A CASE FOR A REVAMPED NEED BASED PDS

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THE CONTEXT: The Economic Survey rightly flagged the issue of a growing food subsidy bill, which, in the words of the government, “is becoming unmanageably large”.The reason is food subsidy, coupled with the drawal of food grains by States from the central pool under various schemes, has been on a perpetual growth trajectory. This article discusses the issues related to increasing food subsidies, the need to recast the system, and possible solutions.

PUBLIC DISTRIBUTION SYSTEM

Basic information: 

PDS evolved as a system of management of scarcity through the distribution of foodgrains at affordable prices.

• The public distribution system (PDS) is an Indian food Security System established under the Ministry of Consumer Affairs, Food, and Public Distribution.
• PDS is operated under the joint responsibility of the Central and the State Governments:
• The Central Government, through the Food Corporation of India (FCI), has assumed the responsibility for procurement, storage, transportation, and bulk allocation of food grains to the State Governments.
• The operational responsibilities including allocation within the State, identification of eligible families, Issue of Ration Cards, and supervision of the functioning of Fair Price Shops (FPSs), etc., rest with the State Governments.

Evolution of the system:

• Before 1960-PDS was introduced during the time of World War II. It was before the year 1960 that the distribution through PDS was dependent on imports of food grains.
• 1960s-The Public Distribution System was then expanded in the 1960s to handle food shortages and take care of distribution.
• The Food Corporation of India and the Commission of Agricultural Costs and Prices were also set up by the government of India to improve domestic procurement and storage of food grains.
• 1970s – It was during the 1970s when PDS evolved as a universal scheme for the distribution of food.
• 1992- The Revamped Public Distribution System (RPDS) was launched in 1992 with a view to strengthen and streamline the PDS as well as to improve its reach in the far-flung, hilly, remote, and inaccessible areas.
• 1997- the Government of India launched the Targeted Public distribution system (TPDS) with a focus on the poor.
• Beneficiaries under TPDS Divided into 2 categories – Households Below Poverty Line and Households Above Poverty Line.
• 2000- Antyodaya Anna Yojana (AAY)launched in December 2000 was a step in the direction of making TPDS aim at reducing hunger among the poorest segments of the BPL population.

Functions:

• The center procures food grains from farmers at a minimum support price (MSP) and sells them to states at central issue prices. It is responsible for transporting the grains to godowns in each state.
• States bear the responsibility of transporting food grains from these godowns to each fair price shop (ration shop), where the beneficiary buys the food grains at the lower central issue price.
• Many states further subsidize the price of food grains before selling them to beneficiaries.

FOOD SECURITY AND PDS SYSTEM

• With a network of more than 400,000 Fair Price Shops (FPS), the public distribution system (PDS) in India is perhaps the largest distribution machinery of its type in the world.
• PDS is said to distribute each year commodities worth more than Rs15,000 crore to about 16 crore families.
• This huge network can play a more meaningful role if only the system is able to translate into micro-level macro-level self-sufficiency by ensuring the availability of food grains for poor households.
• Food Security of beneficiaries is ensured by distributing food grains at subsidized prices through the Targeted Public Distribution System (TPDS). It protects them from price volatility due to inflation.
• Over the years, while the spending on food subsidies has increased, the ratio of people below the poverty line has decreased.

THE ISSUE

• During 2016-17 to 2019-20, the subsidy amount clubbed with loans taken by the Food Corporation of India (FCI) under the National Small Savings Fund (NSSF) towards food subsidy, was in the range of ₹1.65-lakh crore to ₹2.2-lakh crore. In the future, the annual subsidy bill of the Centre is expected to be about ₹2.5-lakh crore.
• As the National Food Security Act (NFSA), which came into force in July 2013, enhanced entitlements (covering two-thirds of the country’s population), this naturally pushed up the States’ drawal.

(Based on an improved version of the targeted public distribution system (PDS), the law requires the authorities to provide to each beneficiary 5 kg of rice or wheat per month.)

• For this financial year (2020-21) which is an extraordinary year on account of the COVID-19 pandemic, the revised estimate of the subsidy has been put at about ₹4.23-lakh crore, excluding the extra-budgetary resource allocation of ₹84,636 crores.

OTHER CHALLENGES RELATED TO THE FOOD SUBSIDY

• While MSP is declared for 23 crops, the biggest financial burden comes from wheat and rice.
• Overall procurement of rice and wheat has gone up to 52 million tonnes and 39 million tonnes, respectively. The requirement of PDS and welfare schemes is about 60 million tonnes.
• This leaves a surplus of about 30 million tonnes, in addition to the carry-over stock of about 42 million tonnes (current)—far above the buffer and strategic reserve norms.
• The cost of holding this stock works out to Rs 29,000 crore per year.

WILL INCREASING CIP REVAMP THE SYSTEM?

Foodgrains via ration shops are supplied at highly subsidized rates of ₹3 per kg for rice, ₹2 per kg for wheat, and ₹1 per kg for coarse grains through the Public Distribution System (PDS) as per the National Food Security Act (NFSA).

• The Economic Survey has hinted at an increase in the Central Issue Price (CIP), which has remained at ₹2 per kg for wheat and ₹3 per kg for rice for years, though the NFSA, even in 2013, envisaged a price revision after three years.
• One should ponder over the advisability of keeping so low the retail prices of food grains at fair price shops, even after the passage of nearly 50 years and achieving substantial poverty reduction in the country. As per the Rangarajan group’s estimate in 2014, the share of people living below the poverty line (BPL) in the 2011 population was 29.5% (about 36 crores).
• The Centre, by stating through the Survey that it is difficult to reduce “the economic cost of food management in view of rising commitment” towards food security, does not want the NFSA norms to be disturbed.

Political compulsions are perceived to be coming in the way of the Centre and the States increasing the prices.

POSSIBLE SOLUTIONS

Decreasing the quantum of coverage:

• It is time the Centre had a relook at the overall food subsidy system including the pricing mechanism. It should revisit NFSA norms and coverage.
• An official committee in January 2015 called for decreasing the quantum of coverage under the law, from the present 67% to around 40%.

“Give-up” option:

• For all ration cardholders drawing food grains, a “give-up” option, as done in the case of cooking gas cylinders, can be made available.
• Even though States have been allowed to frame criteria for the identification of PHH cardholders, the Centre can nudge them into pruning the number of such beneficiaries.

Slab system:

• As for the prices, the existing arrangement of flat rates should be replaced with a slab system. Barring the needy, other beneficiaries can be made to pay a little more for a higher quantum of food grains.
• The rates at which these beneficiaries have to be charged can be arrived at by the Centre and the States through consultations. These measures, if properly implemented, can have a salutary effect on retail prices in the open market.

CONCLUSION

• There are no two opinions about reforms implemented in the PDS through various steps, including end-to-end computerization of operations, digitization of data of ration cardholders, seeding of Aadhaar, and automation of fair price shops.
• Yet, diversion of food grains and other chronic problems do exist. It is nobody’s case that the PDS should be dismantled or the in-kind provision of food subsidy be discontinued.
• After all, the Centre itself did not see any great virtue in the Direct Benefit Transfer (DBT) mode at the time of giving additional food grains free of cost to the States during April-November last year (as part of relief measures during the pandemic).
• A revamped, need-based PDS is required not just for cutting down the subsidy bill but also for reducing the scope for leakages. Political will should not be found wanting.