The government plans to set up a nation-wide technology back office for the Public Distribution System (PDS) system by April 2012. Ultimately, this would link 4.62 lakh fair price shops which distribute commodities worth over Rs. 30,000 crore every year to 18 crore families through an end-to-end computerised system.

On Wednesday, Finance Minister Pranab Mukherjee gave an in-principle nod to the report of a panel headed by Unique Identification Authority of India chairman Nandan Nilekani which recommended the creation of a National Information utility to be called the Public Distribution System Network (PDSN). Mr. Mukherjee has asked the Ministry of Consumer Affairs and Food and Public Distribution “to examine the report for implementation in a time bound manner and, if required, to seek the guidance of the EGoM for any remaining unresolved issues”.

The report of the Task Force on an IT Strategy for PDS has recommended a two-phase strategy: first, focus on providing information visibility in the supply chain; next, manage direct subsidy transfer leveraging the unique IDs or Aadhaar cards issued by Mr. Nilekani’s UIDAI.

The panel recommends that this strategy be carried out by the dedicated institutional mechanism of the PDSN, which would be set up as a non-profit non-government company incorporated under Sec. 25 of the Companies Act.

“The Task Force believes that a strong, robust IT infrastructure backbone is critical for reforming the functioning of the PDS,” said the report.

PDSN would be responsible for designing a complex, scalable software system for PDS operations, tracking the movement of goods, registering beneficiaries and facilitating the issuing of ration cards, and running a call centre to handle complaints. It would be designed to accept physical coupons, smartcards and electronic coupons, and also manage direct subsidy cash payments into Aadhaar-enabled bank accounts.

The PDSN would also handle back-end tasks such as business intelligence, analytics and fraud management. It would aim to check pilferage, increase efficiency and provide maximum choice to beneficiaries.

The report does not seem to contain any indication of the costs of setting up or running such a huge enterprise. A short section on finances merely says that “funding for the initial set up and operations and the revenue model for self-sustainability are critical for the start-up and operational phase of PDSN… In the long run, PDSN should have a self-financing and independent financial model.” It suggests that initial costs could be met through share issues, government grants, loans from both the government and private sector, and getting advance transaction charges from “service receivers” – that is, the States which actually run the PDS.

The report explores the existing computerisation efforts in nine States and recommends that these efforts be consolidated by the PDSN. However, the participation of the States in PDSN should be voluntary, recommends the panel. Pilot projects in States are likely to be set up by December 2012.

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