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6. Public distribution system in India-evolution, efficacy and need for reforms

6. Public distribution system in India-evolution, efficacy and need for reforms

Evolution of public distribution of grains in India had its origin in the 'rationing' system introduced by the British during the World War II. In view of the fact that the rationing system and its successor, the public distribution system (PDS) has played an important role in attaining higher levels of the household food security and completely eliminating the threats of famines from the face of the country, it will be in the fitness of things that its evolution, working and efficacy are examined in some details.

It was really the generation of World War's own compulsions that forced the then British Government to introduce the first structured public distribution of cereals in India through the rationing system-sale of a fixed quantity of ration (rice or wheat) to entitled families (ration card holders) in specified cities/towns. The system was started in 1939 in Bombay and subsequently extended to other cities and towns. By the end of 1943, 13 cities had been brought under the coverage of rationing and by 1946, as many as 771 cities/towns were covered. Some rural areas, suffering from chronic shortage were also covered. The Department of Food under the Government of India was created in 1942, which helped in food matters getting the serious attention of the government. When the War ended, India, like many other countries, decided to abolish the rationing system. This was in 1943. However, on attaining Independence, India was forced to reintroduce it in 1950 in the face of renewed inflationary pressures in the economy immediately after independence "which were accentuated by the already prevailing high global prices of foodgrains at the end of the War, which were around four times higher than the prewar prices". (Bhatia, 1985)

Public distribution of foodgrains was retained as a deliberate social policy by India, when it embarked on the path of a planned economic development in 1951. It was, in fact, an important component of the policy of growth with justice. In the first five year plan, the system, which was essentially urban based till then was extended to all such rural areas which suffered from chronic food shortages. It was also decided to have two variations of the system, Statutory Rationing Areas, where foodgrains availability was. supposed to be only through the Ration Shops and Non-Statutory Rationing Areas, where such shops would only supplement the open market availability. The system, however, continued to remain an essentially urban oriented activity. In fact, towards the end of the first five year plan (1956), the system was losing its relevance due to comfortable foodgrains availability. The net (gross minus 12.5 per cent for seed, feed and wastage) retail level availability of foodgrains had jumped from 54.0 million tonnes in 1953 to 63.3 million tonnes in 1954 and remained at 63 plus million tonnes up to end of the first five year plan. This situation even prompted the government to abandon procurement of foodgrains and remove all controls on the private trading in foodgrains. However, true to its cyclic nature, the production dropped to 58.3 million tonnes in 1958, when the second five year plan had just started and forced the government to not only restart the procurement of cereals and put control on trading of foodgrains but re-examine the need for public distribution system (PDS). It was decided to re-introduce PDS. Other essential commodities like sugar, cooking coal, kerosene oil were added to the commodity basket of PDS. There was also a rapid increase in the Ration Shops (now being increasingly called the fair price shops-FPSs) and their number went up from 18000 in 1957 to 51000 in 1961. Moreover, quantity of foodgrains distributed through PDS started getting increased with PL-480 availability. Thus, by the end of the Second Five Year Plan, PDS had changed from the typical rationing system to a social safety system, making available foodgrains at a 'fair price' so that access of households to foodgrain could be improved and such distribution could keep a check on the speculative tendencies in the market. The concept of buffer stocks was also incorporated in the overall food policy, although no buffer worth the name was required to be created in view of easy and continuous availability of PL-480 grains.

Creation of Food Corporation of India and Agricultural Prices Commission in 1965 consolidated the position of PDS. Government was now committed to announce a minimum support price for wheat and paddy and procure of quantities that could not fetch even such minimum prices in the market. The resultant stocks were to be utilized for maintaining distribution through the PDS and a portion of these were used to create and maintain buffer stocks. In fact, if stocks happened to be inadequate for maintaining a certain level of distribution through PDS, government had to resort to imports to honour its charge to PDS consumers. All through the ups and downs of Indian agriculture, PDS was continued as a deliberate social policy of the government with the objectives of:

The PDS seeks to provide to the beneficiaries two cereals, rice and wheat and four essential commodities viz. sugar, edible oil, soft coke and kerosene oil. However, state governments, which actually manage the system at the ground level, are exhorted to add other essential commodities like pulses, salt, candles, matchboxes, ordinary clothes, school text books/copies and the like. Supply of additional items through PDS is especially relevant in interior areas, which are away from markets and where one or two traditional shopkeepers, who also double up for money-lenders, have the market monopoly. A number of state governments have set up Civil Supplies or Essential Commodities Corporations to buy such additional items directly from the manufacturers and use the existing structure of PDS to arrange for the sale at lower than market rates.

Making available the six essential commodities (rice, wheat, sugar, edible oil, soft coke and kerosene oil) to the state government is the responsibility of the central government. Taking commodities other than cereals (rice and wheat) first, the arrangement for such supply is as under:


Central government, under the provisions of the Essential Commodities Act, fixes a levy percentage and accordingly every sugar factory has to deliver that percentage of production to the government. Presently, the levy is 40 per cent. Central government allots to the state governments every month share of the sugar out of the overall levy quantity on the basis of 425 gins/capita on 1991 population. State govts then arrange to lift it from the nominated factories and arrange to sell it through the PDS. Sugar factories deliver the sugar at the cost fixed by the central government which in turn is based on the minimum support price payable by the factories to the sugarcane farmers. The non-levy or free sale sugar can be sold by the factories in the open market at whatever price they like.

Edible Oil:

The distribution of edible oil through PDS has now become an occasional phenomenon. Whenever production of oilseeds dips and prices of edible oils rise steeply making it too expensive for poor people, central government imports oils like Palmoelin or Rapeseed through its trading agencies and allots it among state governments who sell it through PDS. Depending on its international prices and the domestic prices, it may be sold at subsidised or at no loss no profit basis.

Soft Coke:

Soft coke is allotted to state governments from out of the stocks held by the public sector coal companies. As this is a cheap cooking medium for very poor households, it is sold at substantially subsidised rates. As and when areas are covered by distribution of LPG gas, in cylinders or piped, the allocation of soft coke to states in reduced.

Kerosene Oil:

Kerosene oil is used both as a lighting material and a cooking medium by poor households-as cooking mostly in urban areas and as lighting material mostly in interior rural areas. The supply to the state governments, on the basis of allocations made by the central government, is arranged by the public sector oil companies either from domestic production or by imports. It is also sold at subsidised prices.

Rice and Wheat:

As far as rice and wheat are concerned, it is the Food Corporation of India which builds, holds & distributes them. The stocks of these commodities are built almost entirely through domestic procurement. As detailed elsewhere, imports are now occasional and in small quantities. These stocks are utilized both for allocations to the state governments for distribution through PDS and also for maintaining a national buffer. In good years of production, procurement levels are normally high, distribution is less and there is a build up of buffer stocks. In years of poor production, the distribution is more due to higher demand and better lifting by States/Union Territories and the buffer stocks get drawn down. The procurement, distribution and stocks picture in respect of rice and wheat since 1985-86 is given in Table No. 18.

It can safely be surmised that two or more successive years of good production will ease the open market prices, leaving no incentive for farmers and traders to hold back stocks and thereby result in good procurement.. This situation will also reduce offtake and buffer stocks will be built up. On the other hand, two or more successive years of poor production will harden open market prices, give rise to speculative tendencies, reduce procurement, increase the demand on PDS resulting in heavy offtake and lowering of stocks.

Table 18


(in lakh tonnes)


Wheat & Rice


Distribution of
Rice and Wheat


Stocks on
1st July, 86

















































Source: Bulletins of the Ministry of Food, GOI, May 1994.

Note :

Review of PDS in India

The PDS has been functioning for more than four decades now, if we leave aside its predecessor, the rationing system. Its greatest achievement lies in preventing any more famines in India. As recently as during the 1987 drought, considered worst in the century, the PDS helped the country overcome it with dignity and effectiveness. "The result of diet and nutrition survey during the 1987 drought showed that widespread hunger and its consequences experienced earlier in 1960, & 1970 were arrested in 1987". (Nutrition assessment & Analysis NIN, March 1992). Of course, build up of a buffer in preceding years provided the wherewithals to PDS as well as food for work type of programmes Its major drawback, however, has been its lack of effective contribution towards household food security. In fact, it remains one of the weaker components of the food policy trioka of procurement, distribution and stocking. The other two components have fully exhibited their worth. But for carefully worked out support prices with a structure to guarantee these, the farmer would not have been induced to produce more and more foodgrains. In fact, without FCI and other procuring agencies ready at thousands of purchase centres to step in and purchase grain if the producer was not getting higher price than the Government announced procurement price, the private trade could never have handled the huge quantities that come to market at harvest time and prices would have crashed, making all the efforts and investment of farmer go waste. As for the buffer stocks, it was the stock built in the preceding years (which had reached an all time high of 27 million tonnes on 1.7.1986), which came handy and enabled the country to meet the challenge thrown up by the great drought of 1986-87, a challenge which was met successfully without seeking any food aid from any quarter. No desperate purchases were required and import of some wheat and rice could be deferred to 1988-89 when the country could import on its own terms. The PDS also, no doubt, played a great role by making available rice and wheat at the fixed prices to consumers in all nooks and corners of the country, thereby preventing the spectre of famine in any part of the country. This distribution network also supplied grains for the "food for work" type programmes taken up on a large scale to fight the drought. The shortcomings noticed in the functioning of PDS as it is structured presently, range from it being urban baised and pro-rich to its ineffectiveness in reaching the poor. 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. The World Bank in their report of 1991 has observed that "poverty consideration will compel India to sustain publicly sponsored foodgrain procurement, storage and distribution efforts. These programmes are even more important in a period of economic downturn and adjustment, to ensure an adequate safey net". As regards urban bias, a study has shown that "in case of all commodities except coal, more than 50 per cent of the total quantity purchased under PDS is in the rural areas... PDS is rural based at all-India level for rice, coarse cereals, sugar and cloth. These items constitute more than 60 per cent of the total PDS purchases. Hence, it appears that PDS is not urban biased but pro-rural" (Mahendra Dev & Suryanarayana, 1991). As regards its being pro-rich, the same study finds that "more or less all the population [income] groups depend uniformly to the same extent on the PDS with respect to all commodities in rural areas, even though there were slight variations", (Dev & Suryanarayana, 1991). Thus, even though PDS appears to be even-handed for all income groups, this very finding points to its failure in achieving its basic goal of helping the poor.

It is also said that PDS is not cost effective, its operations are too costly and the ratio between procurement and transportation is too high pointing to 'wasteful' movements. It is also mentioned that storage losses are very high. However, if one was to analyse the various costs of FCI, it will be seen that almost 80% of the costs of FCI are non-controllable and FCI just cannot do anything if these rise. Example of such costs are minimum support price/ procurement price which have increased by almost 20% per annum in the past four years; interest rates for bank credit; rail and road transportation cost etc. Thus, hardly 20% of the costs are amenable to cost reduction by FCI and efforts need to be intensified in increasing labour productivity i.e., handling costs; rationalisation of movement plans to avoid cries-cross movement; reduction in transit and storage losses etc.

Another valid criticism of the PDS is its marginal impact, as far as income transfer to poor households is concerned, with too many or everyone being eligible to draw foodgrains from PDS, the per capita transfer of income is very small. In an study based on National Sample Survey's 42nd round (NSSO, 1990), it has been found that "the value of the subsidy is so little even for those households who make all their purchases of cereals from rationshops. For the bottom 20% of the rural population, the subsidy is no more than Rs. 2.08 per capita per 30 days. With the average family size of 6, the subsidy per family is almost Rs. 12.50 per month. In other words, it is useful to note here, one person day of additional employment per family per month would provide the same income support as provided by the cereals distributed under PDS" (Parikh, 1993).

Most of the above shortcomings flow from the universal nature of the present PDS, with benefit having been thinly spread over all the beneficiaries, be they rich or poor. "While a number of studies have suggested proper targeting of PDS, none of them have discussed the costs and political feasibility of targeting. The administrative costs of targeting have been reported to be high in some developing countries. Many studies have also reported a high percentage of leakages in the event of targeting". (Radhakrishnan & Rao, 1993). The main weakness in PDS i.e. not reaching poor effectively stems from the universality of the PDS coverage. Every household, irrespective of its income, can have an entitlement card and draw foodgrains against it. This in turn leads to low scales per household and first come first served system of delivery. These two combine to allow leakages and diversions on the one hand and "no commitment" syndrome on the part of the poor households on the other. If PDS could be targeted to the poor, a larger proportion of the household's requirement could be met by enhancing the scale and it would also be able to generate a commitment on the part of card holders on the system. Beneficiaries could then be organised and educated. They would then monitor the supplies and sales themselves to ensure that supplies reach the fair price shop in proper quantity and quality and are sold to genuine beneficiaries. The entitled households would also then demand their quota from the FPS owner and would not be turned away by the shopkeeper by saying that whatever quantity had come has been sold away or that the bad quality grains were supplied (in some cases replaced by unscrupulous vested interest) and beneficiary would find such stocks not worth purchasing at that price. Targeting of PDS to the really needy is, therefore, immediately required and an effective PDS maintained till such time the country has poor, needy households.

Suggestions for Improvement of Existing PDS

The author had conducted a survey of the actual operation of the PDS in the two Himalayan hill districts of Uttar Pradesh state in the Northern India (Nawani, N.P., Unpub, Sept. 1993). PDS beneficiaries (i.e. head of the household) as well as Fair Price Shop (FPS) owners were selected on random basis although in case of FPSs, effort was made to select FPS, on the basis of distance from the motorable road. In all, 16 FPSs and 128 households were taken up for detailed survey on the basis of two different sets of questionnaires. Attempt was also made to select households from amongst various income groups i.e. under each FPS, two households each from out of farmers, salaried/businessman, part-farmers and labourers/unemployed. Research methodology adopted consisted of detailed survey of households and FPS owners as also personal discussions with selected households, people at large and local officials. Such talks and on the spot discussions were mainly held by the author himself although the two supervisors of Investigators in each of the two district also did this as they visited all villages selected for survey and they, in turn, had detailed discussions with the author. The survey threw up some suggestions for improvement in the functioning of PDS which without going into their details, are briefly mentioned below:

Policy Reforms Required in PDS

Almost all food-managers, experts and even members of the political executive feel that targeting PDS to poor is a fundamental reform that cannot be deferred for too long. In the study report submitted by the author to the Minister for Civil Supplies (Nawani, N.P., Sept. 1993) not only the targetisation of PDS has been strongly recommended but the way it can be implemented, keeping the twin objectives in mind, that of making PDS an effective safety net for poor and keeping distribution within limits set by domestic procurement and subsidy budget. As an effective PDS will greatly enhance food security for poor households, it is proposed to deal with it in somewhat greater detail. However, before we go on to that, a brief description of some measures already initiated by the Prime Minister (When he was also holding the portfolio of the Minister for Civil Supplies, Consumer Affairs and Public Distribution) in 1992 will be in order.

Revamping of PDS

With the change of the political executive at the national level in 1991, the present Prime Minister accorded very high priority to the PDS and for quite some time himself looked after the Ministry. It was felt that the really vulnerable areas and people were not getting the desired benefits of PDS due to their disadvantageous geographic location, weak PDS infrastructure and low purchasing power. It was, therefore, decided that PDS should be reoriented for ensuring effective reach to the remotest and the most disadvantaged areas of the country which also had the concentration of poor. Accordingly, around 1750 blocks, composed of tribal, hilly, drought prone and 'decertified areas, were identified and included in crash programme designated "Revamped PDS" or for short "RPDS". The plan of action included:

"An analysis of the implementation of RPDS has shown that during 1992-93, per capita allocation in RPDS areas was higher than other areas and whereas offtake (actual distribution) against allocation was only 73 per cent in other areas it was 91% in RPDS aeas. States were also moving towards the norm of 20 kg./family/month. The positive trend that emerges from the analysis is that the PDS, which was predominantly urban till the mid 1980s has now been effectively targeted for the traditionally deficit areas covered by RPDS." (Min. of Civil Supplies etc., 1993).

Targeting PDS to only Poor Households

Poverty and associated hunger is a curse and every civilized society endeavours to alleviate extreme manifestations of poverty in their own way. Every country tries to do it-be it an economic giant and torch-bearer of the free markets like USA or a small happy go lucky Jamaica. The underlying policy approach is, however, more or less same and is basically built on 'providing direct assistance to poor households' so that their access to essentials of life like food is improved. The policy could be implemented through an income transfer mechanism like Food Stamps or cash doles (as in USA etc.) or a dual price system (e.g., through a PDS as in India etc.). These mechanism or their variations, cost money and this has to come from the food subsidy budgets of the country. In India, a country of around 900 million people, of which around one third lived in poverty as per 1986-87 estimates, any programme seeking to achieve such a goal will require vast sums of subsidy and it, therefore, becomes imperative that it is utilised in the most cost effective manner so that it helps poor households to attain adequate levels of food security in the true sense. An important question that arises is whether, in the present scenario, when availability of subsidy is greately constrained by overall fiscal deficit, can we continue to fritter away whatever amount of food subsidy we can mobilise? Since we simply cannot do this, we just cannot continue with a PDS which consumes none-too-small Rs 30000 million subsidy annually, but allows it to be available to anybody who wishes to draw on it, irrespective of whether he is poor or rich. Besides, the inherent weakness of a universal PDS, as organised now, allows quite a bit of diversion and leakage. Part of the subsidy is, therefore, going to the non-poor and even to the FPS dealers, handling contractors and some state functionaries involved in unscrupulous siphoning off and replacement of commodites. Such wastage of this precious and limited subsidy cannot be allowed any longer, and therefore, there is no alternative but to direct the subsidy to the poor and nobody else. Once this is accepted, the mechanism for achieving such focus can be chosen, depending on the situation prevailing in the country. We will also have to decide whether to create an altogether new mechanism or build upon the four decades old foundation provided by the PDS. It will also be necessary to ensure that the size of the population to be covered should be such that they all can be effectively accommodated under the newly created safety net, the largeness of the net being limited by the physical (government stocks of foodgrains) and financial (amount available for food subsidy) resources of the country. The present PDS can hardly be described as a safety net. Each and every Indian and also some ghost card holders, presently constitute the unorganized crowd that jostles under the ungainly net, nobody knowing who is able to receive the shelter under it or who, requiring such shelter badly, is being kept out or pushed out. As explained earlier, in this vast country, with millions of poor, we cannot dispense with the net altogether; there is therefore, no option but to mend the net, erect it afresh with only the needy households under it.

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