Making food subsidies work better

Business Standard, July 31, 2011

By Pradeep S Mehta

Reforming the public distribution system is a Herculean task and well nigh impossible

If Rajiv Gandhi were alive, he would have been delighted to see his view on leakages confirmed by a research study on the public distribution system [How Can Food Subsidies Work Better? Answers from India and the Philippines by Shikha Jha and Bharat Ramaswami (]. The ADB study showed that the deserving poor in India received only 10 per cent of the benefits from the system. Nearly twice accrues to the undeserving — the middle class. Around 43 per cent is siphoned off by the system illegally, and 28 per cent are excess costs incurred by the sarkari system — the Food Corporation of India, and so on. The million dollar question is whether the system can be reformed at all. In my opinion, it is a Herculean task and well nigh impossible.

Given that the system functions with many vested interests, efforts to reform it will be countered with ‘logical’ arguments by the polity, because the system feeds on political patronage, and hence all parties are unanimous in supporting it, like caste reservations in India. Part of this view was confirmed by the damning report of the Central Vigilance Committee on PDS headed by Justice DP Wadhwa in September 2009, consequent to a Supreme Court order in a writ petition filed by the People’s Union for Civil Liberties in 2001.

“Central government is proposing to introduce National Food Security law which would provide (a) statutory framework to ensure food security for all…But the law will be rendered futile like PDS if it does not come up with an appropriate mechanism for its implementation. PDS is synonymous with corruption,” says Justice Wadhwa in the overview chapter of the report. “…there is a web of corruption woven around the PDS by politicians, bureaucrats, transporters and officials of the Food Supplies Deptt and Civil Supplies Corporation. They are shameless people having no inhibition depriving the poor of their food.”

In nearly all pro-poor schemes of the government, leakages are high and the poor do not get their rightful due. The much-touted NREGA too is infested with corruption. This is evident from various studies which have since emerged, though I have not yet come across any study pinning down the leakage figures exactly. One ballpark figure which is spoken about is that around 35-40 percent benefit does percolate to the poor, and the balance is pocketed by politicians, bureaucrats and touts. This is a very rough national average and it can vary from state to state, both downwards and upwards. One piece of personal knowledge in terms of circumstantial evidence is that costs of fighting the sarpanch elections have become very high, because of the high ‘returns’ coming mainly from the NREGA. This bounty is shared with every shameless person in the governance system.

Justice Wadhwa’s report on the PDS goes on to analyse the fundamental causes of the corruption in the system. He says, “In PDS it is the Fair Price Shop (FPS) which is the breeding ground of corruption…it is in the knowledge of all, whether he be a politician, bureaucrat or any other public servant, that an honest FPS owner cannot survive from the income earned from PDS and that he has to indulge in diversion of food grain in the market…There being no sustainable income for the FPS dealer, yet there is clamour for allotment of FPS. All are involved in this crime of diversion, whether it be the FPS owner, a transporter, or an official or bureaucrat or politician.”

The report goes on to say that the FPS owners pay bribes to get a licence and then pay bribes every month (depending on the number of ration cards attached to the FPS) to remain in the business of black marketing of PDS food grain. Justice Wadhwa suggests a few solutions — among other things, there should be a helpline, and for proper distribution of food grain, end-to-end computerisation is necessary.

The question is, whether some of the systems cannot be compromised by the corrupt system. After all, rules breakers are smarter than rule makers. There can be no foolproof system, but efforts to bring in IT solutions are certainly a way forward. There is some good news here. According to a study by Dhand et al in 2009, Chhattisgarh state was able to reduce corruption in the PDS by computerising the supply chain, from paddy procurement to distribution of rice, in 2007-08, and by making public the movement of grain from warehouses to retail outlets. The study said this had improved transparency and governance.

But how does one attack the bogus ration card syndrome, another governance failure in the system, which helps to milk the cow? It has been reported in some areas that the number of ration cards were higher than the eligible population. Here the Aaadhar identity cards, part of the IT solution to address governance and institutional deficits in our pro-poor programmes, will certainly help.

Only this month, Nandan Nilekani’s task force on subsidies in the fertiliser and fuel sector has been given another task — to suggest measures to reform the crumbling PDS by end-August. In the subsidies report he has already suggested direct transfers. The task force will now look into the possibility of similar cash transfers of food and kerosene subsidies with the aid of Aaadhar identity cards. Such a scheme with IT back-up will certainly raise the transfer of benefits to the poor from 10 per cent to around 40 per cent. Expecting a 100 per cent transfer is a Utopian dream.

Pradeep S Mehta Secretary General of CUTS International, a research and advocacy group

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