Ideas/models for improvement of Public Distribution System

 

A brief description of possible models either implemented or proposed by NGOs in India on improving the public distribution system in India.

 

Emerging issues

 

• Import of substandard wheat
• Rising food prices

 

Requested By- Research wing of  main stream political party

 

 

 

 

DUE DATE: March 15, 2008

 

Response

 

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Background

 

PDS in India is the oldest and one of the most comprehensive anti-poverty programmes in terms of budgetary expenditure of the Central and State governments. From the mid-1960s, it has evolved into a price support, rationing and subsidy programme. Although the food situation in the country has undergone drastic changes, from recurring scarcity to a food surplus situation today, the PDS is continuing more or less unchanged.  There is a serious regional mistargeting of PDS. That is, in Kerala and Andhra Pradesh, where the level of poverty is substantially low, the offtake from PDS is better, whereas in Orissa and Madhya Pradesh, where the level of poverty is substantially high, the offtake is poor, thereby confirming the widely held view that there is limited access of the poor to India's PDS.  The cost of PDS operation is too high. A rupee of income transfer through food and non-food items sold through PDS involves a fiscal cost of Rs 4.27 to the government, making the scheme grossly unsustainable. Welfare gain from PDS is negligible. On per capita terms, it works out to Rs 2.01 per month in rural areas and Rs 3.40 per month in urban areas. For the country as a whole, the reduction in poverty due to PDS is hardly two percentage points of the poverty ratio.

 

 

Further criticisms include the urban and pro-rich bias of the system and its ineffectiveness in reaching the poor; the lack of effective contribution towards household food security; PDS is not cost-effective and its operations are too costly due to `wasteful' movements of grain and high storage losses. Another valid deficiency was its marginal impact, as far as income transfer to poor households is concerned. Despite such flaws in the PDS, official circles adopted the typical insensitive approach and declared that, ``the system has, however, come to stay, notwithstanding its shortcomings, because millions of India's poor derive direct or indirect benefits from the very existence of this system''. All they suggested was some tinkering.

 

 

 

The Debt Trap and Social Inequality

 

 

The Public Distribution System (PDS) was launched in the early 1960s as a means to prevent the famines that had long decimated India. Yet, today the PDS is more than a stopgap against famine; it provides regular food grain assistance to over eighty million families in India, and accounts for one third of the nation's food grain trade.10 Despite its continuing relevance, the Indian government is currently in the process of dismantling the PDS as part of an ever more liberalized agricultural economy that is reducing tariffs on imports, promoting genetically engineered seeds, and embracing transnational agro-business.

 

 

These structural adjustments exacerbate access to affordable food by the people who need it. And they do not acknowledge that nearly three in every four Indians is a farmer. World Trade Organization pressure to accept—free of tariffs—imports of food-grains and edible oils from countries including the U.S., undercuts the price that small and mid-size marginal Indian farmers receive for their crops. Further, bio-engineered seeds require that ever more costly inputs be purchased by already debt-ridden farmers. With the severely weakened PDS buying less and less subsidized domestic food grains, the nationalized Food Corporation of India (FCI) has lost its biggest customer. For farmers, this has meant that their biggest customer, the FCI, is often no longer interested in buying their crops. Prices are often too low to offset the cost of inputs that went into producing it; the high production costs that initially priced small and medium farmers out of industrial agriculture are now overwhelming larger ones as well.

 

 

These low prices are in many ways the result of the low, Minimum Support Price (MSP) set by the government. Other factors also contribute to the debt crisis. Some argue that Punjab's excess production has led to a glut which deflates the grain prices paid to farmers. Others argue that falling yields, due to soils damaged by years of chemical fertilizer and pesticide use, have meant that farmers' incomes can not keep up with input costs.11 The majority of available evidence points to smaller Punjabi farmers being proportionally more affected by debt woes than larger ones, which exposes an undeniable connection between social inequality and debt accumulation in rural Punjab.

 

 

Given that today's agricultural economy favors large producers, small farmers have almost no ability to secure credit through conventional banks, allowing usury moneylenders to step in. High interest rates, combined with the low annual income of the small farmer, has created a vicious "debt trap." Once caught in this trap, the small farmer must sell or mortgage his land; an "extreme" step taken by about fourteen percent of small farmers as well as a few entire villages.

 

 

Green Revolution Ecological Disaster

 

 

Traditional and sustainable agricultural knowledge was abandoned with the introduction of the Green Revolution. Instead of intercropping nitrogen-fixing legumes with cereals, synthetic fertilizers and pesticides are applied to monocrops of high yielding varieties (HYVs) of rice and wheat. In addition to high levels of synthetic inputs, these HYVs also required dramatically more water inputs to actually produce greater yields. Increased yields came at the expense of heavy pesticide use and excessive irrigation, soil infertility, and HYV pest and disease susceptibility. And there are associated health problems and increased financial costs of even further inputs to maintain high yields.

 

 

Debt and Despair Lead to Farmer Suicides

 

 

A cursory glance might make it difficult to see the direct links between the Green Revolution and this epidemic of farmer suicides. Suicide can be viewed as an individual decision made by a single person driven to despair out of a complex web of motivations. Direct connections between that decision and a specific, historical moment are often difficult to make. Yet seen in another light, the issue of farmer suicide is indivisible from each and every one of the country's current environmental, economic and social crises. The particulars of these crises—the "specific ecological moments" of falling water tables or dying soils for example—are then crucial points for understanding the interconnections. The totality of Punjab's agricultural crises can be seen in its true magnitude by linking water shortages, high input costs, crushing debt, and finally farmer suicide.

 

 

 

 

 

DOMESTIC NGOs IMPROVE AND INNOVATE

 

PARIVARTAN: Transparency and Corruption-free

 

Parivartan organized a Public Meeting on 31 July 2004 at Gandhi Peace Foundation inviting not just ration seekers but also officials from the Food department, Delhi government, Delhi Police, eminent citizens and legal experts. In the hope that government accountability and punishment to the culprits is the rule and not an exception, a resolution was passed at the Public Meeting with the following details:

 

 

 

1.      The resolution recognized that the Food and Supply department has no procedures to adequately deal with various food complaints. A committee is proposed to be set up under the chairpersonship of the Public Grievance Commission. The committee will comprise representatives from NGOs, Food department etc. and make recommendations on how grievances related to PDS can be handled and prescribe penalties for corrupt officers.

 

 

 

2.      The State government should direct the Police to register an FIR even on complaints from the public.

 

 

 

3.      The Essential Commodities Act and the PDS Control Order list several offences for which a criminal case needs to be filed. The duty of the Food officials is not to decide the gravity of the case but take the case to the Police who in turn can present it before the Magistrate, who decides the level of criminality of the case and imposes punishment.

 

 

 

4.      The PDS Control Order stipulates that the ration shopkeepers submit records to the Food department. Until now, they have not been submitting their records on the pretext of having lost them. However, it should be made mandatory for the shopkeepers to submit their records so that the Food department has them when the public demands the records.

 

 

 

5.      The application and inspection fee under the RTI is exorbitant for the poor people and should be reduced. Sixth, the stock arrival position (quantity and date) should be displayed on the notice board of every Circle Office. Seventh, in an appeal, the State government is asked to increase the commission of the ration shop keepers – which is unanimously considered low – so that they can lead an honest life, if they so wish.

 

 

 

6.      The Central government is appealed to abolish the upper limit of the number of BPL card holders (presently numbering just about 4 lakh). Anyone who goes to the ration shop should be granted a card after verification of their financial background. Moreover, the cards in the Above Poverty Line (APL) category – most of who do not pick up their ration – should be abolished.

 

 

 

MKSS: Accountability

 

One of the MKSS’s most important innovations has been the development of a collective method for analysing the official information it has been able to obtain by persuading sympathetic bureaucrats, or by putting pressure on those who were less forthcoming. In a series of jan sunwais – or "public hearings" – detailed accounts, derived from official expenditure records and other supporting documentation, are read aloud to assembled villagers. These meetings are organised independently, not through the official, statutorily recognised village assemblies (or gram sabhas), but elected representatives and local government officials are also invited to attend. These orderly hearings are presided over by a panel of respected individuals from within and outside the area. Local people are invited to give testimony which highlights discrepancies between the official record and their own experiences as labourers on public-works projects, applicants for means-tested anti-poverty schemes, or consumers in ration shops. Through this direct form of "social audit", many people discovered that they had been listed as beneficiaries of anti-poverty schemes, though they had never received payment. Others were astonished to learn of large payments to local building contractors for works that were never performed. This approach depends upon a principle of collective and very local verification of official accounts, as it is only at the local level that the many small diversions of funds, which go unnoticed in massive formal audits, can be detected. These jan sunwais not only exposed the misdeeds of local politicians, government engineers, and private contractors – in a number of cases leading to voluntary restitution – but also demonstrated the potential for collective action among groups that tend to shun organised "political" activity.

 

 

 

DECCAN DEVELOPMENT SOCIETY: Security vs. Sovereignty

 

Disillusioned with the non-functioning PDS in the country, a group of dalit women farmers in Medak district came together with the help of a local NGO, Deccan Development Society, to experiment with an Alternative Public Distribution System (APDS). The dalit farmers in this region have historically been subject to lot of exploitation in the form of bonded labour, social boycotts, and so on. Most of these farmers own one or two acres of land that was given to them by the government as part of a land reforms programme, but they have never been able to cultivate it. Since there is very little employment in the region, these farmers have to migrate elsewhere and work as labour on farms and perform other odd jobs.

 

 

 

The mainstream PDS model never benefited these farmers. They decided, therefore, that any alternative would have to be significantly different, and based on different ideas about food security than those adopted by the PDS. Indeed, nearly every tenet of the APDS model is the opposite of the view taken by the PDS: reclamation of fallow land rather than increased productivity of existing cultivated lands, biodiverse agriculture instead of market-focused and government-driven planting, and emphasis on local roles rather than centralised administration of distribution. The work itself is carried out through women's collectives, and emphasises 'local' at every stage - production, storage and distribution.In the APDS model, the first step is to work on the patches of degraded lands gifted the dalit farmers through efforts like bunding, trenching, top-soil addition etc. A seed loan is given to the farmers which they would need to repay in the form of grain. The next step is to cultivate this land with traditional and biodiverse agriculture using indigenous seeds. Once the crop is harvested the loan is repaid as grain, and stored in the community grain fund. 

 

 

 

Now comes the turn of distribution. Through a Participatory Rural Appraisal (PRA) effort in the villages, the wealth profile of the village is ascertained. Wealth is ranked in terms of ownership of land, house, livestock etc. Each rank is granted a card of a different colour, which entitles the household to a certain quantity of grain. The poorest family gets the maximum grain. Over the years, the work of the women sanghams in 77 villages has resulted in 5000 acres of fallows reclaimed, and two million kilograms of extra food produced every season. 5000 employment days have been created per village with 52 person days employment generated per acre. Alongside the extra fodder generated is worth 10,000 cattle and 1000 extra meals per family. Overall this implies increased fodder, increased livelihoods and increased wage income.

 

 

 

What such an initiative does, is not just help ensure food security, but moves a step ahead to attain food sovereignty. For farmers, food sovereignty is the right to determine what they sow on their farmers, what they harvest, distribute or sell and what they eat. According to P.V. Satheesh, "the difference between food sovereignty and food security is the same difference that is between self produced food and purchased food. Food Sovereignty is critical because it ensures cheap food for the poor, and nutritious food for the rich. Government policies have induced rice in the food habits and fields of the same dryland communities who had produced and eaten superior foods such as millets, sorghum etc." While the women sanghams continue their effort toward ascertaining food sovereignty in their villages and also convince neighbouring villages for the same, the Government of India remains far removed from this basic logic. The Centre has sent a circular (dated 22nd September 2005) to all state governments towards initiating a new scheme for the establishment of new Village Grain Banks all across the country. This is as per the mandate of the Common Minimum Programme of the present government. It is a Centrally sponsored scheme; the expenditure on the major portion of the scheme will be borne by the Central Government, and it will be the joint responsibility of the central and state governments to implement it. The total cost of each grain bank would be Rs.60,000. Rs.90 per quintal shall be allocated towards the transportation costs of moving grains to villages from the closest depots of the Food Corporation of India (FCI). So it is the grain in the FCI depots which will be used for the setting up of the grain banks.

 

 

 

INTERNATIONAL COMPARISON OF PUBLIC DISTRIBUTION SYSTEMS

 

 

 

SRI LANKA 

 

In 1979, Sri Lanka replaced a four-decade old quantity rationing system by a food stamp scheme. Prior to this change, food subsidies accounted for about 5 percent of GDP or 15 percent of total government expenditure. After the switch to food stamps, the share of food subsidies in GDP and as a percent of total government spending fell to 1.3 percent and 3 percent, respectively.  Two features of this food stamps program have considerably reduced its effectiveness in helping the most vulnerable households. First, the value of food stamps was not indexed to inflation. The immediate consequence is an erosion in the real value of transfer as staple food prices (rice in particular) escalated soon after the switch to a food stamp program. Second, the principal method for identifying eligible households was self-reported household income. The value of stamps was adjusted for household composition: each member older than 12 would receive stamps worth Rs 15; each child between ages 8 and 12 would receive stamps worth Rs 20, and each child less than 8 years would receive stamps worth Rs 25.

 

Thus, the switch from quantity rations to food stamps did result in a reduced fiscal burden to the government, and enhanced the viability of the private sector in the foodgrain retail system. Yet the switch did not guarantee better targeting, nor did it protect the welfare of the most vulnerable. The lessons: (a) It is not enough to switch from one program to another; it is important to get the design of the program right to avoid inclusion and exclusion errors. (b) Before a change is initiated, it is useful to first decide on which objective is to be realized from a program, consider all potential alternatives, and then select he most cost-effective option.

 

 

 

JAMAICA 

 

In 1984, Jamaica switched from an expensive general food subsidy to a food stamp program. The program targeted four categories of vulnerable groups: pregnant and lactating women, children under six years of age, individuals who already qualify for poverty relief and public social assistance (mostly the elderly and the handicapped),and low-incomes ingle-parent or poor households. Food stamps are legal tender, and can be used to purchase cornmeal, rice, powdered skim milk, dark sugar, flour and meat. The value of the stamps is JS45 for pregnant and lactating women, J$60 for persons receiving poverty relief and public assistance and single-person househholds, and J$105 for multiple-headed households. Registration of recipients at a primary health clinic is necessary; stamps are issued every two months and can be collected in public areas (e.g., police stations, churches, etc.).

 

 

 

HONDURAS

 

Honduras provides another example of a delivery system that promoted self-targeting. In 1993, Honduras implemented a food stamp program that distributed stamps through schools and health centers. Under the Women Head of Household Coupon Program, food stamps are distributed through schools to poor mothers and their children attending grades one through three and who are shown to be at risk of malnutrition. In addition, at schools where the results of the annual nutrition survey shows a high incidence of malnutrition equal to or higher than 60 percent, all first graders are eligible for the program. Food stamps are distributed three times a year, and are estimated to cover 20 percent of household food expenditures. Food stamps are also delivered through health centers in the Maternal Child Coupon Program. The target group are low-income children under five and pregnant and lactating mothers. The intervention is concentrated on the earliest stages of infancy and childhood, and includes assistance to pregnant mothers to improve the chances of reaching children before malnutrition causes permanent damage. Beneficiaries must meet health surveillance requirements in order to maintain eligibility. The program also provides nutrition education and involves the private sector. Successful dissemination of information has resulted in 100 percent of merchants accepting the coupons. Local commercial banks are also willing to redeem coupons directly; this leaves no room for merchants to demand 'servicing fees" in redeeming coupons against goods. Beneficiaries can redeem coupons from commercial banks within four months of their issue (with redemption not contingent on purchasing of food). The program has been relatively more cost-effective than other nutrition programs in reducing poverty, and it has been widely accepted by participating retailers, and banks.

 

 

 

TUNISIA 

 

In Tunisia, universal food subsidy had existed since 1970. By the early 1980s, it became obvious that universal subsidy was simply not fiscally sustainable; the subsidy was costing the government 4 percent of GDP (and 10 percent of total government expenditure). In much of the Middle East, subsidized bread is often taken for granted; so the government was faced with the dilemma of reforming its subsidy program while protecting the poor, but in a politically acceptable way. The government retained the principle of "universality" but resorted to quality-differentiated food subsidy. The principal design of the program was as follows. A careful and disaggregated analysis of household consumer expenditure data revealed significant differences in consumption across income groups. The first step was to draw up a list of "inferior goods"-goods which were "perceived" to be inferior by the non-poor because they possessed certain unattractive features in their packaging or ingredients. One type of bread disproportionately consumed by the poor was chosen for subsidization subsidy on all other types of bread and pasta, disproportionately consumed by the rich, was eliminated. Similarly, "superior" food products were identified. Although food markets were otherwise tightly controlled in Tunisia, authorities have liberalized the sale of all superior-quality food products at market-determined prices-a policy in keeping with the general liberalization policy. All subsidies on pasta and fine flour-disproportionately consumed by the rich-were abolished. Tunisia's experience suggests that self-targeting has considerable potential as a means to restrict subsidy to the poor in some countries. However, information requirements are quite demanding. Any country wanting to adopt this approach should have fairly detailed, quality-differentiated products listed in the household consumption survey. It is best if such surveys are small-scale and more frequent. Market studies are also required for testing consumer acceptance prior to introducing new (subsidized) products.

 

 

 

BANGLADESH 

 

The Food for Education Program (FFEP), which was implemented in 1993 in Bangladesh is one of the few cases of innovative targeting methods employed under food rations programs. Eligible beneficiaries for the program are chosen from poor households who send their children to primary schools. Enrolled children must attend 85 percent of the total classes in a month. If a household has only one primary school-age (6 to 10 years old) child in a school then that household is entitled to 15 kg of wheat per month. If the household has more than one primary school-age child and sends all such children to school it is entitled to 30 kg of wheat. Targeted households must meet one of the following criteria: (a) they must either be landless or own less than 0.5 acres of land; (b) household head must be a day laborer, c) household must be headed by a female (widowed, separated from husband, divorced, disabled husband); or (d) household head must be engaged in one of the low-income professions (such as fishermen, potters, blacksmiths, weavers, cobblers). Households that meet these criteria but not covered by the other targeted food programs qualify for assistance.