Public Distribution System

Public Distribution System

Context

India’s Public Distribution System (PDS) is the largest distribution network of its kind in the world. PDS was introduced around World War II as a war-time rationing measure. Before the 1960s, distribution through PDS was generally dependant on imports of food grains. It was expanded in the 1960s as a response to the food shortages of the time; subsequently, the government set up the Agriculture Prices Commission and the Food Corporation of India to improve domestic procurement and storage of food grains for PDS. By the 1970s, PDS had evolved into a universal scheme for the distribution of subsidised food.

In the 1990s, the scheme was revamped to improve access of food grains to people in hilly and inaccessible areas, and to target the poor. Subsequently, in 1997, the government launched the Targeted Public Distribution System (TPDS), with a focus on the poor. TPDS aims to provide subsidised food and fuel to the poor through a network of ration shops. Food grains such as rice and wheat that are provided under TPDS are procured from farmers, allocated to states and delivered to the ration shop where the beneficiary buys his entitlement.

The centre and states share the responsibilities of identifying the poor, procuring grains and delivering food grains to beneficiaries.

In September 2013, Parliament enacted the National Food Security Act, 2013. The Act relies largely on the existing TPDS to deliver food grains as legal entitlements to poor households. This marks a shift by making the right to food a justiciable right.

Laws and Regulations governing TPDS

TPDS is administered under the Public Distribution System (Control) Order 2001, notified under the Essential Commodities Act, 1955 (ECA).The ECA regulates the production, supply, and distribution of essential commodities including edible oils, food crops such as wheat, rice, and sugar, among others. It regulates prices, cultivation and distribution of essential commodities.

The PDS (Control) Order, 2001 specifies the framework for the implementation of TPDS. It highlights key aspects of the scheme including the method of identification of beneficiaries, the issue of food grains, and the mechanism for distribution of food grains from the centre to states.

Identification of eligible households under existing TPDS

Categorisation of beneficiaries

APL and BPL

Under TPDS, beneficiaries were divided into two categories:

1. Households below the poverty line or BPL; and

2. Households above the poverty line or APL.

Each state government was responsible for identifying eligible BPL households on the basis of inclusion and exclusion criteria evolved by the Ministry of Rural Development.

Antyodaya Anna Yojana (AAY)

The AAY scheme was launched in December2000 for the poorest among the BPL families. Individuals in the following priority groups are entitled to an AAY card, including:

(i) landless agricultural labourers, (ii) marginal farmers, (iii) rural artisans/craftsmen such as potters and tanners, (iv) slum dwellers, (v) persons earning their livelihood on a daily basis in the informal sector such as porters, rickshaw pullers, cobblers, (vi) destitute, (vii) households headed by widows or terminally ill persons, disabled persons, persons aged 60 years or more with no assured means of subsistence, and (viii) all primitive tribal households.

Entitlements under TPDS

Category	Entitlement of food grains(kg/family)
AAY	35
BPL	35
APL	15-35

Management of food grains for TPDS

The central and state governments share responsibilities in order to provide food grains to the identified beneficiaries. The centre procures food grains from farmers at a minimum support price (MSP) and sells it to states at central issue prices. It is responsible for transporting the grains to godowns in each state. States bear the responsibility of transporting food grains from these godowns to each fair price shop (ration shop), where the beneficiary buys the food grains at the lower central issue price. Many states further subsidise the price of food grains before selling it to beneficiaries.

The Food Corporation of India (FCI) is the nodal agency at the centre that is responsible for transporting food grains to the state godowns. Specifically, FCI is responsible for: (I) procuring grains at the MSP from farmers, (ii) maintaining operational and buffer stocks of grains to ensure food security, (iii) allocating grains to states, (iv) distributing and transporting grains to the state depots, and (v) selling the grains to states at the central issue price to be eventually passed on to the beneficiaries.

Procurement of food grains from farmers

The food grains provided to beneficiaries under TPDS are procured from farmers at MSP. The MSP is the price at which the FCI purchases the crop directly from farmers; typically the MSP is higher than the market price. This is intended to provide price support to farmers and incentivise production.

Currently procurement is carried out in two ways: (i) centralised procurement, and (ii) decentralised procurement. Centralised procurement is carried out by the FCI, where FCI buys crops directly from farmers.

Decentralised procurement is a central scheme under which 10 states/Union Territories (UTs) procure food grains for the central pool at MSP on behalf of FCI. The scheme was launched to encourage local procurement of food grains and minimise expenditure incurred when transporting grains from surplus to deficit states over long distances. These states directly store and distribute the grains to beneficiaries in the state. Any surplus stock over the state’s requirement must be handed over to FCI. In case of a shortfall in procurement against an allocation made by the centre, FCI meets the deficit out of the central pool.

The centre procures and stores food grains to:

(i)                 meet the prescribed minimum buffer stock norms for food security,

(ii)               (ii) release food grains under TPDS on a monthly basis,

(iii)             (iii) meet emergency situations arising out of unexpected crop failures, natural disasters, etc., and

(iv)             (iv) sell through the Open Market Sale Scheme (OMSS).The central government introduced the Open Market Sale Scheme (OMSS) in 1993, to sell food grains in the open market; this was intended to augment the supply of grains to moderate or stabilise open market prices

Storage of food grains

FCI is the main government agency entrusted with the storage of food grains in the central pool. According to the storage guidelines of the FCI, food grains are normally stored in covered godowns, silos, and in the open, referred to as Covered and Plinth (CAP).

However, FCI’s own storage capacity has been insufficient to accommodate the central pool stock of food grains. As a result, FCI hires space from various agencies such as the central and state warehousing corporations, state government agencies and private parties.

Allocation of food grains to states

The central government allocates food grains from the central pool to the state governments for distribution to BPL, AAY and APL families. Allocation for BPL and AAY families is done on the basis of the number of identified households. On the other hand, allocation for APL families is made on the basis of: (i) the availability of food grains stocks in the central pool, and (ii) the past off take (lifting) of food grains by a state from the central pool. Given the food grains stocks in FCI, the centre has the discretion to allocate more grains to states on an ad-hoc basis.

Distribution of food grains to beneficiaries

The responsibility of distributing food grains is shared between the centre and states. The centre, specifically FCI, is responsible for the inter-state transport of food grains from procuring to consuming states, as well as delivering grains to the state godowns. Once FCI transports grains to the state depots, distribution of food grains to end consumers is the responsibility of state governments.

On receipt of food grains, states allocate the grains to each district and further to each Fair Price Shop (FPS; ration shop) within the first week of the month. State governments are responsible for transporting food grains from the state godowns to the doorstep of each FPS in the state. Across the country, food grains are distributed to a network of around 5.13 lakh FPSs. Beneficiaries buy their monthly food grains entitlements at subsidised prices from these ration shops.

Licensing of fair price shops

Ration shops can be owned privately, by co-operative societies or the government. The owners of ration shops are licensed under the PDS (Control) Order, 2001 to sell essential commodities at central issue prices. Ration shop owners are issued licenses by state governments and have certain responsibilities under the scheme.

These responsibilities include:

(i)                 sale of commodities as per the entitlement of ration card holders at the retail issue prices fixed by state governments,

(ii)                maintenance of records and the display of information such as the list of BPL and AAY beneficiaries, entitlements of essential commodities, timings of shops, and opening and closing stocks, and

(iii)              Maintenance of accounts of actual distribution of essential commodities and the balance stock at the end of the month to government officials and the gram Panchayat

Pricing of food grains: MSP, CIP and food subsidy

Minimum support price

MSP is the price at which the centre buys food grains from farmers. Typically, the MSP is higher than the market price and is intended to incentivise production. The

MSPs for various agricultural commodities are fixed by the central government based on rates recommended by the Commission for Agricultural Costs and Prices (CACP). The CACP considers certain factors such as the cost of cultivation and remunerative prices for farmers on their produce while determining the MSP. The MSPs recommended by the CACP are finally approved by the Cabinet Committee on Economic Affairs.

Central issue price

Wheat and rice are sold by the central government at uniform central issues prices (CIP) to states and union territories for distribution under TPDS.

Food Subsidy

The food subsidy is the difference between the cost (MSP and handling and transportation costs) and the issue price at which the beneficiary buys food grains. The centre reimburses FCI and state agencies with the food subsidy, since they are responsible for procurement and selling the procured food grains to states at CIP. The food subsidy also includes the buffer subsidy, which is the cost borne by FCI and states for maintaining buffer stocks beyond the prescribed time frame.

Implementation of TPDS: Issues and analysis

Identification of beneficiaries

TPDS has been prone to large inclusion and exclusion errors. This implies that entitled beneficiaries are not getting food grains while those that are ineligible are getting undue benefits. An expert group was set up in 2009 to advise the Ministry of Rural Development on the methodology for conducting the BPL census. It estimated that about 61% of the eligible population was excluded from the BPL list while 25% of non-poor households were included in the BPL list.

Another indicator of inaccurate classification of beneficiaries is the existence of ghost cards in several states. ‘Ghost cards’ are cards made in the name of non-existent people. The existence of ghost cards indicates that grains are diverted from deserving households into the open market.

Reference- http://www.prsindia.org/