One step forward, one step back?

REETIKA KHERA

back to issue

THE National Food Security Bill (NFSB) was tabled in Parliament in December 2011 after nearly two years of deliberations. The bill takes a ‘life-cycle approach’ to food security: it aims to address the needs of individuals at different stages of their life, through a range of food schemes and cash transfers. These schemes include the Public Distribution System (PDS), Mid-Day Meal Scheme (MDM), Integrated Child Development Services (ICDS) and maternity entitlements, among others.

The government’s draft bill in its current form will cost approximately Rs 1,00,000 crore per year which is just over 1% of India’s current GDP. This implies an increase of government food subsidy of Rs 35,000 crore (from the current level of approximately Rs 65,000). A substantial portion of the total cost of the bill is on account of the public distribution system, which is one of the reasons that the PDS has received a lot of attention in the debates around the NFSB.

This short article focuses on PDS related entitlements in the bill. It also discusses two popular perceptions of, or ‘facts’ about, the PDS. The first relates to targeting errors (i.e., the non-poor having ‘below poverty line’ ration cards or the poor not having BPL cards) and the second to corruption in the PDS (i.e., that much of the grain meant for the poor does not reach them and instead ends up in the open market).

The bill, as tabled in Parliament, creates three categories of households for the purpose of the PDS – ‘excluded’ households, ‘general’ households and ‘priority’ households. In rural areas, 25% will be excluded, 29% are to be classified as ‘general’ and the remaining 46% as priority.1 At one end of the spectrum are excluded households that will get nothing from the PDS and at the other end are priority households that would enjoy substantial entitlements (7kg/capita at Rs 3/2/1 per kg, depending on which cereal they get). Entitlements of the third category (general households) are conditional upon initiation of ‘PDS reforms’ (as prescribed by the central government) and in any case are much less than priority households. Conditional on PDS reforms, individuals belonging to general households will be entitled to grain at 3kg/capita at half of the minimum support price.

 

In short, priority households (46% in rural areas and 28% in urban areas) are assured of substantial PDS entitlements under the current version of the bill. Another 29% and 22% of rural and urban households respectively may be entitled to PDS grain, but they will get a lower quantity at a higher price. PDS entitlements in the bill are thus not very different from PDS entitlements as they exist (in terms of proportion of households covered, quantity and prices) today.

For example, according to National Sample Survey data, 43% of rural households and 28% of urban households were buying PDS grain in 2009-10. Grain requirements mandated by the bill are unlikely to increase as dramatically as has been made out in the media. If there is 100% offtake as per NFSB entitlements (for priority and general households), offtake will increase by approximately 25% from current levels. Further, as discussed below, PDS prices in many states are already at the levels (or even lower) prescribed in the bill.

 

Apart from the fact that there is no significant change in terms of entitlements under the bill, the framework raises a serious question regarding its implementation.2 While the bill includes a three-way division of households, the difficult question of how these households are to be identified has not been resolved.

The similarity in the PDS coverage and entitlements of BPL households and those of priority households leads one to conclude that not much other than nomenclature has changed. On the process of identifying and classifying households as ‘excluded’, ‘general’ or ‘priority’, the bill is silent. It is also silent on the share of priority households at the state level as well as how those households are to be identified. The bill only says that the central government ‘may prescribe the guidelines for identification’ (section 15-1).

Reports, however, suggest that the identification will be based on the Socio-Economic Caste Census (SECC) that is currently underway. Conceptually, the SECC is not very different from previous BPL censuses undertaken by the government in 1997 and 2002 to identify BPL households.3

The misclassification of households through these BPL censuses is well documented.4 According to NSS data for 2004-5, half of the poorest households (belonging to the bottom quintile of the monthly per capita expenditure distribution) did not have a BPL card.5 The discussion on ‘inclusion errors’ (i.e., non-poor with access to the PDS) and ‘exclusion errors’ (i.e., poor who are left out of the system), and the ensuing hardship for the poor is not new.

 

What is also well established is that the classification of households as APL or BPL (or, general and priority respectively) is a tricky issue. There are conceptual problems in this process (e.g., what criteria are used to identify poor households) and implementation errors (e.g., surveyors may not visit each household or households may misreport their information). Further, even if one is able to identify perfect indicators of poverty and implement the survey honestly, since people move in and out of poverty, there will always be problems in drawing up reliable BPL lists.

To summarize, the food security bill does not significantly expand PDS coverage or entitlements (in terms of quantities or prices) at the national level. In some states, e.g., Tamil Nadu, Andhra Pradesh and Himachal Pradesh, it may lead to states being forced to cut back on current coverage or entitlements of some households. The bill fails to get rid of the inevitable conundrum that results from trying to accurately identify ‘poor’ households. It does not take on board the lessons from the past decade that food security and poverty are two separate issues and that previous attempts at identifying the poor have been disastrous. If the current framework is not modified, it is quite certain that the curse of targeting errors will remain. The current framework of the bill, with respect to the PDS, needs to be revamped.

 

Corruption in the PDS has been a major concern for the past few years, and especially in the debates on the NFSB. Critics have pointed to the high rates of diversion – e.g., according to a Planning Commission estimate for 1997-2001, half of the PDS grain was diverted. Therefore, the critics suggest, the PDS cannot deliver food subsidies to the poor in a satisfactory manner. However, what the critics have failed to take on board is the performance of the PDS in more recent years, especially when we look at trends in diversion at the state level.

A field survey of the PDS in 2011 in nine states suggests that there has been an impressive revival in most states.6 The survey included a careful accounting of purchases of PDS grain by BPL households in the sample. Respondents were asked three complementary questions to arrive at a reliable estimate of the extent to which they were able to secure their full entitlements: (i) how much they ‘normally’ get from the PDS outlet; (ii) how much they got the last time they bought PDS grain; and (iii) how much they bought, month by month, from March to June 2011.

 

The purchase-entitlement ratio (PER) refers to the proportion of full entitlement that is purchased by BPL households.7 One of the major findings of the survey is that as far as BPL and Antyodaya cardholders are concerned, there has been a marked improvement in the PER across states (see Table 1). Average purchase in the past three months, across states, ranged between 24.0 and 30.4kg/month (for BPL and Antyodaya cards respectively). The average PDS purchase in the past three months is 84% of the monthly entitlement (28.7kg/household per month), on average. Bihar is the only state in the survey where the PER of 45 per cent, falls below 70 per cent.

TABLE 1

Foodgrain Purchases From the PDS (BPL Households)

 

Average purchase in March-May2011 (kg/month)

Average entitlement (kg/month)a

Purchase - entitlement ratio (%)

Bihar

11.2

25

45

Jharkhand

24.9

35

71

Uttar Pradesh

30.7

40b

77b

Rajasthan

26.0

30b

86b

Himachal

37.1

40b

92b

Tamil Nadu

17.9

19.5

92

Chhattisgarh

33.3

35

95

Orissa

29.2

30b

97b

Andhra Pradesh

14.9

15.1

99

All states

24.0

28.7

85

a. Entitlements of sample households, based on the state-specific norms applicable at that time.

b. Including a temporary bonus of 5 kgs on account a recent Supreme Court order. Since this bonus was, in fact, not always applicable, these entitlements are upper bounds, and the corresponding purchase-entitlement ratios are lower bounds.

Source: PDS Survey 2011, a survey of the PDS in nine states initiated by IIT-Delhi. The survey covered two districts in each state, and a total of about 1200 households.

The improvement recorded in the PDS 2011 survey is also reflected, for some of the sample states, in NSS data for 2009-10. The states in which this revival is visible include earlier ‘basket cases’ such as Chhattisgarh, Orissa and Jharkhand. For instance, diversion of grain (estimated by comparing NSS data with official offtake figures) in Chhattisgarh has declined from 52% in 2004-5 to 11% in 2009-10. Similarly, in Orissa, estimated diversion has come down from 76% to 30% in the same period. Besides this are states where diversion rates have been low, e.g., less than 10% in states such as Tamil Nadu and Andhra Pradesh. However, overall the diversion rate remains unacceptably high (41%), with a decline of 13 percentage points since 2004-5.8 The experience of many states in the past five years suggests that, though leaky, the pessimism regarding the PDS for delivering food subsidy is premature and unwarranted.9 The next section discusses policy measures undertaken in various states that have contributed to its improved performance.

 

The above-mentioned PDS Survey 2011 provided an opportunity to learn about state initiatives for improved implementation of the PDS. It is interesting to note that the bundle of ‘reform’ measures that have contributed to the improvement across reviving states are largely similar. This short section focuses on these reforms.10 The PDS reforms can be broadly categorized under two heads: ‘demand-side’ factors and ‘supply-side’ measures.

 

Demand-side factors: Three important state-level policies have had the effect of enhancing voice and increasing the ‘pressure from below’ on the system to deliver. These three policies are: one, a move towards a more inclusive PDS; two, a reduction in state PDS prices below the issue prices prescribed by the Centre; and three, the provision of a more diversified basket of food items through PDS outlets. All three have the effect of strengthening people’s stake in the distribution system.

An encouraging trend observed in the survey states was one towards a much more inclusive (even universal, in some cases) PDS. Tamil Nadu has had a universal PDS for some time. Himachal Pradesh also has a universal PDS, albeit with a difference – APL households pay a higher price than BPL households, though the entitlements (in terms of commodities and quantities) of all households are the same. In Andhra Pradesh and Chhattisgarh, the system is ‘quasi-universal’ with nearly 80% of the rural population entitled to PDS commodities.

This trend towards universalization of the PDS could be seen in other states too. In Orissa, the PDS has been nearly universalized in the hunger prone ‘KBK region’ (originally the Kalahandi-Bolangir-Koraput districts, now divided into smaller districts).11 Rajasthan, Bihar and Jharkhand have all expanded their BPL lists to include more rural households. Uttar Pradesh is the only exception among the nine sample states.

 

Expanded coverage has been made possible by using one (or both) of two measures: state governments pay for expanded coverage (e.g. in Andhra Pradesh, Chhattisgarh and Tamil Nadu) or central allocations to states are ‘spread thinner’. The central government currently allocates 35 kg for each BPL household (so long as state governments adhere to the Planning Commission’s poverty estimates). While Chhattisgarh, Himachal Pradesh, Jharkhand and Uttar Pradesh still give 35 kg per household per month, in other sample states household entitlements are lower than 35 kg per month. Two states (Andhra Pradesh and Tamil Nadu) have moved to per capita entitlements (with an upper limit of 20 kg/household per month), whereas in Bihar, Orissa and Rajasthan BPL households are entitled to 25 kg per month.

The second measure that has had the effect of enhancing voice is a reduction in PDS prices. Six out of nine state governments have reduced PDS issue prices below the centrally fixed issue prices for BPL households – Rs 4.65/kg for wheat and Rs 6.15/kg for rice. In Tamil Nadu, the government provides 20 kg of free grain; in Chhattisgarh, Rajasthan, Orissa and Andhra Pradesh, grain is provided at Rs 2/kg; in Jharkhand the price is Rs 1/kg (and free for Antyodaya households belonging to the ‘primitive tribal group’ category). Meanwhile, market prices have increased, so that there has been a sharp increase in the implicit subsidy from the PDS.

To illustrate, consider the case of Chhattisgarh where BPL households are entitled to 35 kgs of rice at Rs 2/kg. The value of this monthly ration at local market prices, net of what people pay for it, is around Rs 600. This, in turn, is the equivalent of about five days of NREGA wages (without having to work!) every month, or 60 days per year. To put this in perspective, the sample households in Chhattisgarh had worked for 25 days on NREGA in the preceding twelve months, on average. The PDS is doing more than twice as much as NREGA for them, and the two together now give them a very important protection from poverty and hunger.

A third positive trend observed in some states is the expansion of the list of commodities made available through the PDS to include more nutritious items. In Himachal Pradesh, all ration card holders (irrespective of whether they are APL or BPL) can buy at least one kg of dal and one kg of oil each month. Larger households can buy upto 3 kg of dal and 2 kg of edible oil. Andhra Pradesh and Tamil Nadu also provide dal and edible oil. In Uttar Pradesh, households reported intermittent supply of ‘matar ki dal’ (split peas); in Rajasthan too, households reported getting dal and oil briefly during 2009-2010, when market prices suddenly jumped. There was an expectation among respondents that these would be reintroduced. The Chhattisgarh state government has introduced chana dal on a pilot basis in Bastar district.

 

Supply-side measures: State governments are not relying on ‘pressure from below’ alone in an attempt to make the PDS work. Proactive steps have also been taken to remedy supply-side issues. Five such measures are briefly discussed here: management of PDS outlets; doorstep delivery of grain; use of Information Technology (IT); instituting and enforcing a schedule for the opening of PDS outlets; and rationalizing official PDS commissions. Each of these is explained below.

 

There have been several important changes in the policy for management of the fair price shops (FPS). This includes, in some states, the handing over of FPS to cooperative societies, gram panchayats, self-help groups and other community institutions. This was especially visible in Chhattisgarh, Himachal Pradesh, Orissa and Tamil Nadu. In Chhattisgarh, Himachal Pradesh and Tamil Nadu cooperative societies dominated; Orissa has taken the lead in handing over management of FPS to gram panchayats, followed by Chhattisgarh and Andhra Pradesh. In Bihar and Uttar Pradesh all shops were still run by private dealers. Private dealers were running most FPS in Andhra Pradesh, Jharkhand and Rajasthan (between 67-75% of FPS were managed by them). Andhra Pradesh is the only state in which the PDS works fairly well in spite of the involvement of private dealers on a large scale.

In cases where cooperative societies are involved, salesmen are appointed to run the FPS. As employees, the salesman receives a reasonable monthly salary (more than Rs 4000 in both Chhattisgarh and Tamil Nadu). This is an important step towards reducing corrupt practices at the FPS.

One of the most significant initiatives to increase transparency in the PDS has been the computerization of records. This has several advantages. One, it helps to streamline the entire chain of distribution (from lifting to distribution at FPS) and adopt more effective management practices (e.g., Chhattisgarh has been able to regularly update the list of cardholders in the state allowing them to weed out duplicates from the system). Two, it helps to maintain better records (e.g., accurate, consistent, and tamper-proof), even in real time in some cases. Three, the discipline of strict record keeping makes corrupt practices more difficult.

However, the full potential of these computerized databases for reducing corruption and fostering transparency is yet to be realized. For instance, in Chhattisgarh and Tamil Nadu, details of purchases by each ration card holder are available in a computerized database. However, this database has not been made public, as is the case with the NREGA MIS.12 If these were publicly accessible, it would help to bring greater transparency to the system.

 

Another major change in policy has been the implementation of ‘doorstep delivery’ of grain to fair price shops. Much of the diversion of PDS grain is known to happen between the lifting of grain from FCI godowns and the FPS. When PDS dealers are responsible for this step, the chances of diversion are high. In many sample states, the food department has started making transport arrangements to deliver PDS commodities to the FPS. Half of the FPS reported doorstep delivery (either through state transport or contractors). Wherever this has been implemented, the ‘purchase-entitlement ratios’ are high. Another measure that has reduced the woes of FPS dealers is that commissions and transport reimbursements are adjusted at the time of depositing money for the grain. This reduces the risk of delays and harassment when private dealers try to recover their official commissions and transport reimbursements ex-post.

In the current system, the financial viability of fair price shops depends on the volume of grain they handle and official commissions (Rs/quintal). In 1997, the number of ration cards handled by each FPS dealer shrank with the introduction of the targeted PDS. Low commissions combined with fewer cards made most FPS financially unviable, a strong incentive (if not compulsion) to cheat.

 

In the past three years, barring Bihar, Jharkhand and Uttar Pradesh, official commissions that FPS managers earn from the sale of PDS commodities have been revised (increased). This has contributed to improving the viability of the FPS. Simultaneously, the number of BPL cards per FPS has also increased in Chhattisgarh, Orissa and Rajasthan, as the coverage of the PDS was expanded. These two measures (higher commissions and more ration cards), combined with earnings from the sale of empty gunny bags (boras) after the grain has been sold, seem to reduce the pressure on FPS dealers to indulge in corrupt practices. They also make it much easier to replace private dealers with collective management of FPS (e.g., by gram panchayats or self-help groups), as many states have already done.

The fifth, simple but very effective step has been an attempt to enforce a predictable, pre-announced, reliable schedule for sale of PDS commodities through PDS outlets. Earlier, shops would open once every few months and no one knew the date in advance. Further, the number of days for which the shop would remain open also varied from outlet-to-outlet and month-to-month. Since state governments started to adopt this measure, the poor find it much easier to plan and make their PDS purchases.

 

Besides these five important measures, improvement in the physical infrastructure for FPS has also helped smoother functioning of these shops. Nearly 40% of FPS in the sample had their own dedicated space. Another 30% were either housed in gram panchayat buildings or rented spaces. The proportion of shops located in private houses (e.g., of the private dealer) remains high – 25%. Most shops (71%) used weighing scales with standard weights (rather than using stones, etc.) and one-third even had electronic weighing machines. These basic facilities, especially separate buildings and standard weights, contribute to streamlining the running of ration shop.

In Tamil Nadu and Chhattisgarh, there is (at least partially) a functioning system of grievance redressal. This includes providing phone numbers – or helplines – for ration card holders to call in case of complaints. In Tamil Nadu, the phone numbers of concerned officials are painted outside each FPS. Local organizations in Chhattisgarh claimed that the helplines were effective and that complaints lodged there usually led to some effective action.

In the NFSB, there seems to be an attempt to come up with a straight-jacket formula for ‘PDS reforms’ (see section 18(2) of the bill). There is a danger that the formulaic approach adopted in the bill may end up undermining the creativity visible at the state level in the past five years. States may feel compelled to undertake the reforms laid out in the bill because entitlements of ‘general’ households are subject to the implementation of these reforms. While the bill must incorporate the lessons on PDS reforms from state governments, it must also allow flexibility to the states for further innovations to improve the PDS.13

On the one hand, the bill makes it difficult to continue some of the reforms that have worked in many states (e.g., expansion of PDS coverage towards a more inclusive PDS) and on the other, it introduces and even prescribes measures that have not been tried on any substantial scale so far (section 18(2)(c) and section 18(2)(h) advocate the use of Adhaar (a unique identification, UID) and cash transfers or food coupons ‘in lieu of their foodgrain entitlement’). In fact, in eight out of nine survey states in the PDS Survey 2011, respondents articulated a range of concerns with the idea of cash in lieu of foodgrain (see Khera 2011 for further details). Given these valid concerns, the (not-so-) subtle push towards cash transfers in the bill also needs further debate.

The bill is silent on other important reforms, e.g., decentralized procurement of grain by various states. This has been instrumental in enabling a move towards a more inclusive PDS. Decentralized procurement is desirable not only on account of possible cost saving (e.g., lower transportation costs), but also in order to encourage the procurement and supply of other, more nutritious, cereals through the PDS.

 

The proposed version of the National Food Security Bill does seem to be a case of one-step-forward, one-step-back with respect to PDS related provisions: while many state governments are moving towards a more inclusive PDS, the bill restricts coverage (at the national level), based on the Tendulkar Committee’s poverty estimates. The bill also creates a three-way division of the population (into ‘excluded’, ‘general’ and ‘priority’ households) without a proper plan as to how households for each category are to be identified. There are ways to improve the current framework – e.g., by removing the distinction between general and priority households and giving them the same entitlements, or by allowing states to do so.14

 

In an increasing number of states, the PDS plays an important role for the poor in terms of providing assured supply of foodgrains. It ensures that they do not sleep hungry. The PDS is a system that people are aware of and that has begun to deliver. PDS reforms initiated in recent years have been instrumental in making the system relevant for food security. These reforms are a direct consequence of greater political will at the state level.

The National Food Security Bill provides a significant opportunity to build on the positive momentum observed at the state level and to put in place an effective protection from hunger and under-nutrition. The PDS sections of the bill require two major amendments. One, a simplification of the framework. The framework for the PDS, in its current form, is likely to result in large exclusion errors (i.e., exclusion of poor households). Two, rather than making a specific set of ‘PDS reforms’ mandatory, these should be suggestive in nature so that states enjoy flexibility to adapt to new developments. These two modifications can ensure that this opportunity is not wasted.

 

* I would like to thank Jean Drèze for helpful comments and Saloni Chopra for research assistance in preparing this article.

Footnotes:

1. In urban areas, the proportions of excluded, general and priority households will be 50, 22 and 28 per cent respectively. For details of PDS entitlements, see section 3 of the bill.

2. On the size of each of the three PDS categories, though not stated explicitly, it appears that these figures are linked to the poverty rate as estimated by the Tendulkar Committee. For instance, the figure of 46% for coverage of priority groups in rural areas is based on the Tendulkar Committee’s estimate of 42% for rural poverty in 2004-5 with a small margin (10% of 42%) for targeting errors.

3. On this see Jean Drèze, ‘Kaun Banega Scorepati’, The Hindu, 28 November 2011.

4. See, for instance, Jean Drèze, ‘India: The Poverty Trap’, Hindustan Times, 26 September 2011. Also Jean Drèze, ‘Struggling to Enter the BPL Club’, The Hindu, 2 October 2011.

5. Jean Drèze and Reetika Khera, ‘The BPL Census and a Possible Alternative’, Economic and Political Weekly 45(9), 2010.

6. The survey covered over 1200 households entitled to PDS commodities. The nine states covered by the survey are Andhra Pradesh, Bihar, Chhattisgarh, Jharkhand, Himachal Pradesh, Orissa, Rajasthan, Tamil Nadu and Uttar Pradesh. See Reetika Khera, ‘Revival of the PDS: Evidence and Explanations’, Economic and Political Weekly 46(44-45), 2011.

7. A low PER could be due to corruption in the system or lack of demand (possibly related to low quality of PDS grain).

8. On how the better performance recorded in the PDS 2011 Survey can be reconciled with the estimates from NSS data, see Jean Drèze and Reetika Khera, ‘PDS: The Plot Thickens’, The Hindu, 12 August 2011. On caveats associated with this methodology, see Reetika Khera, ‘Trends in the Diversion of Grain from the Public Distribution System’, Economic and Political Weekly 46(26), 21 May 2011.

9. Other sources also report an improvement in the performance of the PDS; see Jeffrey Widsoe, ‘Everyday Corruption and the Political Mediation of the Indian State’, Economic and Political Weekly 47(6), 2012, pp. 47-54, for Bihar; Parshuram Rai, ‘Performance Audit of Food Security Schemes in Orissa and UP’, supported by Action Aid India, Centre for Environment and Food Security, New Delhi, 2011, and Office of the Commissioners of the Supreme Court (CWP 196/2001) and Office of the Advisors to the Supreme Court Commissioners, Orissa (2010), Status of Implementation of Food Schemes in Orissa, May 2010 for Orissa and for Karnataka. See Citizen Report Card on Public Services in Raichur District, Karnataka. Nava Jeevana Mahila Okkoota, Raichur and Public Affairs Foundation, Bangalore, 2011.

10. This section draws upon the material presented in Reetika Khera, op cit., fn. 6, 2011.

11. This was done by abolishing any differentiation of entitlements between APL and BPL households. An important caveat though is that many households in the KBK region do not have any (APL or BPL) ration card. According to some estimates nearly one-fifth of all households do not have any ration card, so the universalization of the PDS in the KBK region remains incomplete.

12. The official NREGA website (www.nrega. nic.in) has a publicly accessible database which contains employment information for all job cardholders (including days of employment, wages earned, worksite employed on and so on). This makes it possible for people to verify their own records and those of others, apart from facilitating social audits.

13. Bharat Ramaswami, Ashok Kotwal and Milind Murugkar, ‘Food Security Bill Must Delegate Complete Freedom on Subsidy Targeting to States’, The Economic Times, 13 December 2011. Available online at http://articles.economictimes.indiatimes.com/2011-12-13/news/30511630_1_households-subsidy-food-security-bill.

14. Jean Drèze, ‘Just Target the Rich’, Times of India, 4 February 2012.

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