The Hindu : PDS: universal or targeted?

Online edition of India's National Newspaper
Tuesday, Apr 29, 2003

Opinion

Opinion - Leader Page Articles

PDS: universal or targeted?

By Kamal Nayan Kabra

It is better to have a targeted PDS... this kind of an approach can limit the operations of both the market forces and the bureaucracy.

THE PUBLIC Distribution System (PDS) continues to remain under strain for many reasons. Whether it is a situation of a virtual glut in the food market, or of acute scarcity, the problems surrounding the PDS persist. This instrumental intervention has ironically become a problem entity in India's food, fiscal, welfare and development policy arenas. Despite achieving a fairly good level of production in cereals, food insecurity continues to haunt an estimated 300 million. This hunger is chronic, manifested in malnutrition and causes acute distress during every lean season. This is evident in the embarrassingly huge size of unsold public food stocks at 3 to 4 times the annual sales under the PDS for the last three years.

Such widespread food insecurity, with its cyclical worsening, calls for a slew of long-term measures, structural-institutional changes and a rewriting of priorities, policies and systems of socio-economic management. These are nowhere in sight. In fact, quite a few of the prevalent policies and programmes for accelerating food production tend to impact the food insecure people negatively, on ecological, distributive and social balance grounds.

The adoption of the PDS to mitigate hunger was facilitated as a by-product of the policy of ensuring minimum support prices (MSP). Lately, the realisation crisis and dampened market prices have increased the volume of procured and unsold grain showing that increased production is not sufficient to ensure eradication of hunger. After all, procurement and distribution arrangements by public agencies are not sufficient by themselves to ensure off-take by those without a regular access to means of livelihood. When off-take fails to match procurement, stocks pile up and heavily subsidised exports are resorted to. The domestic market availability is also affected. As a result, the carrying cost incurred by the public agencies goes up. This cost of unsold food stocks in no way mitigates hunger or improves consumption by the indigent. Hence, it cannot be treated as consumer subsidy. This makes food management cost, inappropriately classified as food subsidy, higher than the consumer subsidy availed of by the buyers of the PDS supplies. Moreover, the off-take from the PDS channels is not necessarily equal to supplies lifted by the consumers as the former are sales/disposal by the retail PDS outlet, including diversion, short-weighing, sale to non-bona fide entities, etc. The cost of carrying buffer stocks has to be treated as a cost of macro-economic management. There is little justification for treating it as a part of the economic cost for determining the PDS issue price.

The cost incurred for ensuring MSP to the growers can be treated as consumer subsidy only if the food is actually bought by the households. There is an involuntary addition to the food stocks beyond the buffer requirements, brought about by the policy of ignoring the price-income frontier or the affordability and preference pattern of the intended users. The cost of carrying such unsold stocks is due to a policy failure and can hardly be considered a subsidy benefiting the PDS users.

The above analysis of the PDS mechanics, or its interface with the households as consuming entities, assumes particular relevance in the light of the recent tinkering with the PDS in the name of targeting. The real reason for the changes in terms of instituting a price regime and entitled quantity discrimination between the so-called APL (above poverty line) and BPL (below poverty line) families was the need to cut down fiscal deficit. The ironies, disfunctionalities and distortions which spring from the distinction become acute as the actual ground-level identification of the APL/BPL families remains arbitrary, subject to many extraneous factors.

This makes for diversion of the PDS supplies to the non-intended sections. Can any public expenditure which does not reach and benefit the intended persons be treated as a `subsidy' granted to them? If a subsidy is defined as that part of public spending which is incurred for providing a service to the citizens but is not fully recovered from them by means of charging a user price, the deficit becomes a subsidy only if the service is actually received by the citizens. The so-called food subsidy, or rather food consumption subsidy, would fail the test of this definition if the food does not reach the households on account of not the decisions of the consumers but due to the failures on the supply side.

The intensification of the divergence between intended or ex-ante subsidies and actual or ex-post subsidies can be traced to the desire to introduce target-groups orientation in the PDS. As a result, price discrimination between APL and BPL families was introduced. The policy led to a sharp decline in off-take. Apparently, the APL people who used to buy at the old prices found the new price too high, especially in view of the depressed prices in the open, unregulated market. The BPL people's inability to buy seems to have been related also to poor income flows.

The PDS is not supplemented by income augmentation programmes. As a result, the intended beneficiaries could not access the PDS supplies. The mismatch between intended and actual beneficiaries is a long-standing phenomenon. The earlier system was statedly universal without targeting any group negatively or positively. That is to say, there was no policy/administrative targeting. But the number of people entitled to avail of the PDS and their entitlements were far in excess of the supplies procured by and available with the public agencies. The process of allocation from the Centre down to the fair price shops too was ad hoc and hardly bore any connection with the actual quantities the people in a given area were given entitlement to. There was no explicit, well-defined targeting, but a series of ad hoc administrative practices and market processes brought about de facto targeting. Owing to inadequacy of the total quantum sold through the PDS, defects in the delivery system, and (unholy) alliance between the retail outlets and the lower bureaucracy, the operational model of the PDS excluded the worse-off.

Given the reluctance/refusal/inability of the present dispensation to enforce, fully and effectively, a universal PDS and the market-bureaucracy determined exclusion/ discrimination, it is better to have a targeted PDS which excludes those who are farmers with marketed/ marketable output, become better-off as a result of inflation, whose incomes are indexed to price movements, who are income-tax payers, etc., and make the PDS available to the food insecure/vulnerable sections by means of issuing PDS cards based on a door-to-door survey in each village and slum by a team of empowered officials, local social/political workers (who issue on-the-spot PDS entitlement cards) and supplement the PDS with a regular income supplementation programme. This kind of an approach can limit the operations of both the market forces and the bureaucracy. But a sine qua non for the success of this scheme is the provision of PDS supplies commensurate with the entitlement.

(The writer is a former Professor of Economics, Indian Institute of Public Administration, New Delhi.)

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