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Opinion » Lead

Updated: September 5, 2012 00:30 IST

A Bill that asks too much of the poor

    Jean Drèze
    Reetika Khera
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Instead of rigid targeting, the government must build on the success of the public distribution system which is quietly becoming a significant means of social support

In earlier writings, we have drawn attention to the quiet revival of the public distribution system (PDS) in many States during the last few years. Market prices of PDS commodities — mainly rice and wheat — have sharply increased, giving people a much greater stake in the system. In response to this, or for other reasons, many States have initiated bold PDS reforms. The combination of increased public pressure and greater political commitment to the PDS has led to significant results, including more regular distribution and reduced leakages.

Inclusive PDS

Many States have also moved towards a more inclusive PDS. Restricting the PDS to “below poverty line” (BPL) households has proved very problematic: there is no reliable way of identifying BPL households, exclusion errors are massive, and targeting is also very divisive. There is, therefore, growing pressure for a different approach, where the PDS covers a large majority of the population. Tamil Nadu has gone all the way to a universal PDS: every household there is entitled to 20 kg of rice every month, that too free of cost. Other States that have made significant moves towards a universal or near-universal PDS (at least in rural areas) include Andhra Pradesh, Chhattisgarh, Himachal Pradesh, Kerala, Orissa, and Rajasthan. This approach has helped to not only avoid exclusion errors but also ensure that the PDS works: a more inclusive PDS is under much greater pressure to function.

In some States such as Orissa and Rajasthan, these changes are very recent. In others, notably Chhattisgarh and, of course, Tamil Nadu, they were initiated several years ago. The National Sample Survey (NSS) data for 2009-10 provide a useful opportunity to look for early signs of the results.

One interesting development is a major increase in PDS purchases: between 2004-5 (the previous “thick round” of the NSS) and 2009-10, household purchases of wheat and rice from the PDS increased by 50 per cent in quantity terms. The proportion of households purchasing at least some rice or wheat from the PDS increased from 27 per cent in 2004-5 to 45 per cent in 2009-10. This quantitative expansion is one important aspect of the recent revival of the PDS in large parts of India.

Further, in value terms, PDS entitlements are now quite substantial in many States. The implicit income subsidy from the PDS can be calculated as the difference between PDS price and market price, multiplied by quantity purchased, and summed over wheat and rice. There are different ways of estimating this, since there is more than one way of identifying the relevant market price. Using the median market price, State-wise, as a benchmark, the average implicit subsidy (for rural households that purchased at least some grain from the PDS) was around Rs 250 per month in 2009-10. Over the year, this is equivalent to the earnings of a whole month’s work under the Mahatma Gandhi National Rural Employment Guarantee Act — without having to work. In absolute terms, it is not much, but for people who are constantly struggling to make ends meet, it does help. The implicit subsidy would be larger, of course, if the PDS worked well across the country.

Impact on poverty

Based on these implicit subsidy calculations, it is possible to estimate the impact of PDS on rural poverty — by adding the implicit subsidy to the explicit NSS estimate of Monthly Per Capita Expenditure (MPCE) for each sample household. To illustrate, consider the following exercise. Suppose we define the “Tendulkar poverty gap” as the sum, over all rural households below the national Tendulkar poverty line, of the difference between that line and a household’s actual MPCE. How far does the PDS reduce the Tendulkar poverty gap? In other words, how much smaller is the poverty gap (in rural areas) when the implicit PDS subsidy is added to the standard components of MPCE?

Using NSS data for 2009-10, it turns out that the PDS (more precisely, the foodgrain component of the PDS) reduces the Tendulkar poverty gap by around 18 per cent at the national level. This is a moderate achievement, but what is more interesting than the national average is the contrast between States. In Tamil Nadu, the PDS reduces the Tendulkar poverty gap by more than 50 per cent. Other States where the PDS has a large impact on rural poverty include Chhattisgarh and Andhra Pradesh (about 40 per cent), and also Himachal Pradesh and Kerala (around 35 per cent). By contrast, the poverty impact is below 15 per cent in Bihar, Jharkhand, Madhya Pradesh, Punjab, Rajasthan, Uttar Pradesh and West Bengal. As it happens, all the States in the high-impact list have a relatively inclusive PDS, whereas all those in the low-impact list were still clinging to BPL targeting at that time (Rajasthan did expand the coverage of the PDS after 2009-10, with impressive results). In short, a more inclusive approach seems to give better results not only in terms of the general functioning of the PDS, but also in terms of its impact on poverty.

These figures are illustrative, since (as mentioned earlier) there are various ways of going about these calculations. All of them, however, point to the same basic conclusion: the PDS is now having a substantial impact on rural poverty in States where it is broad-based.

So far, we have looked at PDS as an implicit income transfer. Aside from “transfer benefits,” the PDS is likely to have important “stabilisation benefits”, insofar as it brings some security in people’s lives. It is a little bit like having an additional source of income, and a stable one too; this can be very important for those who depend on a single and meagre source of income (such as casual labour) for their survival. The PDS may also have a positive impact on food consumption patterns (e.g. by enabling households to spend more on nutritious food items), although this is somewhat speculative. More likely, the PDS will start having a significant impact on nutrition when commodities other than rice and wheat (e.g. pulses, oil, and millets), with a higher nutrition value, are included in it. This has already happened in some States such as Tamil Nadu (where a wide range of food commodities are included in the PDS), Andhra Pradesh and Himachal Pradesh. The provision of nutritious foods that are badly lacking in the diets of poor households is an important future possibility for the PDS.

Food Security Bill

These findings have an important bearing on the National Food Security Bill. The Bill is a great opportunity to complete the transition towards a functional and inclusive PDS across the country, and put an end to food insecurity. In its present form, however, the Bill is likely to undermine instead of facilitating this transition. This is because it seeks to impose a rigid targeting formula, based on a complicated division of the population into three groups (priority, general and excluded), without any clarity on how each group is to be identified. Given the failure of numerous expert committees and advisory groups to come up with any reliable targeting method, the idea of a universal PDS (at least in rural areas) looks more sensible than ever.

Various proposals have also been made for an intermediate approach, whereby all households would have common minimum entitlements except possibly those who meet reasonable and well-specified “exclusion criteria”. However, the government is turning these proposals into a reductionist version of the Bill, which would amount to little more than a reshuffling of existing PDS allocations, without any justiciable entitlements being created for anyone. Further, under the abominable formula proposed by the Food Ministry, whereby — roughly speaking — 33 per cent of the population would be excluded from PDS across the board (in every State, in rural as well as urban areas), the reshuffling would favour the richer States at the expense of the poorer States. Punjab and Haryana would be the biggest gainers, while Orissa stays in place — this makes no sense, and defeats the purpose of the Bill.

These and other flaws of the Bill (including a gradual trimming of many entitlements) derive partly from misplaced fears about the foodgrain requirements. Meanwhile, procurement has crossed 70 million tonnes per year, distribution is not keeping up, and excess stocks are growing. Never in history has so much undernutrition co-existed with so much hoarding of food. The government is desperately trying to export the surplus stocks, or simply allowing them to pile up unprotected. Reviving and revamping the Food Security Bill sounds like a better idea.

(The authors are development economists affiliated with Allahabad University and the Indian Institute of Technology (Delhi), respectively.)

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Govt of India (If it really wants to) please do a back-ground check of
the PDS distributor's economic growth when they joined as employees and
after so many years, how STRONG are they. Are their only means of
Income is Govt salary. How much money they have now. There are
irregularities with many govt employees; but only these people are the
SOLE Source for the POOR Citizens of India. They act as if they are
giving it from their pocket, almost ALL, except maybe little. Prove me
wrong, I will give my life....

from:  Kannan
Posted on: Sep 6, 2012 at 23:50 IST

Arunachal Pradesh is also suffering from PDS Scam.Long list of names who
were involved in the scam was announced in the local dailies but no
action has taken by the Govt in this regard. A vigilant team from the
Central Govt is required to check the scam in the North-Eastern States.

from:  Binta Picha
Posted on: Sep 6, 2012 at 23:22 IST

i am of the openion that giving free rice thro" PDS to all card holders only have resulted in skewed market prices and middlemen make huge money by way of diversion and smuggling! Tamilnadu have 98% of the card holders eligible for free rice!do you believe that they can not afford rs,800 per month towards expenditure on rice!except around 20% all others can afford! they spend rs2000 [40%population]}on drinks!!?an estimate says around 15oocrores per annum out of subsidy is profited by middlemen and smugglers!reason, 50% of card holders do not draw this rice from ration which is diverted to rice mills for polishing and selling in blackmarket!if there is mind there is way!GOVT,, can find out who are needy from thier way of living during so many door to door survey and eliminate them ,but do not do it obviously for vote catcing!there are 2% like me who have volunteerly taken cards without eligibilty for rice!so think twice!

from:  gknatarajan
Posted on: Sep 6, 2012 at 21:12 IST

First let the government weedout those above poverty line -- crorepathis in the white ration card holders --. For the past several years we are telling this but unfortunately PDS is in the hands of pliticians is unwilling to such action. Few hours back one TV channel presented how PDS rice in Andhra Pradesh sold at Rs. 1 per kg is recycled and sold in the neighbouring Karnataka and Maharashtra states by bordering Telangana districts. All most all groups of bureaucracy joined hands with these unscrupulous group of blackmarketeers and minting hundreds and thousands of crores of rupees. It is right time government encourage giving locally grown food items instead of rice and wheat, in fact the food security bill envisages this. We all talk of on defining BPL but never talk of crorepathis getting white ration cards and thus all subsidized benefits including reservations. It is most unfortunate!!!

Dr. S. Jeevananda Reddy

from:  Dr. S. Jeevananda Reddy
Posted on: Sep 6, 2012 at 11:48 IST

Thanks to Dreze and Kher. In your inclusive analysis,you have excluded realty things. In its present scenario, expansion of PDS is a futile exercise. PDS system confronted with 40 percent leakages. Though PDS has benefited the poor by getting additional income, but in reality the middle men benefited more than poor.

I have seen a village in AP, where all distributed PDS commodities are purchased by middle men at a price lower than market price from the poor. Then how a broad based PDS will really benefit the poor in the present scenario ?

from:  ratan kumar
Posted on: Sep 6, 2012 at 08:49 IST

In Kerala every house hold has a ration card issued by the District Supply Officer indicating
name of household,address and details on members and family income.Every ward has a
Ration shop to which the ration card is attached.On production of card food grains,keresin
oil,pulses and in a few seasons even spices were distributed on very subsidized rate.House
holds with LPG connection are not served keresine.The quality of rice and wheat distributed
through ration shops were inferior and later improved to a reasonable extent.The main
constraints were demand for higher commission to ration dealers,storage during monsoon
season,transport from FCI godown to ration shops and use of ration cards as pledge for
loans from private money lenders.Despite the shortfalls,the system works well.A lot of
people are employed in the PDS channel.Many women own the ration shops.It is only to
remove the weakness reported rather than kill a good system time tested.ICT can be used
in Ration shops.

from:  Dr K V Peter
Posted on: Sep 6, 2012 at 08:44 IST

I would like to clarify Rajesh on the point that market forces should be allowed to enter the market and people should not be dependent on govt for food.Quoting Geffrey Sachs "The end of poverty" a point is emphasised here that the poor of the world are in a state of depression and spend more on entertainment measures like TV and on festival than on food and one of the reasons of their malnutrition,and hence gets trapped in vicious poverty cycle.PDS is a strong measure ensuring the health of the poor.

from:  sudeep raj
Posted on: Sep 6, 2012 at 08:29 IST

There is no doubt that PDS is a good idea for a poor country like India but it is poorly mamaged in all states. Politicians allow ration cards tobe issued to ineligible sections thereby there are gross leakages in addition to politician tranfer the subidised rice to openmarket to make more money as has happened in states like AP. Technology like Adhar card should be used to minimise the abuse of the system. But removing subsidies is foreign concept and not be resorted to.

from:  MVJRao
Posted on: Sep 5, 2012 at 20:46 IST

one more point should be remarkable in this pds context that recently
rajasthan govt has tested pds system through e governance which gave
better result with more viability which should be appreciated through
aadhar .even govt can distribute food grain which buttered in godavams
.that grain may be useful for grass root level .some reforms should be
form of food storage level

from:  satyaveer
Posted on: Sep 5, 2012 at 15:31 IST

Free market will succeed only in a ethical society. Even in PDS, they're illegally selling the commodities. How can this be a ethical society?. In a country where hoarding is common, facilities like PDS are needed. Govt participation is necessary to eliminate monopoly and exhorbitant pricing of necessary commodities.

from:  senthil
Posted on: Sep 5, 2012 at 14:32 IST

Undoubtedly PDS has big role in curbing poverty.Many economists now suggesting to government that PDS reform is necessary step before giving food entitlement to large section of the society under food security bill.In this context prof. Dreze and Khera article give a brief insight to we and government too.PDS have many error like exclusion and inclusion,Are food basket limited to only wheat and rice,Are PDS should be universal in nature?Prof. Dreze statement that PDS should be universal at least in rural areas is a welcomed view.

Very much thanks to "THE HINDU" that published and burning the hope of light for the poor.

from:  Amit Bhushan Dwivedi
Posted on: Sep 5, 2012 at 13:34 IST

India, since green revolution, production of food grains has reached more than what we required for feeding the entire country. but unfortunately we also saw a parallel increase in the population crying out of hunger,malnourished children and so on.why this mismatch persisting in the country? is it because of wrong policy direction or because of inefficiency and ineffectiveness in the administration of policy.PDS as a policy stance to ensure food security to all, more particularly to poor had been experiencing mixed outcomes. it is sure that, at inter-state analysis states which have universal or near universal PDS yielding good results.if this is the case in reality why GOI drafted FOOD SECURITY BILL in line with PDS and giving much importance to the division criteria.

from:  aneel.sb
Posted on: Sep 5, 2012 at 13:19 IST

The criteria for the PDS is only justifiable if the calculation is made
with equal distribution throughout the nation.The calorie consumption
based criteria as suggested by the committees is not applicable when the distribution of PDS commodities is not unanimous in all states.This is a
big mean of public support if done in a proper a pervasively
manner.Other wise we will left with some disappointing figures in the
end.

from:  Mayank Kanga
Posted on: Sep 5, 2012 at 10:58 IST

A very useful method to fight various social problems can be derived by PDS. It can help a lot in providing food to the poor and can provide a solution for government to use foodgrains they are unable to protect due to lack of storage facility (special to FCI). also PDS should provide measures to check that people who are getting free foodgrains are sending their children to school which can ultimately help in solving problems of illiteracy and child labour. Govt should also try to provide more information on better management of PDS from one state to other.

from:  RAMAKANT SHARMA
Posted on: Sep 5, 2012 at 10:09 IST

I have a doubt. Having a broad-based inclusive PDS effectively means
that the government is greatly increasing food subsidy, because the food
now needs to be given to a majority of the population.

But how is that possible when the government is already in deficit ?
Government always laments that it is lacking funds for development, then
how will it be able to increase the subsidies ?

from:  gshah
Posted on: Sep 5, 2012 at 09:43 IST

One of the major reason for failure of PDS is because of the purchase
quantity offered at one time.
The earnings of poor family is sufficient just to meet their
requirement of one day. If PDS give them 20 kg of rice bundled with
other grains on one day, can they buy it with the money available with
them, even if they want to???
The operation of PDS shops has to shift from monthly basis to daily
basis in line with normal Kirana shop. Only than the performance and
impact will improve.

from:  Rajesh Kumar
Posted on: Sep 5, 2012 at 09:34 IST

Did the authors ever tried to learn or understood why the soviet union
failed. The soviet union failed because the politburo was unable to
fix the price of a loaf of bread. It didn't matter what price they
fixed because they didn't had enough bread to feed the people. The
soviet union disintegrated when the people started to die of hunger
(especially the children). We should not expand the PDS and we should
try to dismantle it.We should unleash the market forces in the
agriculture sector as well.It is the free market which is the best
supplier of all goods and services at the minimum price possible(ex
computers) . We don't want to teach the people to be dependent upon
the govt for their food or any other things, we want them to stand on
thier own and then we will build a stronger india. We have
malnutrition in our country not because the prices of food are higher
but because the we don't produce enough of it. Even if we produce
enough untill we get the govt out of it, we won't succeed.

from:  Satish
Posted on: Sep 5, 2012 at 09:03 IST
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