India's PDS faces leakages, reforms needed for efficient distribution

The Union government provides free foodgrain to 813.5 million beneficiaries under the National Food Security Act (NFSA). Foodgrain is distributed to Antyodaya Anna Yojana households and priority households through over 500,000 fair-price shops across the country. It is reasonable to argue that as the country develops and incomes rise, the number of people dependent on such government support should decline. However, that’s not the case with India. A new study by Raya Das, Ranjana Roy, and Ashok Gulati has mapped how the public distribution system (PDS) has evolved, and what the consumption data says about its effectiveness, which deserves wider discussion and policy attention. The study finds that about 28 per cent of the allocated grain fails to reach the intended beneficiaries, with a significant cost to the exchequer.

 

While the PDS in India has a much longer history, the targeted PDS was launched in 1997-98. The issue price for households below the poverty line (BPL) was set at 50 per cent of the minimum support price (MSP). The price was set at 90 per cent of the MSP for households above the poverty line. The system had an inbuilt mechanism for price adjustment. Modifications were made over the years, but the system was overhauled with the passage of the NFSA in 2013. The Act covered 67 per cent of the population — 75 per cent in rural areas and 50 per cent in urban locations. Since the issue prices were low, overall costs kept mounting with the increasing carrying cost. The government decided to give additional foodgrain free during the pandemic to eligible beneficiaries under the Pradhan Mantri Garib Kalyan Anna Yojana, which was useful in supporting the most vulnerable sections of society. After multiple extensions, it was merged with the NFSA, and foodgrain to all eligible beneficiaries is being provided free of cost. 

Therefore, the scope and scale of the PDS have increased significantly over the years despite the economy making significant progress. The Union government’s food-subsidy bill for the ongoing year is budgeted at Rs 2.05 trillion. Given the scope of the PDS, it is important to gauge its effectiveness. Although leakage in the system has been reduced over the years with increased use of technology, it is still substantial. Based on 2011-12 consumption numbers, the Shanta Kumar Committee (2015) had estimated leakage from the system at about 46 per cent. Based on the latest Household Consumption Expenditure Survey data, the above-mentioned study finds that 28 per cent of the grain supplied by the Food Corporation of India and state governments is not reaching beneficiaries, resulting in a monetary loss of Rs 69,108 crore.

 

Besides this annual cost, which will only increase with increasing MSPs and the overall carrying cost, it is well established that the programme is insufficient to fulfil citizens’ nutritional needs. Over 30 per cent of children under the age of five, for instance, are reported to be underweight and over 15 per cent of all adults have a low body mass index. Thus, given the expenditure and outcomes, it is time to revisit the programme and reorient it in a way that works for both the government and beneficiaries. With multidimensional poverty declining significantly, the targeted number of beneficiaries also needs to be reassessed. Since cash transfers have gained popularity and are more efficient in terms of management, the feasibility of implementing cash transfers for food subsidies should be earnestly explored.