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8/2/2019 REviving PDS
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Public Distribution System
Social issue of Economic relevance
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The proposed National Food Security Act (NFSA) has raised some
important concerns about the future of the public distributionsystem (PDS) in India. Many have taken this opportunity to
advocate cash transfers or food coupons as a possible alternative
to the PDS by highlighting the large-scale diversion of food grains
in states such as Bihar and Uttar Pradesh.
The targeted public distribution system, intended to provide
subsidised food to poor households, is the largest welfare
programme in India, with a budget corresponding to about 1% ofthe net national product. Several studies have found the system
to be inefficient and costly in assisting the poor.
There are others who feel that a reformed PDS that extends
benefits to all households irrespective of income is essential for
ensuring food security.
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Reformed PDS System
&
Cash Transfer
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Reformed PDS System
Lessons from Chhattisgarh
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The findings from 12 randomly selected villages inMahasamund and Sarguja districts of Chhattisgarh aspart of the PDS Survey 2011. Of the 144 householdsthey interviewed, 97% had received their full
entitlement of foodgrains in the previous threemonths (March, April and May 2011) and 95%preferred the PDS to a system involving cashtransfers.
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The Raman Singh-led government that came to power in the
state in late 2003.
Turnaround of the PDS
One of the first steps taken by Chief Minister Raman Singhs
government was passing the Chhattisgarh Public Distribution
System (Control) Order, 2004, which shifted the management of
ration shops from private dealers to community-based
organisations such as gram panchayats, self-help groups (SHGs)and cooperatives.
All 12 shops were either in a PDS building or the panchayat
bhavan.
8 run by cooperatives, 3 run by gram panchayats and 1 run by a
womens SHG.
The new system had led to better accountability because those
running the shops were from the villages.
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The second step was addressing the problem of diversion of
foodgrains while they were being transported from government
godowns to PDS outlets in private trucks. To reduce leakages, the
government decided to dispense with private players and directlydeliver foodgrains to ration shops. To make this process
transparent, the government trucks engaged in doorstep
delivery of PDS foodgrains were painted yellow. This, combined
with a government order that made it mandatory for foodgrains toreach ration shops by the seventh of every month, helped plug
leaks as well as ensure the timely distribution of rations .
Third, a significant reform initiated by the state government wasthe launch of the Mukhyamantri Khadyann Sahayata Yojana (MKSY,
or the chiefministers food relief scheme) in April 2007.
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1.33 million households in Chhattisgarh that were receiving
subsidised foodgrains from the central government
MKSY added 1.9 million households who could purchase
foodgrains subsidised by the state government
Once again, the impact of this reform was evident during ourinterviews, as approximately 63% of households were receiving
subsidised foodgrains under the MKSY. This state-level initiative
helped Chhattisgarh make the transition from a targeted to a
quasi-universal PDS, one that covers approximately 80% of thestates rural population.
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While these reforms have played a pivotal role in the revival of
the PDS in Chhattisgarh, ration shop managers and gram
panchayat representatives we interviewed mentioned some
other initiatives that the state government had taken to reduceleakages and improve transparency.
These included:-
Increasing the commission paid to ration shopowners from Rs8 to Rs 30 per quintal of rice
Procuring more foodgrains from farmers in the state to
encourage them to raise outputs,
Making electronic weighing scales mandatory in all ration
shops and
Conducting verification drives to identify and cancel bogus
ration cards.
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Room for Improvement
Extension counters are vital for improving the outreach of
the PDS as some of the most vulnerable groups, such as the
so-called primitive tribal groups, often live in areas that are
not easily accessible.
As rice is the staple food in Chhattisgarh, many households
were unhappy with the 10 kg of wheat that is provided as
part of the 35 kg foodgrain entitlement and wanted it to be
replaced with rice.
Households with more than four members suggested thatfoodgrain entitlements should be based on the number of
individuals because 35 kg was not adequate for their monthly
consumption.
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The majority (95%) is in favour of an in-kind transfer of PDS foodgrains
Choose between foodgrains from the PDS and
a cash transfer to bank/post office accounts
Yes
95%
No
5%
PDS foodgrain transfer VS Cash Transfer
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Result of the actions for State Government
Some even felt that it was the
turnaround of the PDS thathad been responsible for the
Bharatiya Janata Party beingvoted back power in 2008
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Cash Transfers
Case for & Against
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The Case for Cash Transfers
The main advantages with the differentiated CT scheme suggested here arethat
(1) About two-thirds of all households can be covered
(2) The transfers to the poorest are huge compared to the actual transfers
embedded in the TPDS,
(3) The impact on income distribution is progressive,(4) The risk of large exclusion errors is eliminated,
(5) The scope for corruption and fraud is diminished,
(6) Operational costs are slashed,
(7) No poverty lines,
(8) No central caps are required,(9) Objections from the one-third of households left out
would probably be muted as they may prefer not to be brandished
as poor, and
(10) The overall budget can be held at the level of the present TPDS.
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Subsidised foodgrains means that households have the effortless and costless option
to cut down on open-market purchases of grains and use the money thus freed to
buy whatever they prefer
Process to transfer the cash to household
It is hard to believe that India, with its world-class software industry, will
not be able to find the technical solutions required for distributing cash
electronically to poor households in a CT scheme.
It is not clear how transfers of cash to the poor would allow them to buy grains
from the open market in times of steep inflation
Providing cash rather than tying the transfer to food subsidies may lead to
unwarranted consumption, such as tobacco and alcohol
A major concern with regard to cash transfers was the remoteness of banks and
markets
Several respondents told us that if the system changed to cash transfers, they would have
to make frequent trips to the bank and market whereas the PDS now provides rations in
the village itself.
The Case against Cash Transfers
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A common reason for the lack of trust in cash transfers was peoples unsatisfactory
experiences with government schemes involving direct transfers of money to
beneficiaries.
Some cited delayed payments under the MGNREGS as their reason for preferring the
PDS
A concern voiced by many respondents was that there was no guarantee that rice would
be available in the market even if they received the money on time.
Lean season, prices of foodgrains in the open market rise due to erratic supply and the
local ration shop is often the only hope for many.
What bothered most respondents was the thought of giving up the food security offered
by the PDS for unpredictable cash transfers. This was particularly true of women, who
worried that they would lose control over household budgets because it would be men
who travel outside the village to withdraw money from the bank and buy things for the
house. Many felt that the money intended for buying food would be spent on non-food
items, particularly alcohol.
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The case for replacing subsidies with CTs has gainedground in India generally. Most notably, in the mid-
2000s, NREGA replaced a plethora of earlier work-for-
food schemes with cash for work.
The GOI has announced that subsidies for fertiliser and
kerosene will be replaced by CTs (Kapur 2011).
State governments in Delhi, Haryana and Uttar Pradeshhave submitted proposals for substituting food
subsidies with cash transfers on a pilot basis.
Cash Transfers in India to Date
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Concluding Remarks and Caveats
Providing unconditional cash to poor households will lead toreduced labour supply.
Higher incomes of the poor will increase demand for food and
hike up food prices
The net effect in the Indian context would not be possible as nocomprehensive CT scheme exists.
The only solution to the long-term poverty problem is that the
labour productivity of the working poor increases.
A switch from the TPDS to a targeted and differentiated all-
India CT scheme, based on biometric UID cards, cannot take
place before these have been issued to all households, or to the
great majority. This will take time, perhaps several years,
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Cash Transfer in Urban areas
Think about itits impact on urbanslum