS for unpredictable cash transfers. This was particularly true of women, who

worried that they would lose control over household budgets because it would be men

who travel outside the village to withdraw money from the bank and buy things for the

house. Many felt that the money intended for buying food would be spent on non-food

items, particularly alcohol.


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The case for replacing subsidies with CTs has gainedground in India generally. Most notably, in the mid-

2000s, NREGA replaced a plethora of earlier work-for-

food schemes with cash for work.

The GOI has announced that subsidies for fertiliser and

kerosene will be replaced by CTs (Kapur 2011).

State governments in Delhi, Haryana and Uttar Pradeshhave submitted proposals for substituting food

subsidies with cash transfers on a pilot basis.

Cash Transfers in India to Date


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Concluding Remarks and Caveats

Providing unconditional cash to poor households will lead toreduced labour supply.

Higher incomes of the poor will increase demand for food and

hike up food prices

The net effect in the Indian context would not be possible as nocomprehensive CT scheme exists.

The only solution to the long-term poverty problem is that the

labour productivity of the working poor increases.

A switch from the TPDS to a targeted and differentiated all-

India CT scheme, based on biometric UID cards, cannot take

place before these have been issued to all households, or to the

great majority. This will take time, perhaps several years,


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Cash Transfer in Urban areas

Think about itits impact on urbanslum

REviving PDS

Documents

Transcript of REviving PDS