THE TARGETED PUBLIC DISTRIBUTION SYSTEM: PROBLEMS AND SCOPE FOR REFORM IV.1.

OBJECTIVES OF THE PUBLIC DISTRIBUTION SYSTEM (PDS) Historically, the objectives of the PDS have been

Maintaining price stability Raising the welfare of the poor (by providing access to basic foods at reasonable prices to the vulnerable population) Rationing during situations of scarcity, and Keeping a check on private trade.

The Committee is of the view that the first objective or price stabilisation still remains the most important. Given the scale of under-nutrition in the country, the second objective too retains importance for the horizon of this Committee. The last two objectives need modification as we are no longer in a period of large national shortages, and private trade is expected to play a larger role in the development of food grain markets over time. IV.2. FEATURES OF THE TARGETED PDS (TPDS) In 1997, the Government introduced targeting in the PDS in the form of the Targeted PDS or TPDS. The main features of the TPDS are:

Introduction of targeting or specifically, the division of the entire population into belowpoverty-line (BPL) and above-poverty-line (APL) categories, based on the poverty line defined by the Planning Commission for different states for 1993-94. Change in centre-state control in respect of allocations, as the size of the BPL population and the entitlements for the BPL population are decided by the central government.

IV.3. EVALUATION OF THE TARGETED PDS The TPDS has been in place for four years (from 1997) but there have been no large-scale evaluations of the working of the TPDS. However, there are several problems associated with the TPDS and the assessment below is based on representations to the Committee by Food Secretaries and other representatives of several state governments, the CAG Report No. 3 (2000), a few research studies, newspaper accounts, and finally, some tabulations from the latest round of the National Sample Survey.

3.1 Targeting. A major criticism of the TPDS has been that it has wrongly excluded a large number of deserving persons and families. The reasons for this are both conceptual and operational. 3.1.1 Conceptual issues: Definition of poor The main conceptual issue is the appropriateness of income poverty, specifically the absolute poverty line used by the Planning Commission, to define the poor for the PDS. The current definition of eligibility for BPL status is based on the official poverty line as estimated by the Planning Commission in 1993-94 (adjusted for population levels in 2000). By this definition, the target group comprised 37 per cent of the rural population and 32 per cent of the urban population in 1993-94. The question is whether the official poverty line represents a very low

level of absolute expenditure, and if so, whether it excludes a larger section of the population who experience low and variable incomes. These doubts are raised by the fact that other criteria such as nutritional criteria show that a much larger proportion of the population is food insecure.

For example, according to the National Sample Survey, 70 per cent or more of the total population consumed less than 2,100 calories in all available years since 1993-94. Alternatively, if we take the food share as an indicator of food insecurity then an even larger majority of the population is categorised as vulnerable. According to the 19992000 National Sample Survey on consumption expenditure, the food share (or food expenditure as a share of total expenditure) was over 60 per cent for the lower 80 per cent of rural households, and lower 40 per cent of urban households. With the yardstick used to identify the poor in China, a food share of 50 per cent, the large majority of our population would be poor. Thus, the narrow targeting of the PDS based on absolute income poverty is likely to have excluded a large part of the nutritionally vulnerable population from the PDS.

3.1.2 Operational issues: Identification in practice More importantly, perhaps, our discussions with officials in different parts of the country has brought out the huge practical administrative problems in implementing this definition of poverty since there are no regular official estimates of the actual incomes of households. The Ministry of Planning has given some guidelines on conducting a survey to identify BPL families. However, as the CAG Report No 3 of 2000 pointed out:

No survey had been undertaken in 18 out of 31 States and Union Territories for identification of BPL families till then. The Report also said that ration cards had not been provided to many BPL households in States that had completed the identification survey. Nationally, according to the ORG-MARG survey conducted for the CAG, 18 per cent of BPL households did not have ration cards. Further, the performance of TPDS was poor in states with larger BPL population.

Even where identification surveys have been conducted, there still remain questions as to the accuracy of targeting given the difficulties of measuring incomes. A few recent research studies indicate that narrow coverage or targeting can lead to the exclusion of a large number of eligible households. A study by Dutta and Ramaswami, although using data on household consumption from the National Sample Survey for 1993-94, that is, during the period of universal PDS, compared the utilisation of the PDS in Andhra Pradesh and Maharashtra.[1] They found that the proportion of households using the PDS was much higher in Andhra Pradesh (57 per cent of all households) than in Maharashtra (33 per cent of all households). They pointed out that the geographical coverage of PDS retail outlets in Andhra Pradesh was almost universal whereas the coverage in Maharashtra was not so.

Secondly, when they examined the use of the PDS by deciles of income groups, rural AP does much better than rural Maharashtra in terms of lower errors of (wrong) exclusion while the errors of (wrong) inclusion are comparable between the two states. Thirdly, the participation rate declined with income group, relatively more rapidly in Andhra Pradesh than in Maharashtra. In short, in Andhra Pradesh, a state with a better functioning PDS having widespread coverage, the overall utilisation was higher, the errors of exclusion of the poor were lower, and the utilisation fell relatively rapidly with income level.

As expected the two targeting errors moved in opposite directions: Andhra Pradesh had higher errors of wrong inclusion but lower errors of wrong exclusion than Maharashtra. In a study of village in Maharashtra during the universal PDS and after the introduction of the TPDS, Swaminathan and Misra found that the errors of wrong inclusion fell sharply with the shift from universal to Targeted PDS but the errors of wrong exclusion rose steeply at the same time.
[2]

They also identified weaknesses in the official identification procedure. An evaluation of the TPDS in Uttar Pradesh by the World Bank based on the UP-Bihar Survey of Living Conditions conducted in 1997-98, found that 56 per cent of households in the lowest quintile did not get BPL cards, and 63 per cent of households in the next quintile did not get BPL cards.[3] To sum up, given the problems both conceptual and operational in identifying households below the poverty line, the chances of mis-identification and of excluding the vulnerable population from the TPDS appear to be high. 3.1.3 Some Results from the National Sample Survey We have some tabulations from the NSS 55th round (for 1999-2000) as well as from the NSS 50th round (for 1993-94) on the quantity and value of rice and wheat purchased from the PDS by persons in different monthly per capita expenditure (mpce) groups. These tabulations were made for the Committee for all states and for rural and urban areas respectively. All households First, let us examine the data on all households (that is all mpce groups) in the 55th round in rural areas:

Monthly per capita purchase of PDS rice and wheat amounted to 4.58 kg (or 55 kg per annum) in Kerala, followed by 3.3 kg (or 40 kg per annum) in Tamil Nadu. These two states had the highest per capita purchase of grain from the PDS excluding the northeastern region. Next, in the three states of Himachal Pradesh, Jammu and Kashmir, and Andhra Pradesh, per capita monthly purchase was between 27-33 kg. In several states including Assam, Bihar, Gujarat, Madhya Pradesh, Rajasthan, Uttar Pradesh and West Bengal, per capita monthly purchase from the PDS was less than one kilo a month.

Thus, in relation to a monthly requirement of around 11 kg per person, in Kerala, the PDS provided 42 per cent of requirements, in Tamil Nadu, it provided 30 per cent of requirements, and in the three states mentioned above, it provided 25 per cent of requirement. PDS also contributed a significant part of total consumption in the North-Eastern states of Arunachal Pradesh, Manipur, Mizoram, Sikkim and Tripura, as well as in the islands of Andaman & Nicobar and Lakshadweep. In the remaining states, the PDS did not make a major contribution to consumption of cereals. The picture is similar when we examine purchase by all households in urban areas of different states.

Monthly per capita purchase of grain from the PDS was highest in urban Jammu & Kashmir (5 kg or 60 kg per annum) followed by Kerala (4 kg per month). Average monthly purchase was less than one kilo a month in Assam, Bihar, Gujarat, Madhya Pradesh, Maharashtra, Rajasthan, U.P and West Bengal.

A comparison of estimates for 1993-94 and 1999-2000 indicate that there has not been much change in the level of monthly per capita purchase from the PDS between these two surveys. For instance, in Kerala, the per capita purchase of grain from the PDS in rural areas was 4.51 kg in 1993-94 and 4.58 kg in 1999-2000. There were some exceptions. For example, purchase from the PDS increased in the rural areas of J&K, Orissa, Rajasthan and Tamil Nadu, while it fell in the urban areas of Orissa and West Bengal. In Orissa, for example, the rural per capita purchase rose from 0.15 kg to 1.58 kg and in the urban areas the corresponding increase was from 0.48 kg to 1.68 kg. As percentage of consumption at the all India level, the contribution of PDS increased for rice in rural areas but decreased for wheat; in urban areas this decreased for both rice and wheat. This is true not only of the population as a whole but also of the pattern amongst the poorest 40 per cent.

Since the large price difference as between BPL and APL consumers came about only in March 2000, with the APL price equated to the economic cost of FCI, the observed decline in offtake by APL households, as well as all households, in the last two years, is not reflected in the survey data from the 55th round. Expenditure class-wise results To assess the impact of targeting, we need to examine the purchase from the PDS by households in different expenditure groups. Before proceeding to examine the expendituregroup-wise data, it is to be noted that the NSS has 12 expenditure groups for rural and urban areas respectively. In rural areas, even the second highest expenditure group has a per capita monthly expenditure of less than Rs 950. A quick look at the tabulations indicates that in many states, the PDS is not targeted in the sense that quantity purchased from the PDS does not decline systematically with increase in expenditure class (mpce). In Bihar, for example, the data do not show any variation in purchase across expenditure groups. In Gujarat and Himachal Pradesh, there is some decline in purchase in the higher expenditure groups in urban areas but no such pattern is observed in rural areas. In Karnataka, there is some decline in purchase in the higher expenditure groups in rural and urban areas. In Andhra Pradesh, there is a difference across expenditure groups especially in the higher expenditure groups where total cereal consumption is higher but purchase form the PDS is lower. For example, in rural areas, the monthly purchase for persons in the highest expenditure group was 1.2 kg as compared to 2.4 kg for persons in the lowest expenditure group. Broadly, there is not much change in the quantity purchase for the first 7-8 expenditure groups (deciles) and then there is a decline in purchase. A similar pattern is observed in urban areas although the decline starts at lower deciles. A similar pattern of variation across expenditure classes is observed in Tamil Nadu. It is worth looking at the numbers for Kerala in some detail (Table 1). Overall, there is not much change in the pattern of purchase from the PDS by expenditure group between 1993-94 and 1999-2000. However, there is a trend towards an increase in the quantity purchased by the lower expenditure groups and a decrease in the quantity purchased by the higher expenditure groups between 1993-94 and 1999-2000. So, targeting by way of exclusion of the upper expenditure groups appears to be taking place. Nevertheless, even in 1993-94, during the phase of general PDS, the households in the poorest expenditure group purchased roughly twice (in rural areas and more than twice in urban areas) the quantity purchased by those in the highest expenditure group. The changes at the all India level between 1993-94 and 1999-2000 are summarised in the graphs that follow. We observe that only in the case of rural areas, there is a clear rise in the

quantity of rice purchased from the PDS during this period. Further, the rise in PDS purchases is higher for those in the lower expenditure decile groups. In urban areas, there is a fall in purchases of both rice and wheat from the PDS across decile groups, although the fall is larger for the upper decile groups. To sum up, the NSS data from the 50th and 55th rounds indicate that TPDS did not make much of difference to the states where the PDS was not functioning well prior to its introduction. In states like Kerala and Andhra Pradesh where the PDS was functioning well, the TPDS has excluded some persons from the highest expenditure group but on the whole the level and pattern of purchase has not changed much. As major changes in PDS pricing were made after April 2000, these could not be captured in the 55th round which was conducted between July 1999 and June 2000.

3.2 Adequacy of quantity. Initially, in the TPDS, each BPL family was entitled to only 10 kg of grain per month. This was clearly too low an allocation in relation to monthly needs, and the allocation was raised to 20 kg per month in the Budget of March 2001. It has been raised from March 2002 to 35 kg per household for both BPL and APL families. According to the Indian Council of Medical Research, a person requires about 11 kg of cereals per month (or 330 gm per day). A family of five members would typically require 55 kg per month. We present a state-wise balance sheet showing net output, procurement, and PDS supply from official data and total consumption and PDS consumption from NSS data for 1999-2000 for rice and wheat respectively. At the all India level, PDS contributed between 12 and 14 per cent of total rice consumption and between 5 and 10 per cent of total wheat consumption (the NSS gives the lower estimate). The contribution of PDS to total grain consumption, as expected, varied across States, and as discussed below, was quite significant in a State like Kerala. 3.3 Prices. The TPDS introduced a dual price system with an initial price in 1997 for BPL households that was lower than the price paid in the general PDS and a price for APL households that was higher than the price paid in the general PDS (See Appendix Table on Issue prices). The gap between the two sets of prices increased in 1998 and 1999 as BPL prices were kept constant and APL prices were raised. The situation changed in the Budget of 2000-01 when it was announced that the APL price would have no subsidy, that is, equal the economic cost of the FCI and the BPL price would be set at 50 per cent of the economic cost. The increase in price of grain for APL households led to a sharp fall in purchases by APL. Given the stock position, following a recommendation in the Committees Interim Report, prices for APL households were reduced in July 2001. They have been lowered further from April 2002. With the introduction of the Antyodaya Scheme in 2001, a third price, the price for Antyodaya households, has been introduced (and these are lower than the BPL prices). In 2001-2002, a certain amount of grain was given free to certain calamity-affected states for use in Food-forWork programmes. We highlight two implications of the price changes in the TPDS since 1997. First, there is evidence that several prices within the same distribution network and for the same commodities create distortions.

It creates, for instance, incentives for leakages and other malpractices among traders and officials. As far as consumers are concerned, it can create information problems. When PDS prices are frequently changed, rolled-back, and differentiated according to scheme and card, there is confusion among consumers as to the appropriate prices to be paid (see Section 3.9). There can also be social problems because of perceived unfairness in different households paying different prices. The Government of Kerala in a background note for the Committee stated that different schemes with different prices and different stock registers had made administration more complex and complicated inspection and audit mechanisms.

Secondly, when we consider price changes in the PDS over time, the evidence from NSS data is that:

Prices paid for PDS purchase did increase more for richer groups between 1993-94 and 1999-00, so that there is some evidence of targeting. However, prices paid for PDS purchases increased for all decile groups. This shows imperfect targeting since prices in 1999-2000 were lower for BPL as compared to 199394, but higher for APL.

However, despite the raising of prices in the TPDS in April 2000, the subsequent reductions have lowered prices in real terms. For BPL households, if the current prices of rice and wheat in the TPDS are deflated by the Index of Wholesale Prices for all commodities, then the BPL price for rice and wheat were around 78 per cent of the issue price for all households in December 1991. For APL consumers, however, the real prices of wheat and rice in the PDS in April 2002 were 101 and 95 per cent of the prices in December 1991 for rice and wheat respectively.

For APL households, after a sharp hike in prices in April 2000, prices were reduced slightly in July of the same year and then to around 70 per cent of the economic cost in July 2001. A further reduction has been announced in April 2002. Nevertheless, prices for APL categories today remain higher than the prices announced in 1997. 3.4 Quality. There has been much reporting in the Press of the poor quality of grain received by households in the ration shops. The CAG Report also notes the poor quality of food grain supplied providing specific instances of the distribution of substandard grain. While the FCI does have a system of quality checks, some of the mechanisms seem to be in disuse (see Appendix on FCI). Systematic checks on fair price shops and dealers are also required. The Committee feels very strongly that the poor quality of grain has adversely affected the working of the PDS, and that any steps to revitalize the PDS must begin with improvements in quality of grain supplied to fair price shops. 3.5 Decline in offtake. The introduction of the TPDS, followed by the virtual exclusion of the APL population due to the new price regime has led to a big decline in offtake. In 1991, 20.8 million tones of rice and wheat were distributed through the PDS network. In the first few years after the introduction of economic reforms, the quantities distributed fell,

reaching 14 million tonnes in 1994. The quantity of grain supplied through the PDS rose again thereafter but the introduction of targeting has clearly led to a sharp reduction in offtake. The estimates for offtake in 2000-01 and 2001-02 are 11.7 million tonnes and 13.8 million tonnes respectively. Data on quantities allocated and quantities purchased by commodity after the introduction of the Targeted PDS show that the main factor in the decline in offtake is the total collapse in demand for grain from APL consumers. The policy of equating issue prices with economic cost thus had the desired effect of excluding APL consumers from the PDS. In the case of wheat, for example, 76.7 per cent of allocations to APL households were lifted (or distributed) in 1998-99; the ratio fell to 38 per cent in 1999-2000 and to a mere 3.8 per cent in 2000-2001. A similar pattern can be observed in the case of APL purchases of rice: the ratio of offtake to allocation fell from 82.8 per cent in 1998-99 to 73.2 per cent in 1999-2000 and further to 21.6 per cent in 2000-2001. The offtake of rice by APL consumers has not fallen to the same extent as wheat because of the higher demand from the southern states, which have maintained their own subsidy to the PDS. It is important to note that the offtake by BPL households in relation to allocation has also fallen, particularly in the case of wheat. There could be several reasons for this including, among others, the lack of access of BPL card-holders to ration shops and grain therein. With the exclusion of the APL from the PDS, it is likely that many fair prices shops became unviable and ceased to operate regularly to serve only a small number of BPL households. Further, even BPL households may not make the effort to buy grain from the ration shop on the few days of the month that it is usually available given the small quantities involved. 3.6 Viability of fair price shops. It was brought to the notice of the Committee, in presentations by Food Secretaries, as well as in written communications to the Committee, that the viability of fair price shops has been affected adversely by the exclusion of APL population from the PDS. With a smaller number of ration cards to serve, and upper bounds on margins that can be charged to BPL consumers, the net profits of fair price shop owners/dealers are lower under the TPDS than before. Since there are some economies in costs, such as in the case of transport, the distribution of smaller quantities is likely to make many shops unviable. There is evidence of closing down of fair price shops in Kerala

In a written response to the Committee, the Maharashtra State government had suggested that the economic viability of FP shops could be ensured by adding more items like pulses, edible oil and other items of daily need on a regular basis. Other problems with fair-price shops reported in several studies and most recently in the CAG Report are the infrequent openings of the FPS (usually on one or two days a month), frequent stock-out situations (lack of stocks) and malpractices such as under-weighing of commodities. The Committee is of the view that the revival of the delivery system is very important for the PDS to function effectively. This has two components: first, the revival in States where it has been weakened in the last few years, and secondly, developing the infrastructure in States where it has historically been less developed. The network of fair price shops has to be extended in the relatively backward areas of the country such as hill regions, drought prone and droughtaffected regions, regions populated predominantly by adivasis. Special measures are needed to make the PDS network viable in the relatively poor regions of the country. 3.7 Leakages.

A study by Tata Economic Consultancy Services points to large-scale diversion of grain from the PDS network. According to the TECS study, about a third of TPDS supplies (31 per cent for rice and 36 per cent for wheat) were diverted and did not reach the intended beneficiaries; this proportion was over one-half in the North-Eastern States, Bihar, Orissa and Punjab. A measure of the extent of diversion can also be gauged from the attached balance sheet figures for 19992000. The NSS data on PDS consumption are generally lower than the official data on PDS supply, and this may reflect leakages from the PDS. There are some exceptions, most notably, Kerala and Tamil Nadu. This scale of diversion should not be tolerated. The monitoring and vigilance system proposed in the TPDS guidelines, which was to involve local Panchayat Raj institutions, has clearly not become operational. 3.8 Administrative issues. A targeted programme requires more and better administration than a general universal programme. The Reports of the CAG and other accounts of mistargeting and poor administration of the TPDS indicate that the new administrative tasks have not been undertaken satisfactorily. 3.9 Information. The Targeted PDS has increased the information requirements and flows of the system. This has not only added to administrative problems but is likely to have affected consumers too. The CAG Report, for instance, states that consumers have paid excess charges, that is, prices higher than announced. The lack of information among consumers on the appropriate prices may have helped those who charged a higher price. The CAG Beneficiary study also found a problem of non-awareness of entitlements among consumers. The study reported the absence of grievance redressal systems. Frequent changes to the system in the last few years have created confusion among consumers. It is very important that any new scheme or change in scheme that is announced is maintained for a reasonable number of years. 3.10 Centre-State responsibility. In the present, and medium-term scenarios, certain regions of India will continue to be surplus in food grain while others are deficit. Markets continue to be far from perfectly integrated. The Committee is of the view that the responsibility for food security and for national price stabilisation should rest with the central government although this can and should be accompanied by greater flexibility to state governments in designing their food security systems.

3.11 The Kerala experience. Since it is well known that Kerala had one of the best run and most effective PDS networks in India, and that Kerala is a food-deficit state, it is useful to examine the impact of the TPDS on Kerala. Prior to the introduction of targeting, Kerala was the only state in India with a near-universal coverage of the PDS. In 1991, around 95 per cent of all households were covered by the PDS and possessed a ration card. Secondly, the monthly entitlement of food grain per adult was 13.8 kg in Kerala (or 460 grams per day), satisfying the minimum requirement of 370 gms of cereals per person per day recommended by the Indian Council of Medical Research. Thirdly, the quantity of food grain purchased from the PDS has been higher than in most other states,

making a significant contribution to household nutrition. In 1991, the annual offtake of food grain from the PDS averaged 69.6 kg per person in Kerala. The annual purchase of grain from the PDS in Kerala provides about one-half of the cereal requirements of a person. Fourthly, while the scheme was universal, there is evidence to show that the system is progressive and that the poor depend relatively more on the PDS than the rich.[4] Fifthly, the functioning of ration shops and the delivery system has been better than in other parts of the country and this is reflected in consumer surveys. Given the scale and effectiveness of the PDS, it has been noted that the PDS has contributed to an improvement in consumption and nutrition in Kerala. The TPDS has affected Keralas PDS in several ways. First, as 25 per cent of Keralas population have been termed BPL by the Planning Commission, the guaranteed and subsidised allocation of grain for BPL households under the TPDS accounts for only 10 per cent of the previous PDS (lifting) supply. Given that Kerala is a food deficit state, in the pre-TPDS period, the states own production accounted for 20 per cent of grain requirements, the PDS accounted for 32 per cent and the rest came from private trade (This is according to official data on PDS and not the NSS consumption data). If the allocation to the APL is stopped, then the PDS allocation to Kerala, it is estimated, will account for 3.8 per cent of the grain requirements of the state.[5] Thus, TPDS has changed the share of the PDS in the total grain requirements of Kerala. This is likely to have implications for domestic availability and prices. Secondly, the Kerala government has identified 42 per cent of households as BPL households and is providing the BPL subsidy to these households from the state budget. Thirdly, the Kerala government has continued to provide additional grain to BPL households as well as maintained its entitlements for APL households. There is a state subsidy on sales to APL households. Thirdly, offtake from the PDS has declined. As compared to an annual offtake of rice and wheat of around 2 million tonnes in 1991 and 1992, the offtake in 1999 was 1.6 million tonnes and in 2000 it fell further to 0.71 million tonnes. Fourthly, there is evidence that ration shops are becoming unviable and are closing down.[6] With the higher APL prices, ration shops have lost their advantage in relation to private stores for the majority of the population and it is reported that people have begun to shift to private traders. As compared to a monthly sale of 7,500 kg or rice and 2,000 kg of wheat in early 2000, fair price shops are now selling 1,400 kg of rice and 200 kg of wheat a month. Since sales from fair price shops have declined, many are estimated to be making losses. According to the Government of Kerala, the earnings per fair price shop fell from Rs 3,711 before March 2000 to Rs 1,493 at present (late 2001). After deducting all expenses, the net income of a fair price shop dealer is now negative. This explains the fact that 250 to 350 retail stores have become non-functioning.[7] 3.12 Fiscal impact Table 2 shows the changes in the Government of Indias budgetary food subsidy during the last decade. The first point to note is the increase in nominal terms in the subsidy after the introduction of the TPDS. The subsidy has also increased as a share of total expenditure. Except for 1993-94, the food subsidy was less than three per cent of total government expenditures in the early 1990s. From 1997-98 onwards, the share has been above three per cent. However, for fiscal purposes, it is useful to estimate the share of the food subsidy in GDP. We see that this number was around 0.48 at the beginning of the decade, was 0.7 in 1993-94, fell again to around 0.5 but has now risen to 0.8 per cent. In the current year, the food subsidy is estimated to be over one per cent of GDP. The second important point to note is the change in the size of the consumer subsidy relative to the subsidy on holding buffer stocks. The subsidy on buffer stocks has risen rapidly from 1998 onwards. In 1998-99, the subsidy on buffer stocks was 18 per cent of the total food subsidy; this ratio went up to 35 per cent in 2000-01. In 2001-02, the subsidy on buffer stocks exceeded, for the first time ever, the consumer subsidy and accounted for 66 per cent of the

total food subsidy (Table 3). Further the consumer subsidy in 2001-02 was less than the consumer subsidy in 1998-99. Thus, the ballooning of the fiscal subsidy over the last 3-4 years has been on account of the sharp rise in stocks, and the accompanying rise in carrying costs. To sum up, the introduction of the Targeted PDS has not reduced expenditures on the food subsidy. Secondly, the rise in stocks with the Government of India has led to a rise in the subsidy on account of carrying costs of buffer stocks.

3.13 Summary of evaluation In summary, the Committee is of the opinion that TPDS although introduced with a clear logic has not succeeded. Due to the numerous problems associated with it, as outlined above, the TPDS has not only failed to reach the poor and provide them additional benefits but has weakened the overall system. Specifically, it has affected adversely on the viability of fair-price shops and on leakages from the system. Returning to the original objectives of the PDS, it is clear that the TPDS has not succeeded in strengthening the welfare objective while it has at the same time weakened the impact on price stabilization. IV.4. ANTYODAYA SCHEME

The Antyodaya scheme has been slow to take off in many States. In 2000-2001, there were no allotments for Antyodaya in 28 out of 35 States and Union Territories. By February 2002, Antyodaya had picked up in most states (other than Punjab and Haryana). Antyodaya amounts to further targeting within the BPL population and involves a further increase in the unit subsidy. Although increasing the budgetary outgo substantially, this will not significantly increase physical offtake from the Central Pool. The correct identification of the target group is critical to the success of this scheme. In respect of identification, the Antyodaya is likely to have problems similar to those of the TPDS. While a scheme for the most destitute population of the country is clearly needed, it is important not to over load the PDS system with too many welfare goals. In the long run, the Committee is of the view that schemes such as Antyodaya should be on the basis of identification of individuals, not necessarily families, similar to social security schemes in other countries, and should be de-linked from the PDS. IV.5. 5. SUGGESTIONS FOR REFORM OF THE TPDS

Several Expert Bodies and Committees have made suggestions regarding the PDS in recent years. We outline briefly some of these suggestions that are relevant to our discussion. Prime Ministers Economic Advisory Council.

Referred the matter of the food subsidy to the Expenditure Reforms Commission as a priority item. Expenditure Reforms Commission. Recommended narrow targeting, that is, to the poorest of the poor even if large sections of the population are to be considered to be poor. Suggested that distribution of grain through the PDS be supervised by Gram Sabhas and Non Governmental Organisations (NGOs). Separate costs of holding buffer stocks and distribution stocks and charge only the latter cost to consumers.

For States that distribute quantities larger than allocated for BPL, cash may be paid instead of supplying food grain. Grain may be sold at below APL price to traders to clear the stocks with the government.

The ERC broadly supports the continuation of the TPDS. Planning Commission The Tenth Plan Approach Paper (May 2001 version) recognised that the TPDS has failed to improve the PDS in some of the poorer northern states. The approach paper recommended the following.

Allocate food subsidy as cash to states Announce a uniform price for APL and BPL households

The Note on Public Distribution System and Food Security (prepared by the Development Policy Division, November 2001) made the following suggestions.

Given the problems of identification in the TPDS, revert to area based targeting under which the population of inaccessible areas like hill areas, desert areas, drought prone areas, etc. are targeted.

However, later on, the same report says that the coverage of TPDS should be restricted to the population below the poverty line.

Since the needs of a five-member family exceed 20 kg, given current stocks, as a temporary measure, the BPL quota may be raised to even 40 kg per month. Since poor families lack the capacity to buy their monthly quota in one go, permit the poor to buy rations at least on a weekly basis. Only rice and wheat should be supplied in the PDS. Coarse grains need not be included since their shelf-life is limited and they are available at low prices to the poor. While coverage of commodities under PDS should be restricted, the sale of other commodities at full market prices through PDS outlets should be permitted so as to ensure the economic viability of the Fair Price shops. Ration cards should not be used for identification; voter ID cards may serve this purpose. Continue to fix BPL prices at 50 per cent of economic cost and APL at 100 per cent of economic cost. Special consideration should be given in restructuring the PDS to states such as Kerala and Tamil Nadu and the North Eastern regions because the PDS network is efficient and well established and because these states are food deficit states. Merge all welfare schemes that involve the distribution of food grain. Introduce food stamps in areas not currently covered adequately by Fair Price shops. Distribute the food subsidy among states according to a formula applicable to other antipoverty programmes and let state governments decide all other matters pertaining to the PDS.

The approach paper (May 2001) suggested that returning to a general PDS with a common issue price. The Note on the PDS, however, prefers the continuation of the TPDS. It has one set of suggestions for improving the TPDS such as area targeting, increasing the quantity for BPL households and so on. A second set pertains to alternatives such as food stamps and distribution of the food subsidy in cash to states.

IV.6. CONCLUSION The Committee is of the view that the Targeted PDS has failed and tinkering with it further will not help. At the same time, it is our view that it is not the appropriate time to dismantle the PDS altogether. Ignoring the short run problem of large holdings of grain as stocks with the Government of India, the question is really about the role of the PDS in the medium to long run. We believe that given the balance between grain supply and demand, the persistence of regions of surplus and deficit grain production in the country, the underdeveloped nature of food grain markets in parts of the country, and undernutrition on a mass scale, there is still need for price stabilization nationally. The PDS plays a major role in this objective by ensuring access to certain minimum quantities of grain throughout the country and in all seasons at uniform prices. This goal is best achieved by reverting to a system of allocations of grain at uniform issue prices with universal coverage. At the same time, recognizing differences in needs and problems across states, States may be given greater flexibility in designing their food security systems, including in the use of the grain allocated for the PDS. TABLE IV. 1: MONTHLY PER CAPITA PURCHASE OF RICE FROM THE PDS, BY MPCE GROUP, KERALA, RURAL AND URBAN, 1993-94 AND 1999-2000 MPCE Group 1 2 3 4 5 6 7 8 9 10 11 12 All Rural areas 1993-94 4.04 4.54 4.66 4.68 4.34 4.58 4.55 4.54 4.61 4.25 3.77 2.94 4.2 1999-2000 4.87 6.17 4.78 5.57 5.16 5.91 4.75 4.88 5.2 4.11 3.37 2.4 4.14 Urban areas 1993-94 3.47 4.63 4.38 4.65 4.75 4.34 4.23 3.79 3.86 2.82 2.26 2.4 3.9 1999-2000 4.42 4.73 4.29 4.9 5.64 4.49 4.12 3.29 2.84 1.88 1.29 0.83 3.48

Note: Figures in this table are from the Union Budget and may not agree with those elsewhere in the Report which are calculated from FCI Accounts

TABLE IV. 3: COMPONENTS OF THE ESTIMATED FOOD SUBSIDY OF THE CENTRAL GOVERNMENT, 2001-02 Year Antyodaya Subsidy (Rs crore) 1,148 Percentage of total Subsidy 5.5

BPL APL Total for PDS Carrying cost Total food subsidy

5,392 488 7,028 13,915 20,943

25.7 2.3 33.5 66.5 100

TABLE IV. 2: FOOD SUBSIDY OF THE CENTRAL GOVERNMENT Year Total subsidy (Rs crore) 2450 2850 2785 5537 4509 4960 5166 7500 8700 9200 12060 17612 Subsidy on Buffer Food subsidy as Food buffer subsidy as % % of total subsidy as stocks of total food expenditure % of GDP subsidy 2.33 2.56 2.27 3.9 2.8 2.78 2.46 3.23 3.11 3.03 3.4 0.48 0.48 0.41 0.7 0.49 0.46 0.42 0.54 0.53 0.51 0.63 0.84

1990-91 1992-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-2001 2001-2002

451 1246 1853 1419 763 937 1596 1894 4233 5680

16.2 22.5 41.1 28.6 14.8 12.5 18.3 20.6 35.1 41.5

Note: Figures in this table are from the Union Budget and may not agree with those elsewhere in the Report which are calculated from FCI Accounts

TABLE IV. 3: COMPONENTS OF THE ESTIMATED FOOD SUBSIDY OF THE CENTRAL GOVERNMENT, 2001-02 Year Subsidy (Rs crore) 1,148 5,392 488 7,028 13,915 20,943 Percentage of total Subsidy 5.5 25.7 2.3 33.5 66.5 100

Antyodaya BPL APL Total for PDS Carrying cost Total food subsidy

Note: This is based on FCI data but excludes subsidies on offtake other than PDS [1] Bhaskar Dutta and Bharat Ramaswami, 2001, Economic and Political Weekly,. [2] Madhura Swaminathan and Neeta Mishra, 2001, Economic and Political Weekly. [3] Kriesel and Zaidi, 1999 [4] See George 1979, and Koshy et. al. 1989)

[5] See Suryanarayana, Food Policy, 2001. [6] See Krishnakumar, Frontline, 2000) [7] The total number of fair price shops in the State is reported to be 14,261 in 2002.