Coupening the PDS

The Public Distribution System (PDS) operating through the fair price shops are the single most crucial outlet to address the poverty and hunger in the country. Unfortunately money hungry corruption rats have not spared this vital instrument to help the poor people in the country. From top level politicians to the bottom level fair price shop sales personnel, swindling the food resources meant for the extremely poor people is order of the day. So much so these corrupt rats have bulged in their physique and wealth beyond the known sources of their income. There is no way so far these rotten rats could be controlled. The Government announces its genuine intention to rein in these rats publicly. So the sweet word goes. But nothing happens after the announcement. The recent news about the UPA II’s reform agenda to clean up the PDS is welcome. Let us wait and watch how this is going to work.

T. Nandakumar writes in The Economic Times on 27 April 2010

The government seems to be considering a new system to replace the present system of targeted public distribution system (TPDS) with food coupons or direct cash transfer. The ills that plague the present TPDS are well-known and well-documented.

The two national surveys, one by Programme Evaluation Organisation of the Planning Commission and the other by ORG-Marg, both at the instance of the Union government, have identified the major problem areas in the present system. These can be summarised as follows:

Exclusion errors: Families who deserve to be in the BPL list are excluded,

Inclusion errors: Families who are not eligible are included,

Ghost cards: Ration cards in the name of fictitious/non-existent families,

Leakage at fair price shop: Simply stated, the quantum of food grain leaked/stolen by transporters/shopkeepers, and

Unacceptable quality: Complaints of quality sometimes due to the replacement of procured stocks by lower quality at various levels.

Does the proposed system of food coupons address these deficiencies? The system of food coupons cannot address the issues of exclusion and inclusion errors since these emerge from the process of identification. Who would not like to be included in the BPL list, especially when many goodies flow from the welfare state, be it subsidised health care or an Indira Awas?

The chances, therefore, are that the errors in identification will remain. Add to this the arguments for increasing the scope (read: size) of the BPL list (Tendulkar committee, Saxena committee et al). Ghost cards, however, could be minimised if the payment systems are designed properly.

The food coupons can effectively break the hegemony of the present set of fair-price shopkeepers, who, over a period, have developed vested interests and have also managed to gain substantial political clout. In fact, most of the ills of the present system can be attributed to the patronage in allocating fair price shops.

To be fair to these shopkeepers, the commission they get is so low that they are compelled to resort to malpractices, which over a period of time has become a habit driven mostly by greed. The resistance faced by the government of Chhattisgarh in moving to a new system of shops is ample testimony to this.

The first step in the food coupon system, therefore, has to be the closure of all existing fair price shops – they can continue to be normal grocery shops if they wish – in the area and giving a choice to the coupon holders to buy their food grain from any ‘designated’ grocery shop in the region. I use the word designated because the payment mechanism for the proposed coupons will need financial oversight.

If there are too many choices, managing the accounts could be problematic. Ideally, the coupon holder in a ward/area could be given an option to purchase her food grain from a set of identified grocery shops – not less than three and not more than five – every month. The coupons shall carry a fixed value – the value will have to change at least every year to take care of inflation – and the shopkeeper permitted to encash these coupons from designated bank branch(es) in the locality. The coupons should also have a validity period to allow the shopkeepers to deliver food grain every month. The success of the scheme will depend on a caveat that there will not be any scrutiny of the items purchased by the family as long as the coupon has been used in the designated shop and during the month for which it is authorised.
Most importantly, the coupon gives a choice to the family to choose the grain it prefers. This should take care of most of the quality complaints. Even if the coupon has been used to buy other things such as pulses, edible oils, sugar etc, it is worth the effort. All the coupons for a year should be given to the family at one go. This will facilitate verification where required every year as well.

Given the propensity of the male members of the family to misuse the coupons and exchange them for money – even if this happens, the government should not bother – the cards and the coupons should be in the name of the female member of the family. There is likely to be an argument that food-deficit regions will be adversely affected by this system. The success of the coupon system will depend on providing choices to coupon holders at the point of purchase.

Therefore, adequate availability of food grain is a sine-qua-non for the success of this initiative. It would, therefore, be prudent to start this initiative in big towns and in food-surplus states. However, states with universal two-rupee rice schemes may not be too keen to accept this scheme. It would be necessary to incentivise the states that agree to implement this scheme.

Is there a possibility of spurious coupons getting into the system? Yes, there is. The traceability of the coupons has, therefore, to be built into the system. What will then happen to FCI and procurement? In the new system, the government can fix MSP without looking at procurement targets. The market will determine the actual prices. FCI can continue its MSP operations and also keep the buffer and strategic reserves for the government. FCI, hopefully, will become a lean and efficient organisation. The excess stocks, if any, can be offloaded into the market at suitable intervals to keep a lid on prices.

While food coupons is a good idea, one must understand that this does not remove all the ills in the system: but is better than the present system by all means. However, direct cash transfers to the beneficiary (women) will be a much better option. This could even attempt to reduce the inclusion errors since bank payments can be tracked easily. With so many ATMs available in cities, this could be the best available option at this point in time at least for the cities. The success of the scheme will depend on its design and, more importantly, its phasing.

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