The Public Distribution System in India: Counting

the poor from making the poor count

Ahmed Tritah∗
GREMAQ, Université des Sciences Sociales, Toulouse, France

July 7, 2003

Abstract
This paper investigates the effect of food subsidies on food security
and poverty in India. Using propensity score matching methods I found
that while the PDS has a poor record on reaching the poor, conditional
on having access to PDS, the subsidy is entirely consumed. Moreover
I found that food subsidies going through the PDS exert a multiplier
effect on quantity consumed. This findings point to a reevaluation
of the impact of PDS with respect to its main objective which is food
security. I propose a new poverty measure, integrating the food content
of poverty lines and shows that relative to this poverty line PDS has
benefited the poor.

∗
I thank the World Bank Economic Development Research Group, for its hospitality
during the winter 2003 and for providing me with the data, and in particular Klaus
Deininger and Dina Umali Deininger from South Asia Rural Development Sector, for
giving me the opportunity to undertake this research. The usual disclaimer apply.

1
1 Introduction

Over the past decade a series of events in India have brought the question
of food security into sharp focus (UNDP 1999). According to the Food and
Agricultural Organization , India alone accounts for over 400 million poor
and hungry people. For a nation long inured to scarcity and starvation the
problem is ironic: it is the one of plenty. Why in a food surplus nation where
buffer stock are three time what is required for food security, thousands
still die of malnutrition and hunger? While the objective of food security
has been reached, the fundamental individual right for food has not. The
purpose of the present research is to evaluate the impact of the Indian Public
Distribution System (PDS) on poverty and food security. The results are of
immediate policy interest with respect to the current debate and re-shaping
of the Indian Public Distribution System.
Of all the safety net operations that exist in India, the most fare reaching
in terms of coverage as well as public expenditure on subsidy is the PDS.
PDS provides rationed amounts of basic food items (rice, wheat, sugar, ed-
ible oils) and other non food products (kerosene, coal, standard cloth) at
below market prices to consumers through a network of fair price shops dis-
seminated over the country. While measurement of poverty is a heated issue
in India (Deaton 1999, Deaton and al. 2000) to the best of my knowledge
only one study has quantitatively evaluated the extend to which PDS alle-
viate poverty (Rafhakishna and al, 1997). The PDS had been criticized for
its urban bias and its failure to serve effectively the poorer sections of the
population. As main of studies on benefit incidence of fiscal transfer, this
evaluation of PDS failed to consider the counterfactual and take the fiscal

2
transfer as the net gain accruing to the poor using PDS. My claim here is
that recent advances in program impact literature provide powerful tools
to evaluate the benefit incidence of fiscal transfer through food subsidy on
food security and poverty. The power of these method is that by controlling
for selection into the program the implicitly take into account behavioral
heterogeneity and estimate the impact net of this heterogeneity.
Since June 1997 PDS turned into the Targeted Public Distribution Sys-
tem, the aim is to target the poorest household by differentiating the access
quantities and prices at which one is allow to buy. The differentiation is
made with respect to the state official poverty lines. Those households be-
low the poverty line (BPL households) are entitled with ration card that
allows them to buy more quantity at a higher subsidized price.
The main issue of TPDS is that as any targeting program it will always
involve, albeit to different degree, problems of imperfect targeting. That is
the system is likely to include people that should be excluded and exclude
household that should be included. However targeting for food is somewhat
more problematic because it deals with contingencies that one can not per-
fectly foreseen. In particular you may not need the government aid today
but tomorrow if your income fell you will need it. Hence it is not clear
given this contingencies how one should design a system targeting to those
in need at every time. One way to do that is to introduce the concept of
self-selection. That is to say that the program is designed in such a way
that those who are not targeting have no incentive to go into the program.
This paper estimates the expenditure gains and the reduction in poverty
if any that is attributable to the TPDS. For this purpose I apply recent

3
advances in propensity score matching methods (PSM) (Rosenbaum and
Rubin, 1983; Heckman et al, 1997, 1998). These methods allow us to draw a
statistical comparison group to TPDS users from the same survey. Matching
methods have been quite widely used in evaluations. However matching on
propensity score rather than arbitrarily set of characteristics is the optimal
method and have received a renewed interest since the seminal paper of
Rosenbaum and Rubin, 1983.
A number of feature to TPDS make it suitable for PSM methods. Other
evaluation methods requires randomization or a baseline and this is not
available here since the program has a nation wide coverage1 .
TPDS has large impact in the Indian economy, what we are doing here
is a partial equilibrium analysis, I will just consider the impact of fair price
shops on poverty assuming away any general equilibrium effect on prices
and quantities due to TPDS. However one should bear in mind that Food
Corporation of India has as much as three times the necessary quantities
needed to insure food security, and no doubt that by insuring a minimum
price to producer it has impact on open market prices that can not be
evaluated without using a general equilibrium approach. Studies have show
that PDS has pushed private prices upward (Dumali and al 2001). Hence
any feasible evaluation method need to be considered as an upper bound of
the impact of PDS.
An important advantage of PSM methods here is that the are suitable to
studying the heterogeneity of program. This is of obvious interest here since
1
However I can identify a set of non TPDS users that have not used TPDS for exogenous
reasons I can get ridd of bias due to selection into the program. This potential user can
then form a control group along which the impact of the treatment is evaluated.

4
TPDS is precisely targeted toward the poor, one should observe a greater
impact among the poor than others. Identity of beneficiaries are important
for designing better policy and determine links between poverty and other
characteristics that hamper or on the contrary favor better targeting.

The following section discusses in more detailed the fiscal content of

PDS. The methods for identifing the impact on poverty and food security
of PDS are described in section 3. Section 4 present the data and primary
descriptive statistics. Section 5 gives the impact estimates on poverty and
food security? Section 6 concludes.

2 The Indian Public distribution system

2.1 The fiscal background

The rural Indian spend 64% of its budget on food. Food share is an inverse
indicator of welfare2 (e.g. Deaton 1997): it follows that food security should
be a major focus of policies concerned with well being in this society. In
terms of both coverage and public expenditure, the most important food
safety net is the Public Distribution System. Of the 200 million tones of
food grains produced in 1999-2000, about 29 million where produced by
the government under PDS, which now support the largest network of ”fair
price shops” in the world.(458499 shops in 1999). These provides rice, wheat
sugar, edible oil, soft cake and kerosene oil at subsidized prices. The PDS
is managed by state governments. The central government based on the
population state and its share of below poverty line households and above
2
The fooshare is remarkbly stable within the three first quitile of the income distribu-
tion around 75% it strated to decline at the fourth quintile...

5
poverty line households, determine the total procurement of food grains and
total allocation across states. The government also determines the Central
Issue Prices (CIP) for commodities. The state government then determines
the off-take, the public delivery, and the list of commodities provided. The
state government is allow to add to the CIP the transactions cost of keeping
the stock and of delivering. Locations of the fair price shops are determined
by the officials at the district level3 . There is enormous variation in the
density of the fair price shops as also in the regularity of supplies both across
and within states. The PDS took shape soon after the Bengal famine in 1943.
It evolves in the 1950s and 1960s as a mechanism for providing price support
to producers and at the same time as providing food subsidy for consumers.
At that time the country was threatened by national-level food shortages and
there was rapid food price inflation, especially in urban areas. By the 1980s,
India had generated a surplus of foodgrains and the incidence on poverty had
declined progressively for about 50 per cent in the 1960s to about 30 per cent
in the 1990s. As a result the welfare component of the PDS gains strength in
the 1980s , when it was considerably extended to rural and tribal blocks, with
and explicit view to reaching areas of high poverty incidence. In the context
of currency devaluation and economic reform in the 1990s, procurement and
issue prices of PDS commodities were increased leading the government to
mitigate the adverse welfare consequences by better targeting of PDS to the
poor. Until 1992, there was universal entitlement to the PDS but it has since
3
Note that this raises a problem of three level targeting. The government first target
quantities based on state poverty estimation. Then the state target the distribution of
food to the local district, which in turn target the fairprice shops and quantities to the
population. Every unit level make decision based on specific information for targeting
which is in some extent private knowledge.

6
been restructured. In 1997 it was replaced by the Targeted PDS (TPDS).in
which targeting was shifted from poor regions to poor households and the
subsidy differential between the poor and non poor was widened. More
specifically, 10kg of foodgrains were available at a highly subsidized price
per family per month for families below the poverty line. Those classify as
non poor get no subsidy though they are served by fair price shops, which
can play a useful distributional function in areas where private shops have
not emerged. The problem of crowding out effect may exist if the poor are
credit constraint and if they rich are not. When asked the main reason why
people have not used fair price shops is that because the commodities were
not available in sufficient quantity or quality.

2.2 The evaluation problem

India is embarked on a program of economic reforms in 1991 with the ob-

jective of achieving macroeconomic stabilization and structural adjustment,
the latter being closely tied to getting prices right. Both processes encour-
age government expenditure reduction and the removal of subsidies. In this
context the PDS has commended considerable attention. It has been argued
that it is an obsolescent and fiscally unsustainable institution.(e.g. Umali
Deininger and Deininger 2001, World Bank 1998b). These authors have
also argues that the PDS has a poor record on reaching the poor. Hence the
move towards slimming the system and targeting the subsidy at the poor.
This was done in June 1997, moving through a universal public distribution
system toward a targeted public distribution system. There is still a debate
on whether the PDS should be phase out and replaced with more effective
instruments for reaching the poor. While the cost effectiveness of the sys-

7
tem has been put in scrutiny, we still lack a program evaluation impact of
TPDS. For that we need to investigate the benefit incidence of TPDS that
is (1) access of poor to foodgrains at subsidized price and (2) conditional
on the access we need to evaluate the progresivity of the TPDS with re-
gard to poverty. That is are the poor more likely tu use PDS than others?
Conditional on access does the poor benefit more in absolute term than
others?Conditional on access are the poor benefiting more than proportion-
ately to their overall share of income or expenditure? To what extend are the
impact translated into poverty variation figures4 ?. The poverty impact of
TPDS is the difference between poverty level with the TPDS and the poverty
level without it. The with data are observable while the ”without” data are
fundamentally unobservable. This is the well known problem of causal infer-
ences (Holland 1986). Common practice for assessing the distributional and
poverty impact, the fiscal benefit incidence analysis, is straightforward but
ignore the counterfactual taking the transfer as the net benefit accruing to
household, ignoring any behavioral responses. Benefit incidence of PDS has
two component the price and the quantity the overall being the product of
both. Previous evaluation consider only the with and without the program
effect on prices, but fail to consider the without effect on quantities. This is
to assume that those affecting by PDS does not change their consumption
behavior as the result of PDS.
4
Attention paid to poverty variation figure may seem at odd with the objective of food
security and quite sinikal. However one should keep frmly in mind that this is in part
based on the esimated official measure of poverty, that the indian governement determine
its food security policy. Hence a bad accounting of poor in India has a uge impact on the
humanity well-being

8
3 Identifying the impact on poverty
3.1 Measuring poverty in India5

Estimates of poverty in India are typically based on normative minimum

calorie intake. The calorie norms were fixed at 2400 calorie per person per
day for rural areas and 2100 per person per day for urban areas by the Task
Force constituted by the planning commission in 1979. Poverty line are
calculated using the income method and involve the calculation of the mini-
mum income at which the specified minimum nutritional needs are satisfied,
given the consumption pattern of the population. Agregregate and average
poverty are then displayed using the Head Count Ratio (HCR). Whereas
most of the work on poverty and PDS present the HCR this measure of
poverty has serious limitations as poverty index. For one thing it ignores
the extent to which different households fall short of the poverty line. And
this may lead to some perverse properties6 . A related issue is that changes
in HCR can be highly sensitive to the number of poor household around
the poverty line (sine changes in HCR are entirely driven by the crossing
of the poverty line). If poor household are heavily ”bunched” near the
poverty line, a small increase in the average per capita income could lead
to misleadingly large decline in the HCR. The average estimated transfer
is around 13.rupee for the poor which represent an average of 5.4 percent
5
Poverty measurement in India is a heated issue. The design of the NSS55 make it
difficult to compare it with previous surveysn and hence to draw a time profile for poverty
rates.Deaton has reevaluated poverty levels using different poverty lines than the official
one and found a lower poverty rate than the official figures. I this study I use official
poverty line to derive my poverty level estimates.
6
For instance an income transfer from very poor person to someone who is close to the
poverty line may lead to a decline in the HCR, if it lifts the recipient above the poverty
line. Similarly, if some poor household get poorer, this has no effect on the HCR.

9
of total monthly expenditure per capita, whereas it is 16.8 rupee for APL
household, representing 3.6 percent of total monthly expenditure per capita.
Hence the ”density effect” has to be kept firmly in view in the context of
evaluating the welfare impact of PDS and regional disparities of impact.
State disparities in HCR are difficult to interpret in the absence of further
information about the initial density of poor households near the poverty
line in each case. More sophisticated poverty index help to circumvent the
”density effect”. In this paper I focus on the simplest member of the Foster-
Greer-Thorbecke (FGT) indexes class: the poverty gap index. Essentially
the poverty-gap index (hereafter PGI) is the aggregate shortfall of poor peo-
ple’s consumption from the poverty line, suitably normalized. The PGI can
also be interpreted as the HCR multiplied by the mean percentage shortfall
of consumption from the poverty line (among the poor). This index avoids
the shortcomings of the HCR, is relatively simple to calculate7 , and has a
straightforward interpretation.

3.2 Estimating the benefit impact of TPDS

3.2.1 The benefit incidence approach

I want to answer how much is the variation in Indian poverty attributable

to PDS. That is had the PDS not been in place would the household con-
sume more or less have they to rely on open market and other sources of
provision with which TPDS may be a substitute. This is a difficult question
to answer since the impact of PDS is pervasive in the indian economy at
all level through producers to consumers. Hence the focus here will be on
the fair price shops aspect of PDS rather than the whole system. I Evalu-
7
give the formula

10
ate here the benefit impact of PDS as a redistributive mechanism assuming
away any specific impact on food security. The approach is widely used in
estimated benefit impact of fiscal redistribution. It has been applied to PDS
by Radhakrishna and al. (1997).
More precisely, the subsidy transfer or income gain to TPDS is defined
as the expenditure that the household would have incurred in the absence of
PDS and the actual expenditure under PDS. It is measured by multiplying
the quantity of purchases from PDS with the difference between open market
price and PDS price. hence income gain given to a household (∆y) is defined
as:

∆y = qr (pm − ps ) (1)

where pm and ps are the open market and subsidized price. The open
market and subsidized price are estimated from the NSS survey data on
quantities and values of expenditure.
I use the official poverty line provided by the planning commission (GOI,
2000). The state-specific poverty lines have been estimated by evaluating a
common basket of consumer goods for reaching a minimum calorie intake,
at the prices prevailing in the respective States. These poverty lines differ
for rural and urban areas. In the paper the extent of poverty is measured by
head count ratio in the total population. The extent of poverty is measured
by the poverty gap ratio. For estimating the poverty measures I have used
the beta type Lorenz curve specified as:

11
 L(p) = p − Qpα (1 − p)ζ (2)

where, p and L(p) are the population proportion and share in income,
and Q, G and ζ are the parameters. The poverty ratio (head count) H is
obtained by solving:

L0 (H) = z/m (3)

where z is the poverty line and m the mean income.

In the NSS survey expenditure per capita and poverty line reflect the
prevailing prices at the state level. The expenditure of individual i in state
s can be represented as Yis (pm , ps ) and the poverty line z(pm ; ps ). Adding
to the income gain from subsidies to individual i, ∆yi to Yi (pm ; ps ) would
give the per capita expenditure at market prices Yi (pm ). The poverty line at
market prices Z(pm ) can be estimated from the distribution of L(./Y (pm )),
by inverting Eq.3, so that I can then retrieve the head count ratio estimated
from the distribution of L(./Y (pm , ps ) using poverty line z(pm , pr ). The
poverty measures estimated from L(./Y (pm )) using poverty line z(pm ) would
form the base scenario, that is the post treatment poverty level. The benefit
incidence analysis measures the change in the poverty measure when the
income gain due to subsidized commodity is substract from Yi (pm ).
Results are presented in section 5.1. However I will comment on the
weakness of this method for evaluating PDS. The main weakness of the
method is that it fails to take into account the counterfactual and assume
no change in consumption pattern due to PDS. Failure to control for access

12
to PDS leads to wrong estimate of impact since it does not distinguish the
access impact from the program impact. It may be appear that PDS is
non progressive because of non random placement for example. Contrary to
PSM, the method is not suited for behavioral approach that allows to deal
with selection issues. The other critic which is specific to a food security
program is that it evaluates PDS with respect to a wrong measure. The
good measure is the one that say what is the change in food insecurity due
to PDS. In what follows I present the potential outcome approach to which
PSM belongs and try to address this critics.

3.2.2 Potential outcome approach

To fully take into account benefit incidence of PDS I need the counterfac-
tual associated to the PDS user, that is what would have been the food
expenditure have the PDS not been in place.
The best way to answer this ”program evaluation” would have to de-
vise an experimental control group comparison. This reflexive comparisons
consists in collecting baseline data on probable eligible participants, before
the program was instituted. These data are then compared with data on
the same individuals once they have actually participated in the program.
In this case the set of counterfactual group is the set of participating in-
dividuals themselves, but observed before the program was implemented.
Alternatively, potential participants are identified and data are collected
from them. However only a random sub-sample of these individuals is actu-
ally allowed to participate in the program. The potential participants who
do not participate form then the control group. The potential participant
in the TPDS are all the household, however one should distinguish access

13
to quantity from access to subsidy. Only poor identified by a ration card
have access to the subsidies. Can we claim that poor non participant are
random poor and constitute the counterfactual. The claim can not be maid
for several reason, first there are transaction costs payed for accessing to
PDS (distance to fair price shops, queuing..) that varies due to fair price
shops density. Second, there are behavioral aspect that can explain that the
non poor not using PDS are not a random sample of poor. This behavioral
aspects comprise solidarity networks and other informal exchanges in food
provision that can substitute for PDS for instance. Hence randomization
appears more like a theoretical concept which can hardly be empirically
invoked in my context.
Another way is to use an Instrumental Variable Estimator (IVE) con-
trolling for the andogeneity of PDS or selection on observables. For that
one need to have good instrumental variable that explain the access to PDS
but not the quantity consumed conditional on participation. This exclusion
restriction assumption in untestable. A good set of variable are geographi-
cal variable or macroeconomic variables, none of these variables are present
in the NSS. Moreover IVE causal inferences rest on the ad hoc functional
form assumptions required by standard (parametric) IVE. Another strategy
is to use matching techniques, that is to rebuild a comparison group based
on a set of observable variables and hence at least to control for observable
heterogeneity. The matching approach has several nice property that make
it suitable for the present analysis and that also explained its recent revival
in the evaluation literature, in particular in labor economics. First this is
a non parametric technics and as such does not rely on specific functional

14
form. Matching on the propensity score help to circumvent the dimension-
ality problem.
Specofically, let X be a set of variable that helps to predict program
participation. Let w be the outcome on which the program impact on, w1 is
the outcome if treated and w0 the outcome if not, and let D be the dummy
variable equal to one if individual i has participated into the program. The
application of PSM and its power rest in the two following lemma:
First note that:

P (Xi ) = Pr(Di = 1|Xi ) (4)

and 0 < P (Xi ) < 1

Lemma1. Balancing of pre-treatment variable given the propensity score8
If p(X) is the propensity score, then

D ⊥ X | p(X)

Lemma2. Unconfoundness given the propensity score.

Suppose assignment to treatment is unconfounded, i.e.

w1 , w0 ⊥ D | X

Then assignment to treatment is unconfounded given the propensity score;

i.e.
8
See Rosenbaum and Rubin (1983) for a proof.

15
 w1 , w0 ⊥ D | p(X)

Other consistency conditions not often stated but empirically required

is that the treated and control need to have the same questionnaire and to
be from the same economic environment.
My control and treated group was administered the same questionnaire
and the economic environment can be considered as similar. Despite the size
of the program coverage and the federative system, India remains a highly
centralized country and highly regulated in particular for the agricultural
sector.
The questionnaire need to include data that helps to predict partici-
pation. Following lemma 1, If the Balancing Hypothesis is satisfied pre-
treatment characteristics are independent of treatment status given the same
propensity score. Hence conditional on the propensity score exposure to
treatment is random. This balancing property is testable and determines
variable to include in the propensity score estimation to satisfy the test. The
second lemma state that if potential outcome are independent of participa-
tion given X then they are also independent of participation given p(X).
The propensity score is estimated using a standard logit model. Compar-
ing matching method with experimental benchmark design, Heckman et al
(1997, 1998) shows that failing to control for matching on the common sup-
port of the control propensity score distribution with that of the treated is
the single most important source of bias. Potentially more important than
bias due to selection on unobservable. Hence matching will be done on ob-
servations whose PS belongs to the intersection of the supports of the PS of

16
treated and controls.
Using the PS from the logit regression I construct matched pairs on
the basis of how close the scores are across the two samples. The nearest
neighborhood to the i0 th treated is defined as the non participant treated
that minimizes [p(Xi ) − p(Xj )]2 over all j of the set of non participants.
In this application I choose to match on the 5 nearest neighborhood, if the
control size were much larger than what I get here, I would have chosen to
match on all observation using kernel weighting, however here the control
is just the double size of the treated and I will face the risk of very high
attrition of the sample of treated that may render meaningless the study
of treatment heterogeneity. I now have to discuss precisely what are the
impact to study.
Poverty line in India are constructed based on an estimation of the minimum
income needed to attain a calorie intake of 2400. Hence two things need to
be distinguished here to evaluate the impact of PDS on poverty. First I
need to estimate the impact of PDS on food security. Since the ultimate
goal of PDS is to increase food quantity that accrue to the poor one need to
evaluate the food content of one rupee of fiscal transfer. Second one has to
estimate how this one rupee of fiscal transfer translate into official poverty
figures. I will deal with the first issue here and sketch how one can deal with
the second issue, leaving this for further research.
Hence the program impact I am seeking for is a non parametric analogue
of the treatment coefficient of an Engel curve estimation of foodshare based
on PDS user and controlling for selection within the treatment9 . The averate
9
Practically this what I would have done with IVE, including the inverse of mills ration
to correct for PDS acsess.

17
treatment effect on the treated is:

p
X np
X
AT ET = (wj1 − Wij wij0 )/P (5)
j=1 i=1

where wj1 is the post intervention household foodshare of PDS user j,

wij0 is the household foodshare of the ith non user matched to the j th user,
P is the total number of user, N P is the total number of non user and Wij ’s
are the weights applied in calculating the average foodshare of the matched
non user.

4 The data and description

The data are from the National Sample Survey Organization (NSS0). The
National Sample Survey (NSS) is a quinquennial survey started by the gov-
ernment of India in 1950 to collect socio-economic data. I use the 55th
round of the survey started in July 1st 1999 and completed the 30th of
June 2000. The survey cover the whole of the Indian Union, however I
will confine the analysis to the 16th most important states covering 98 per
cent of the population. This data contain detailed information on values
and quantities of household consumptions included services like education
or health. This survey allows one to estimate the poverty lines, and this was
done by the Planning commission of the GOI. The questionnaire distinguish
consumption from the PDS and from other sources and in particular the
open market. For each household I am able to estimate the price paid at the
PDS and the price paid in the open market if both sources of provision have
been used. In this study I restrict the analysis on foodgrains consumption,
first because this is the main food elements provided in the fair price shops

18
and, second, because it constitutes the most important part of the indian
nutritional absorbing, hence any welfare analysis of PDS should consider the
impact of PDS in the consumption of foodgrains (rice and wheat).
While it has been claimed against the PDS that it is urban biased, serious
measures have been taken to improve the density and the food provision
of fair price shops in rural areas. To set the methodology and for a first
approach I will analyses here the impact of PDS on rural households10 . I
have a sample of 74999 rural households, but I have the information for
only 48813 household regarding the use of fair price shops (PDS). I use
consumption data, these might be different from purchases data, a household
is considered as benefited from PDS if he has consumed at least one PDS
commodity. 31 555 (64.23%) households have not used PDS and 17458
(35.%) did.
Poorer expenditure quintal household used more intensively the PDS
(table1), however as regard to the official poverty line the BPL household
used just slightly more intensively the PDS than APL household respectively
37.9% and 36.1%. Hence the poor defined by the official poverty line use the
PDS in the same proportion than the average, this is the poorest defined
by the bottom quintal that use more PDS. In absolute term the upper ex-
penditure quintals (fourth and fifth) are those that receive the higher fiscal
transfer, they are also those who consume more quantities from PDS. Not
surprisingly the share of PDS consumption over total quantities and expen-
diture is higher for the bottom quintal of the expenditure distribution and
10
A complete analysis will consider both the rural and urban household and also the
impact of PDS before 1997 where the provision where universal. This will allow to assess
the benefit of the Targeted Public Distribution system compared to the universal public
distribution system. I leave this for further reseach.

19
the fiscal transfer represent a greater share of their total expenditure. The
qualitative comparison regarding PDS consumption, share in total expen-
diture and fiscal transfers does not change when I compare BPL household
and APL household.
If one adopt a fiscal incidence benefit strategy as described earlier than
this information is sufficient. The amount of transfer allows to determine
the poverty relief attributable to PDS.

5 Results and Interpretation:

5.1 The benefit incidence estimate

Using the method described earlier I estimate the impact of PDS on poverty
(table 2). Using both measures of poverty I find that there are slightly 0.77
percent of decrease in poverty due to the fiscal transfer through PDS. Albeit
statistically significative, this is a very deceptive result given the assumed
cost of the system (Dumali and al 2000). Applying a similar methodology
Radhakrishna and al. found using the 1986-1987 survey that subsidies has
reduced poverty by 1.71 percentage point in rural areas which is larger than
what I get. Turning to the extend of poverty the gain is also low, poor
household are slightly closer to the poverty line, hence inequality among the
poor has slightly decreased.

5.2 Propensity score matching estimates

Table 3 presents the logit regression used to estimate the propensity score
on the basis of which the matching is subsequently done11 . The logit results
11
The test of the balancing property has been done by cheking whether there are sys-
tematic differences in distribution of charecteristics X, I did the test on 10 spells of equal
size of propensity score. The test was accepted.

20
on PDS accord well with expectations from simple averages. TPDS users
are poorer, as measures by the poverty status regarding the poverty line, but
also when considering proxy for permanent income as ”non food item” and
wealth dummy proxies ”TV freezer bicycle motocycle car ”. Land owners
are more likely to use PDS, but the greater is the land owned the lower is
the probability to use PDS. Family size increases the access to PDS, more
educated householder are less likely to use TPDS, this is probably due to
the fact that they are probably richer. The impact of education here is in
sharp contrast to what is observed in program whose impact is on health or
income. Proxies indicated the infrastructure and the degree of remoteness
are also significant, the more remote is a village and the poorer the infras-
tructure are the less likely are people to use the PDS. This may be due to
low density of geographical of fair price shops in isolated area, increasing the
transaction cost12 . This also raises concern about the random placement of
PDS. An interesting result is that benefiting from other government public
assistance targeted to the poor as Integrated Rural Development Program
or public works and having access to PDS are complement. These result are
interesting in the line of improving targeting of PDS to the poor. The cited
programs are design such as the poor are more likely to self select within
the programs, and indirectly this improve targeting of PDS to the poor (Ra-
vaillon1991). However receiving income from other activities decreases the
probability to use PDS.
For a first approach and for computational convenience I present here
12
A limitation of the NSS survey for the present application is its lack of village level
data. Villages having a unique identifier I look forward to find village level information to
control in part for non random placement

21
the matching based on the ”five nearest” neighborhood rather than the non
parametric estimate based on kernel weighting of all possible control13 .
Constraining the match to common support reduces the gap between
the control and treated propensity score. Prior to matching the PS for the
treated is 0.54.and 0.24 for the control. After matching on common support
the difference is negligible 0.373 and 0.368 fig 1 and fig2 display the propen-
sity score for the control and the treated as well for the BPL household and
APL household. From our initial sample I loose 244 observations due to the
common support restriction.
How much is the food transfer contributing to food security?
If one rupee of fiscal transfer is translated in one rupee of food subsidy
then one can state that food security targeting conditional on access is 100%.
If one rupee of fiscal transfer is translated more than proportionately than
the food share before the treatment then there are a multiplier effect of PDS
subsidies on food security.
Table 4 present the ”with” and ”without” PDS food share. It shows
that those using PDS increase their share of food expenditure in total ex-
penditure. That is controlling for PDS selection on observable by the match
control group, PDS user increased their propensity to consume. This ap-
pears as a by-product benefit of PDS that is not taken into account in
previous analysis of benefit incidence.
The mean impact on food share of PDS user is 3.44%. Without PDS the
food share is 62,33% of total expenditure and it is 66.33% with PDS. Due to
13
There are also other matching method, I choose the 5 nearest neighborhood, mainly
because of sample size and computational convenience. I will investigate other matching
strategy after havint set the general framework of the study.

22
the fact that prices are lower this a quantity effect, households increase their
total quantity, income effect goes in the same direction than substitution
effect toward increasing consumption in absolute and relative term.
Evaluating the mean impact by expenditure quintal prior to the fiscal
transfer one can estimate whether impact are income progressive or regres-
sive. Indeed the mean impact of food share is highly income regressive. The
poorest PDS user increased their food share by 7.1%, the second quintal by
5.1% and the third by 2.7%, hence for the poorest fiscal subsidies accruing
through PDS are directed to greater food security more than proportion-
ately. For the upper quintal of expenditure distribution, food subsidies are
spend on other non food item since using PDS decrease their expenditure
share.
What are the mean impact on food consumption attributable to PDS?
This can be decomposed on impact due to PDS independently of transfers
and impact due to PDS through the subsidies. If I note X expenditure per
capita prior to PDS, ∆w, mean impact of PDS on food share expenditure
w, and ∆y food subsidies then the mean impact on food consumption is
X ∗ ∆w + w∆y , the last term is the food impact of subsidies. Table 5
report the mean impact effect of PDS on food consumption, the impact is the
largest for the two bottom quintal and surprisingly it is even greater than the
transfer, hence conditional on access, food subsidies through PDS is a strong
mechanism for increasing food security. While the fiscal transfer represent
5% of expenditure of the poor, the increase in food consumption attributable
to the program represent 10% of total expenditure. Food subsidies going
through PDS have amplification impact on food consumption.

23
 How can I interpret these results? This has to be interpreted at the
light of the frequent shortage of food in India. The private system is not
working properly in part due to the existence of PDS, and does not offer
an attractive alternative even for the rich. It may be the case that those
who use PDS buy large amount to lower the transaction cost per kilo. This
may create crowding out effect of PDS users on non users. When asked to
the non user why have they not used PDS the single most answer response
is ”the commodity were not available”. This can confirm the crowding out
effect.

5.3 From food security to ”official poverty”

How can I construct poverty line that translate the estimation on food share
impact into poverty figures. Poverty line is constructed as the minimum in-
come needed to consume 2400 calorie. From that and from the mean share
expenditure quintal or decile I can estimate a food equivalent poverty line.
This food equivalent poverty line will be deflated to reflect the fact that
poorest household spend a greater share of their income in food. Following
the strategy of section 2, I estimate the HCR ”without” PDS, this forms
the baseline using the food equivalent poverty lines. I estimate a new HCR
based on deflated food equivalent poverty lines. The difference between the
baseline without PDS and with PDS reflect the way that poverty measure-
ment can incorporate the food security improvement brought by TPDS14 .
14
I will try to generate the poverty rates, for the presentation in Palma

24
6 Conclusion

This paper illuminate some concerns of immediate relevance to policy reform

in the context of food security in India. Far from the controversy about
measuring poverty in India, I have adopted a positive approach that take as
given the objective of food security and I chow to what respect recent trend
in indian poverty measure reflect the movement toward greater food security.
The more striking results are that the benefit of the food subsidy accrued
to the poor generate more food expenditure than the subsidy, through a
multiplier effect. I also found that failure to take into account the change in
the food content of poverty lines may underestimate the benefit of PDS. For
that purpose I have used new poverty lines, that I called ”food equivalent
poverty lines”, these poverty lines may change (decreases) if the foodshare
of total expenditure increases.
The other aspect of the work is to have estimated an Engel-like demand
curve non parametrically by using PSM. Failure to take into account the
counterfactual has characterized previous evaluation of PDS. From a policy
point I view, while it may be true that PDS has a poor records on reaching
the poor, once they have access to PDS, the program objective of increasing
food security is effective. If one want to reform the PDS, work should be done
on access and on determining self-selection independent of price subsidies,
since even with no subsidies the poor benefit from the PDS while the rich
no.
However, much work remains to be done, the urgency seems to con-
trol for village characteristics in order to limit the bias due to non random
placement.

25
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28
Table1: Selected statistics on gains and consumption from PDS
% of PDS % transfer
subsidy for
Expenditure proportion subsidies consumption over Income over
per kg of
Quintile of PDS user per kg of rice total foodgrain transfer total
wheat
consumption expenditure

Poorest 0.452 5.567 4.251 0.176 13.049 0.051

0.248 6.673 11.548 0.074 130.813 0.002

Second 0.392 5.779 4.101 0.14 14.518 0.039

0.238 7.374 5.226 0.057 194.539 0.001

Third 0.346 5.792 3.773 0.118 15.473 0.033

0.226 7.381 6.439 0.048 169.7 0.001

Fourth 0.307 5.802 3.71 0.101 16.803 0.028

0.213 25.62 6.181 0.04 427.655 0.001

Fifth 0.258 5.602 3.185 0.079 15.768 0.018

0.191 11.822 10.103 0.032 313.128 0

Above poverty
line 0.361 5.776 3.808 0.13 15.681 0.034
0.231 11.63 6.712 0.053 247.785 0.001

Below poverty
line 0.379 5.509 4.258 0.13 12.083 0.05
0.235 6.477 11.753 0.057 124.916 0.003

Total 0.366 5.703 3.932 0.13 14.701 0.038

0.232 10.229 8.139 0.054 216.861 0.002
Source: Author calculation from NSS55
Table 2
Impact of PDS using the fiscal benefit method
Average normalised Average normalised
Poverty rate poverty rate Average impact on HCR poverty gap Poverty poverty gap Poverty Gap Average impact
state
"with TPDS" "without TPDS" ("without"-"with") Gap with PDS without PDS on PGI

Andra Pradesh 0.105 0.126 0.021 0.017 0.020 0.004

Assam 0.403 0.413 0.01 0.082 0.088 0.006
Bihar 0.444 0.444 0 0.089 0.090 0.001
Gujarat 0.125 0.132 0.007 0.021 0.023 0.002
Haryana 0.077 0.077 0 0.014 0.014 0.000
Kartanaka 0.164 0.181 0.017 0.026 0.029 0.003
Kerala 0.088 0.093 0.005 0.012 0.015 0.003
Madhya Pradesh 0.374 0.378 0.004 0.076 0.078 0.002
Maharastra 0.226 0.234 0.008 0.041 0.044 0.003
Orissa 0.471 0.494 0.023 0.111 0.122 0.010
Punjab 0.06 0.06 0 0.008 0.008 0.000
Rajsathan 0.135 0.135 0 0.021 0.021 0.000
Tamil Nuda 0.199 0.242 0.043 0.037 0.047 0.010
Utar Pradesh 0.322 0.326 0.004 0.060 0.061 0.001
West Bengal 0.316 0.319 0.003 0.064 0.065 0.002
Himachal Pradesh 0.079 0.081 0.002 0.011 0.011 0.000

Total 0.27 0.278 0.008 0.052 0.055 0.003

Notes: mean diifferences are statistically signifiacative at 5% (t-test) except for Rajsathan and Himachal Pradesh
Source: author calculation from NSS55
Logit regression for access to public Distribution System
Coefficient t-statistic

xnonfood -0.00031 -4.71

whether the household is poor 0.39416 11.76
houehold head age 0.00578 5.63
whether the household head is a male -0.03354 -0.72
household head education -0.04121 -8.76
whether the household owns a radio 0.09288 3.33
whether the household owns a TV -0.25606 -6.87
whether the household owns a sewmach 0.04056 0.75
whether the household owns a freezer -0.25492 -3.32
whether the household owns a bicycle -0.17604 -6.42
whether the household owns a motocy -0.48397 -8.26
whether the household owns a car -0.09700 -0.72
whether the household owns is a land owner 1.15783 5.11
land surface owned -0.00135 -15.72
The houshold size -0.00746 -0.5
primary source of cooking is firewood 0.23604 5.71
primary source of lighting is electrecity -0.03646 -1.09
whether the household owns a kitchengarden 0.24009 6.2
did the household receive any ressource from IRDP 0.33796 5.86

did any member of the hh work for at least 60 days

0.30319 4.19
on public work the last 365 days

during the last 365 days, did the hh receive any

income from:
cultivation -0.08041 -2.75
fishing/other agricultural entreprise 0.11133 3.16
wage salaried employment 0.39463 13.64
non-agricultural enterprises 0.20982 6.33
pension 0.38935 5.57
rent -0.25920 -2.51
remittances 0.12538 2.6
interest and dividends -0.25263 -3.85
others 0.06909 1.54
Logit regression for access to public Distribution System (continued)
Coefficient t-statistic
number of meals taken per day per capita -0.04996 -2.19
number of meals taken this last 30 days
away from home free at cost
number of meals taken last in school by child 0.00801 4.32
from employer as perquisites or part of wage 0.00574 1.91
others -0.00130 -1.28
on payment 0.00260 1.6
at home 0.00212 2.78
household head religion:
Hinduism 0.07771 0.73
Christian 0.28464 2.1
Islam -0.02013 -0.17
household head social group
scheduled cast 0.15833 4.03
scheduled tribe 0.08052 1.77
other backward class -0.06414 -1.97
Type of income received during last 365 days
(omitted modality is economic actvity):
other sources -0.16065 -2.56
no income -0.12927 -2.51
_Istate_2 -1.57266 -22.57
_Istate_3 -2.89537 -44.63
_Istate_4 -0.14669 -2.28
_Istate_5 -3.37915 -20.73
_Istate_6 0.72264 10.78
_Istate_7 0.47201 5.85
_Istate_8 -1.84652 -30.91
_Istate_9 -0.10369 -1.86
_Istate_10 -0.73374 -12.01
_Istate_11 -4.98264 -18.21
_Istate_12 -2.71106 -31.67
_Istate_13 0.61343 9.46
_Istate_14 -2.58112 -43.75
_Istate_15 -1.97728 -31.18
_Istate_18 -0.67581 -8.41
_cons -1.04097 -3.93
Log-likelihood function -21033.47
Number of observations 44517
 Propensity score for household using TPDS

.10171
Fraction

0
.000377 .983636
Probability of using TPDS

Figure 1:

Propensity score for household not using TPDS

.173092
Fraction

0
1.0e-13 .966506
Probability of using TPDS

Figure 2:

28
Table4: Distribution of mean impacts
(foodshare with PDS - foodshare without PDS) by state and expenditure quintile
states Poorest Second Third Fourth Fifth All India

Andra Pradesh 0.104 0.083 0.055 0.023 -0.053 0.066

Assam 0.142 0.13 0.117 0.075 -0.022 0.117
Bihar 0.127 0.104 0.076 0.082 0.029 0.098
Gujarat 0.057 0.036 0.015 -0.001 -0.032 0.029
Haryana -0.01 0.021 -0.021 -0.098 -0.009
Kartanaka 0.032 0.038 0.02 -0.003 -0.087 0.017
Kerala 0.045 0 -0.017 -0.077 -0.175 -0.023
Madhya Pradesh 0.028 0.008 -0.011 -0.019 -0.05 0.004
Maharastra 0.033 0.02 -0.024 -0.051 -0.146 -0.016
Orissa 0.177 0.12 0.107 0.046 -0.045 0.1
Punjab -0.091 0.011 0.001 0.134 -0.036 -0.008
Rajsathan 0.032 0.022 0.02 -0.068 -0.038 0.008
Tamil Nuda 0.098 0.075 0.058 0.032 -0.071 0.061
Utar Pradesh 0.014 0.021 -0.009 -0.016 -0.112 0.002
West Bengal 0.12 0.065 0.063 0.032 -0.015 0.073
Himachal Pradesh 0.024 0.016 -0.015 -0.084 -0.147 -0.016

All India 0.071 0.051 0.027 -0.003 -0.082 0.034

Source: author calculation from NSS55
Table 5: means Impact on food consumption:
the average increase in food consumption for PDS user due to PDS
state Poorest Second Third Fourth Fifth Total

Andra Pradesh 40.768 44.837 39.288 28.25 -44.431 34.828

Assam 44.844 54.927 58.757 49.156 -62.348 45.368
Bihar 33.47 38.482 35.243 48.943 29.02 36.749
Gujarat 24.007 23.766 14.783 5.165 -41.545 14.905
Haryana 2.472 9.59 -6.799 -114.208 -2.735
Kartanaka 16.27 22.921 17.851 6.091 -89.672 8.856
Kerala 29.391 12.424 -2.673 -69.737 -315.44 -31.943
Madhya Pradesh 11.432 7.55 1.76 -5.865 -34.971 3.508
Maharastra 14.554 13.49 -5.443 -25.093 -154.836 -14.426
Orissa 50.421 48.238 51.475 34.225 -30.819 36.157
Punjab -39.876 6.646 16.123 112.362 -172.406 -27.962
Rajsathan 16.797 16.701 20.105 -37.668 -17.612 7.709
Tamil Nuda 45.335 51.772 49.727 47.015 -17.104 43.599
Utar Pradesh 7.459 13.168 3.681 -3.71 -98.154 0.982
West Bengal 36.346 29.194 34.202 22.526 -11.135 28.279
Himachal Pradesh 14.565 12.535 -6.136 -66.421 -237.117 -23.391

Total 27.198 28.675 21.59 4.998 -87.682 13.912

Notes: Sample size problem may explain the huge negative impact on the 5th quintile
Source:author calculation from NSS55
.