Poor distribution system

Indian Express, 24 May 2007

The government proposes to bring dal and edible oil under the Public Distribution System (PDS). The prices of dal and edible oils have risen sharply in recent months and are expected to remain high for some more time. A total of Rs 1500 crore will be spent by giving a subsidy of Rs 10 per litre on oil and Rs 10 per kg on pulses to BPL families.

However, a 2005 Planning Commission report evaluating the Targeted PDS system shows that this is one of the most inefficient ways of implementing income transfers to the poor. For every one rupee worth of income transfer to the poor, the government spends Rs 3.65. In other words, only 27 percent or Rs 405 crore, of the proposed government spending of Rs 1500 crore on this subsidy is likely to reach the poor.

To what extent does the PDS reach the poor?

Out of the estimated 45.41 million Below Poverty Line (BPL) households in India in 2001, just over half (57 per cent) are covered by the PDS. The "exclusion error" that measures the percentage of poor households excluded from the PDS is highest in Assam (47.29 percent), Gujarat (45.84 percent), Maharashtra (32.69 percent) and West Bengal (31.74 percent).

In addition to the "exclusion error" the study also makes an assessment of an "inclusion error" when families who are not poor are given BPL cards due to wrong classification or corruption. For example, in Karnataka 42.43 percent families with BPL cards are not poor. In Andhra Pradesh they are 36.39 percent of the total BPL card holders. In Kerala they are 21.04 percent. In Himachal 20.39 per cent, and in Tamil Nadu 49.65 per cent.

In a striking example of an inclusion error an Indian Express report from Kolkata said that Governor Gopalkrishna Gandhi figures in the BPL list in Raigunj, North Dinajpur district.

Where will the bulk of the dal and oil for the poor go?

The Planning Commission study shows that less than half (42 percent) of subsidised food grains issued from the central pool reaches the poor. The leakage through ration shops constitues the bulk of the leakage. Bihar and Punjab have a total leakage of more than 75 percent, out of which two-thirds is through ration shops. Haryana, Madhya Pradesh and Uttar Pradesh have leakages between 50 to 75 percent. Assam, Gujarat, Himachal Pradesh, Karnataka, Maharashtra and Rajasthan have high leakages between 25 to 50 percent.

What is the share of genuine BPL households in the PDS?

In 2003-04, 14.07 million tonnes of subsidised grain was issued to the 16 large states for delivery to BPL families. Only 5.93 million tonnes was delivered to BPL families. A whopping 8.14 million tonnes of subsidised foodgrain did not reach the poor. In states with high leakages this meant that the unintended subsidy or additional cost of delivery of food grains was shockingly high. For example, in Bihar, while the intended subsidy was Rs 4.52 per kg, if we take into account the total subsidy to what actually reached the poor, the subsidy ended up being Rs 50.98 per kg due to leakages and diversions. In Punjab, while the intended subsidy was Rs 4.22 per kg, it ended up being Rs 40.15 per kg of foodgrain.

What part of the subsidy reaches the poor?

In 2003-04 the government spent Rs 7258 crore in the 16 large states on subsidised grain for BPL families. Out of this Rs 4197 crores did not reach the poor. The Planning commission study says that around 36 percent did not reach either APL or BPL consumers. It appears to have disappeared in the supply chain to ration shops. Another 21 percent reached non-poor households. Considering that dal and oil are high value items the leakages are diversions are expected to be even greater.

What other ways are there to deliver food subsidies?

If the government decides that it wants the poor to consume dal and oil at subsidied rates then it needs to find more efficient ways of targeting and delivering the subsidy. One proposal is to provide them with smart cards with the required amount of money credited to them and which can be used at certain retail outlets who will get reimbursementfrom the goverment. The expenditure will be limited largely to Rs 10 per kg or litre of the dal and oil actually bought by BPL households instead of more than double of that amount lining the pockets of traders on the way. No procurement for the PDS or supply chains will have to be set up as would need to be done for delivery the PDS.

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