PDS in India and Poverty

An Expert's View about Expatriation and Immigration in India

Posted on: 17 Mar 2010

The paper would firstly outline the present poverty situation and the agricultural sector in India and then proceed to look at the effect of the PDS on the Indian economy as a whole. An effort has also been made to estimate the future benefits or losses that PDS might have on the Indian economy as a whole.

AN OVERVIEW OF THE PUBLIC DISTRIBUTION SYSTEM ABSTRACT Availability of food grains is a necessary but not passable condition to ensure food security to the poor. In addition to food availability, it is necessary that food accessibility is also ensured to the poor households. This can be done either by raising the level of incomes of these poor households or by providing them food grains at subsidized prices. Public Distribution System (PDS) is a way to ensure accessibility of food grains to these poor households. Public Distribution System (PDS) means distribution of essential commodities to a large number of people through a network of Fair Price Shops (FPS) on a recurring basis. In India, PDS evolved as a major instrument of the Government?s economic policy for ensuring availability of foodgrains to the public at affordable prices as well as for enhancing the food security for the poor. It is an important constituent of the strategy for poverty eradication and is intended to serve as a safety net for the poor. PDS is operated under the joint responsibility of the Central and the State Governments. The Central Government has taken the responsibility for procurement, storage, transportation and bulk allocation of foodgrains, etc. The responsibility for distributing the same to the consumers through the network of Fair Price Shops (FPS) rests with the State Governments. The operational responsibilities including allocation within the State, identification of families below poverty line, issue of ration cards, supervision and monitoring the functioning of FPS rest with the State Governments. The present project will try to give an overview of the PDS system as it existed in the country. It would also look into the new system of Targeted Public Distribution System (TPDS) as has been introduced recently. The project would firstly outline the present poverty situation and the agricultural sector in India and then proceed to look at the effect of the PDS on the Indian economy as a whole. An effort will also be made to estimate the future benefits or losses that PDS might have on the Indian economy as a whole. 1. THE POVERTY SITUATION IN INDIA This chapter would briefly outline the present poverty situation in India. The Planning Commission made a survey for finding out the number of persons below poverty line and estimated that 18.96% of the total people live below poverty line as of the year 1993-94. The poverty situation in India can be differentiated on the basis of rural poverty as well as urban poverty. Rural Poverty In India India is a more rural based country highly dependent on agricultural sector. There is higher concentration of poverty in the rural India as to the given statistics. Government's 1 plans and procedures have failed in many times. The important reasons for country's poverty are as follows: 1) Alarming population Growth 2) Lack of Investment 3) Lower Literacy Rate 4) Regional inequalities 5) Failure of PDS system Urban Poverty In India India is stepping forward for becoming a country with more urbanized areas. The recent experiences tell that the urban areas are facing the same problem of poverty as of the rural areas. The reasons behind urban poverty are as follows: 1) Improper Training 2) Growing population 3) Slower job Growth 4) Failure of PDS System From the above reasons it can be seen that the reasons for urban and rural poverty are different but for two common points between them. The common reasons for both urban and rural poverty are the failure of the PDS system and the growing population. High population growth in India is the mother of all problems in the Indian economy not only poverty. The main reason for poverty is therefore the failure of the PDS system at both the urban and rural areas. 2 The following table shows the over all poverty in India over various years given by T 1enth Five Year Plan. Year Poverty Ratio (Per cent) Number Of Poor (Millions) Rural Urban Combined Rural Urban Combined 1977-78 53.1 45.2 51.3 264.3 64.4 328.9 1983 45.7 40.8 44.5 252.0 70.9 322.9 1987-88 39.1 38.2 38.9 231.9 75.2 307.1 1993-94 37.3 32.4 36.0 244.0 76.3 320.3 1999-00 27.1 23.6 26.1 193.2 67.1 260.3 2007 21.1 15.1 19.3 170.5 49.6 220.1 About two thirds of India?s more than 1 billion people live in rural areas, and almost 170 million of them are poor. Although many rural people are migrating to cities, three out of four of India?s poor people live in the vast rural parts of the country. For more than 21 per cent of them, poverty is a chronic condition. Poverty is deepest among scheduled castes and tribes in the country?s rural areas. India?s poorest people include 50 per cent of members of scheduled tribes and 40 per cent of people in scheduled castes. On the map of poverty in India, the poorest areas lie in parts of Rajasthan, Madhya Pradesh, Uttar Pradesh, Bihar, Jharkhand, Chhattisgarh, Orissa and West Bengal. ? Large numbers of India's poorest people live in the country?s semi-arid tropical region. In these areas shortages of water and recurrent droughts impede the transformation of agriculture that the Green Revolution has achieved elsewhere. ? There is also a high incidence of poverty in flood-prone areas such as those extending from eastern Uttar Pradesh to the Assam plains, and especially in northern Bihar. ? Poverty affects tribal people in forest areas, where loss of entitlement to resources has made them even poorer. 1 http://www.economywatch.com/indianeconomy/poverty-in-india.html (Visited on March 1, 2008) 3 ? In coastal fishing communities? people?s living conditions are deteriorating because of environmental degradation, stock depletion and vulnerability to natural disasters. A few other reasons A major cause of poverty among rural people in India is lack of access for both individuals and communities to productive assets and financial resources. High levels of illiteracy, inadequate health care and extremely limited access to social services are common among poor rural people. Women in general are the most disadvantaged people in Indian society, though their status varies significantly according to their social and ethnic backgrounds. Women are particularly vulnerable to the spread of HIV/AIDS from urban to rural areas. In 2005 an estimated 5.7 million men, women and children in India were living with HIV/AIDS. Most of them are in the 15-49 age group and almost 40 per cent of them are women. Rural poverty approaches, policies & strategies India?s various states differ significantly in terms of economic growth and poverty reduction. Over the past few decades, India has allocated 6 to 7 per cent of budgetary expenditures, or 1 per cent of gross domestic product (GDP), to its antipoverty programmes, mainly supporting food subsidies, subsidized credit, improvement of rural infrastructure and rural employment schemes. Targets of the Government of India?s Eleventh National Development Plan (2007-2012) includ 2e : ? improving access to and the quality of essential public services for poor rural people, including health and education, by implementing and improving specific programmes and involving the voluntary sector ? creating a broader base for income growth by doubling the agricultural growth rate to 4 per cent ? harmonizing the government?s various self-employment schemes and implementing an integrated self-employment programme 2 http://www.ruralpovertyportal.org/english/regions/asia/ind/approaches.htm ( Visited on March 1, 2008) 4 ? giving special attention to scheduled castes, tribes and minorities, and especially to the economic empowerment of women in those groups The Eleventh Plan provides an opportunity to restructure policies according to a new vision of growth that will be more broadly based and inclusive, to achieve a faster reduction in poverty. An Interesting Observation It is a common misconception that the rate of decline of poverty (RDP) depends on the aggregate income growth. But Mr. Devendra Kumar Pant has made a few interesting observations in this regard in the article titled Growth alone doesn?t reduce po 3verty . Poverty levels in the country have fallen from 26.1 per cent in 1999-2000 to 21.8 per cent in 2004-05, based on the mixed recall period consumption method. Those for rural areas fell from 27.1 to 21.8 while those for urban areas fell from 23.6 to 21.7 per cent. The correlation between aggregate income growth and rate of decline of poverty was not very strong (0.47). This was not the first time that rural poverty has declined faster than urban poverty has. This was observed in earlier periods also ? 1977-78 to 1983, 1983 to 1987-88 and 1993- 94 to 1999-00. The ratio of rural to urban RDP at 2.54 observed between 1999-00 and 2004-05 is slightly higher than the 2.34 observed between 1983 and 1987-88. Both these time periods coincide with a low average agricultural GDP growth (0.06 per cent in 1983 to 1987-88 and 1.76 per cent in 1999-00 to 2004-05). Some of the reasons for the faster decline in poverty in rural areas compared to urban areas are discussed here. Rural employment estimates suggest that rural employment alone is not growing fast enough to reduce rural poverty faster ? the shift of the labour force from the less profitable and stagnant agricultural sector to the more profitable and growing sectors could, however, be the reason for the faster decline in rural poverty levels. Provisional results of the fifth economic census suggest that between 1998 and 2005, the average annual growth of enterprises in rural areas, at 5.53 per cent, has been nearly 50 per cent higher than the growth of enterprises in urban areas. 3 http://ushome.rediff.com/money/2007/mar/29guest.htm (Visited on March 2, 2008) 5 At the same time the growth in employment offered by these enterprises in rural areas at 3.33 per cent has been nearly twice the employment growth in urban areas. Between 1999-00 and 2004-05, five states, namely, Assam, undivided Bihar, Tamil Nadu, undivided Uttar Pradesh and West Bengal accounted for 72 per cent of the decline in the number of rural poor across the country. A combination of higher agricultural growth rate and higher employment growth in non- agricultural/farm (excluding crop production and plantation) activities led to a decline in the absolute numbers of poor in these states. While in undivided Bihar it was higher agricultural growth that led to the decline in the number of rural poor, in the case of Tamil Nadu and undivided Uttar Pradesh it was higher non-agricultural growth that was responsible. In short, the politics and economics of Indian states are so divergent that it is difficult to pinpoint a single factor responsible for the change in poverty or any other developmental indicator. From the above discussion it is clear that the Union government cannot implement the same poverty removal programmes throughout the country uniformly. It has to evaluate the reasons for and the current poverty situation in each and every region before arriving at any policy. So, as will be shown in the later chapters, the PDS has failed to achieve the estimated success in removing poverty in the country. The primary reason was that there was an attempt to introduce uniformity in the PDS throughout all the income groupsand in all the regions. Even middle and high income groups took benefit of the Fair Price Shops (FPS) which led to reduction in food supplies for the people who were genuinely poor. The government should, thus, strive at equitable instead of equal distribution of resources. 2. THE AGRICULTURAL SECTOR Before moving on to the pros and cons of the Public Distribution System, let us have a quick look at the current scenario in the agricultural sector of the Indian economy and the budgetary provisions introduced this year with reference to this sector. 6 Agriculture is the mainstay of the Indian economy because of its high share in employment and livelihood creation notwithstanding its reduced contribution to the nation?s GDP. The share of agriculture in the gross domestic product has registered a steady decline from 36.4 per cent in 1982-83 to 18.5 per cent in 2006-07. Yet this sector continues to support more than half a billion people providing employment to 52 per cent of the workforce. It is also an important source of raw material and demand for many industrial products, particularly fertilizers, pesticides, agricultural implements and a variety of consumer goods. Growth of agriculture over a period of time remained lower than the growth in non-agriculture sectors and this decelerating trend is cause for concern. Average GDP growth rates of Agriculture and other sectors at 1999-2000 4 prices The gap between the growth of agriculture and non-agriculture sector began to widen since 1981-82, and more particularly since 1996-97, because of acceleration in the growth of industry and services sectors. The growth in the agriculture sector, though lower than in the non-agriculture, nonetheless remained higher than the growth of population. Between 1950-51 and 2006- 07, production of food-grains increased at an average annual rate of 2.5 per cent compared to the growth of population which averaged 2.1 per cent during this period. As a result, India almost became self-sufficient in food-grains and there were hardly any imports during 1976-77 to 2005-06, except occasionally. The rate of growth of food- grains production, however, decelerated to 1.2 per cent during 1990-2007, lower than 4 indiabudget.nic.in/es/2007-08/chapt2008/chap71.pdf (visited on March 2, 2008) 7 annual rate of growth of population, averaging 1.9 per cent. The per capita availability of cereals and pulses, therefore, witnessed a decline during this period. The consumption of cereals declined from a peak of 468 grams per capita per day in 1990-91 to 412 grams per capita per day in 2005-06, indicating a decline of 13 per cent during this period. The consumption of pulses declined from 42 grams per capita per day (72 grams in 1956- 57) to 33 grams per capita per day during the same period. Agricultural Production (million tonn 5es) Agriculture production in 2006-07 and 2007-08 The overall production of foodgrains was estimated at 217.3 million tonnes in 2006-07, an increase of 4.2 per cent over 2005-06. Compared to the target set for 2006-07, it was, however, lower by 2.7 million tonnes (1.2 per cent). The increase in production in 2006- 07 was largely because of higher production of wheat by 6.5 million tonnes (9.3 per cent) 5 indiabudget.nic.in/es2007-08/chapt2008/chap72.pdf (visited on March 2, 2008) 8 and of pulses by 0.8 million tonnes (6 per cent). There was a decline in production of oilseeds (3.7 million tonnes or 13 per cent) compared to the production in 2005-06. 7.4 The production of non-food crops, particularly sugarcane, cotton and jute (including mesta), however, exceeded both the targets and the levels achieved in the previous year. In the current year, as per the second advance estimates of crops' production, a shortfall is expected in rabi crops. The overall food-grains production in 2007- 08 is expected to fall short of the target by 2.2 million tonnes, though it is expected to be 10.1 million tonnes higher compared to the second estimates for 2006-07. Production of sugarcane is estimated to exceed the target, though it will be lower than the previous year. A shortfall of 2.8 million tonnes (10 per cent) is expected in the production of oilseeds compared to the target, though it is still expected to be higher by 2.9 million tonnes compared to the final estimates of 2006-07. Over a medium term, there has generally been a shortfall in the achievement of target of food-grains, pulses and oilseeds during 2000-01 to 2006-07. The actual production of food-grains on an average was 93 per cent of the target. Actual production, however, was only 87.7 per cent of target for pulses and 85.3 per cent of target for oilseeds. Production of sugarcane and cotton, however, over-achieved their respective targets in 2005-06 and 2006-07. Why this discussion is important is because the policies of the government with regard to the PDS are dependant on the condition of agricultural production within the country as a whole as well as their distribution among the various regions. India?s total food grain output has been 219.32 tonnes which is an all time high. But the point to be noted is that the rate of growth in the agricultural sector has declined over the last 3 years which is a cause for concern. As can be seen from the following graph6, the food-grains production has grown continuously after a drastic fall in the year 2004-05. But if the percentage change over the previous year is calculated, it is found that it has reduced from 5.2% in 2005-06 to 4.2% in 2006-07 up to a mere 0.9% in 2007-08. 6 http://indiabudget.nic.in/es2007-08/chapt2008/chap11.pdf (visited on March 2, 2008) 9 If the agricultural production reaches the bottom-line, India will have to resort to importing food-grains since the growth rate of population is still high as compared to the growth rate of agricultural production. This would in turn affect the prices of food-grains. The level of Government subsidy will have to be raised to cope with the rise in prices. All this would have a direct bearing on the country?s finances. All high hopes of achieving a 9% growth in the twelfth five-year plan will go down the drain as the subsidies will pull down the overall growth rate. 3. GROWTH AND EFFECTS OF PDS IN INDIA Public Distribution System means distribution of essential commodities such as wheat, rice, sugar, kerosene, etc. to a large number of people through a network of Fair Price Shops on a recurring basis. PDS is operated under the joint responsibility of the Central and the State Governments. The Central Government has taken the responsibility for procurement, storage, transportation and bulk allocation of food-grains, etc. The responsibility for distributing 10 the same to the consumers through the network of Fair Price Shops (FPSs) rests with the State Governments. The operational responsibilities including allocation within the State, identification of families below poverty line, issue of ration cards, supervision and monitoring the functioning of FPSs rest with the State Governments. PDS evolved as a major instrument of the Government?s economic policy for ensuring availability of food-grains to the public at affordable prices as well as for enhancing the food security for the poor. Evolution of the Public Distribution System Public Distribution of essential commodities had been in existence in India during the inter-war period. PDS, with its focus on distribution of food grains in urban scarcity areas, had emanated from the critical food shortages of 1960. PDS had substantially contributed to the containment of rise in food grains prices and ensured access of food to urban consumers. As the national agricultural production had grown in the aftermath of Green Revolution, the outreach of PDS was extended to tribal blocks and areas of high incidence of poverty in the 1970s and 1980s. PDS, till 1992, was a general entitlement scheme for all consumers without any specific target. Revamped Public Distribution System (RPDS) was launched in June 1992 in 1775 blocks throughout the country. The Targeted Public Distribution System (TPDS) was introduced with effect from June 1997. The PDS is an important constituent of the strategy for poverty eradication and is intended to serve as a safety net for the poor whose number is more than 330 million and are nutritionally at risk. PDS with a network of about 4.78 lakh Fair Price Shops (FPS 7) is perhaps the largest distribution network of its type in the world. What needs to be understood is that PDS is supplemental in nature and is not intended to make available the entire requirement of any of the commodities distributed under it to a household or a section of the society. Although the PDS was an effective safety net, this goal was accomplished in a highly inefficient manner. Two major aspects of inefficiency were particularly noteworthy: 7 fcamin.nic.in/dfpd/EventListing.asp?Section=PDS&id_pk=1&ParentID=0 (visited on March 3, 2008) 11 (i) Because the PDS is available to all households (not only poor households) the cost is considerably higher than is typical for a targeted safety net. Indeed, the actual role of the PDS goes far beyond providing a safety net for the poor. (ii) The accounting, communication and tracking systems for the PDS are rudimentary and generally dysfunctional, making it difficult to know if prices charged are appropriate, if contracts are fulfilled, if duplicate payments are made, and if appropriate quantities of goods are where they are supposed to be. As a result, the system is highly vulnerable to waste, theft and corruption. Due to the above reasons, firstly RPDS was introduced followed by TPDS. As on date, all the States/UTs except Delhi and Lakshadweep have implemented TPDS. Now, let us look at the functioning of the PDS in Delhi. In Delhi, unlike most other states, the PDS distributes commodities to all card-holders irrespective of their income group. The main items distributed through the PDS are cereals such as rice and wheat and essential items such as sugar, edible oil and kerosene. According to the Department of Food & Supplies, there were 3,214 PDS outlets in Delhi in March 1999. Of these, 2,811 outlets were in urban areas and 403 in rural areas. On an average, each Fair Price Shop handles 1,000 ration cards. The number of households in Delhi that carry ration cards increased from 23.02 lakh in 1990-91 to 33.53 lakh in 1998- 99. 12 The distribution of ration cards, cereal and sugar units and other relevant data is indicated below: Important Indicators of PDS-Delh 8i S.No. Item 1990-91 1998-99 1. No. of Cards (in ?000?) 2362 3353 No. of Cereal Units (in 20312 30721 2. ?000?) No. of Sugar Units (in 11866 17793 3. ?000?) Fair Price Shop (in 3579 3214 4. number) (i+ii) (i) Urban 3299 2811 (ii) Rural 280 403 The following table gives the distribution of cereals: DISTRIBUTION of Cereals in Delhi, 1998-99 (in million tonnes) Allotted Quantity Quantity Lifted for Percentage Item Distribution Distributed Rice 1,64,680 1,05,831 64.3 Wheat 6,94,800 4,84,292 69.7 Sugar 1,45,478 1,45,478 100.0 NSS Survey on Public Distribution System 8 http://delhiplanning.nic.in/Economic%20Survey/chapter_19.htm (visited on March 2, 2008) 13 To assess the extent to which items are available to consumers through Delhi?s Public Distribution System, a sample survey (NSS-49th Round) was conducted in January-June 1993 both in the rural and urban areas. Informants were asked to provide information about the quantity and value of selected commodities purchased both from the PDS as well as from other sources in the 30 days preceding the date of the survey. Households that were not using the PDS were asked to specify the reasons. The main findings of the survey9 are given below: i. In the urban areas, 63-77% of the rice and wheat requirement was met through the PDS. In the rural areas, 71% of the requirement for rice and 54% for wheat was met through the PDS. ii. About 60% of the sugar requirement in both rural and urban areas was met through the PDS. iii. The PDS adequately met the demand for kerosene, since 86% of the kerosene purchased in the rural sector was from the PDS. In the urban sector, 78% was bought through the PDS. iv. An analysis of the relative use of the PDS in a cross-section of consumers represented by various fractile groups of monthly per capita expenditure (MPCE) indicated that the system was more popular with the lower and middle income groups than with the higher income groups. v. The purchase of atta and edible oil (in percentage terms) from the PDS was insignificant. vi. The main reasons consumers did not use PDS was either that they did not have ration cards or found the quality of the commodities not upto their satisfaction. When the prices in the open market are higher than through the PDS, demand under the PDS increases, resulting in increased lifting through the PDS. 9 Ibid 14 Revamped Public Distribution System (RPDS) The Revamped Public Distribution System (RPDS) was launched in June, 1992 with a view to strengthen and streamline the PDS as well as to improve its reach in the far-flung, hilly, remote and inaccessible areas where a substantial section of the poor live. It covered 1775 blocks wherein area specific programmes such as the Drought Prone Area Programme (DPAP), Integrated Tribal Development Projects (ITDP), Desert Development Programme (DDP) and certain Designated Hill Areas (DHA) identified in consultation with State Governments for special focus, with respect to improvement of the PDS infrastructure. Food grains for distribution in RPDS areas were issued to the States at 50 paise below the Central Issue Price. The scale of issue was up to 20 kg per card. The RPDS included area approach for ensuring effective reach of the PDS commodities, their delivery by State Governments at the doorstep of FPSs in the identified areas, additional ration cards to the left out families, infrastructure requirements like additional Fair Price Shops, storage capacity etc. and additional commodities such as tea, salt, pulses, soap etc. for distribution through PDS outlets. Various plan schemes were introduced to overcome the drawbacks of the PDS, some of which are given below: 1. Training, Research and Monitoring The scheme aims at strengthening and upgrading the skill of personnel engaged in PDS and also to improve the supplies. Efforts of the State Government/UT Administration, Civil Supplies Corporation are supplemented by providing/organizing training programmes on PDS, Evaluation and Research Studies on various aspects of PDS. Food- grains management and related issues are also sponsored under the Scheme. The scope of the Scheme was enlarged during the year 1989-99 by providing computers for providing connectivity with NIC networking. The scope of the Scheme was further extended in the year 1999-2000 to include Safety, Food Security and Food-grains Management besides other aspects of PDS. Provision also exists for organizing lectures/Seminars for various levels of officers including officials of State Governments as well as Central Ministries/Organizations. 15 Government of India will provide assistance @ Rs. 500/- per person per day. Maximum assistance per training programme would be Rs. 50,000/-. The assistance for Lectures/Seminars depends from case to case. Recently members of Panchyati Raj Institutions (PRIs), NGOs and Vigilance Committees have also been included for training purposes. The Scheme commenced from the 6th Five Year Plan and still continues. Over the years, various training programmes have been carried out by the various State Governments/UT Administrations. The Scheme for providing assistance to States/UTs for purchase of computers being one time assistance have been dropped from the financial year 2006-07 as most of the States/UTs have procured computers under the Scheme. The expenditure made under the Scheme during 2004-05, 2005-06 and 2006-07 is as under:- Financial Year BE/RE Expenditure 2004-05 6000 23,90,343 2005-06 6000 59,90,144 `2006-07 6000 4,86,512 (Upto 30.6.2006) (Rs. in thousands) 2. Computerization of PDS operations in States/Union Territories The ?computerization of PDS operations? would be an improvement on the existing ration cards, i.e. the present manual system of making entries, etc. will be done electronically. The system will have personal details of all members of the family including their entitlement. The entire network of PDS from Taluk to State level will be linked. The Scheme would facilitate the transparency and efficiency in implementing PDS of food- grains and help in arresting the problem of bogus ration cards. The Scheme is in lieu of Smart Card Scheme. The planning commission has made a token provision of Rs. 5.00 Crores for the proposed new scheme for the year 2006-07 10. 10 http://fcamin.nic.in/dfpd/EventDetails.asp?EventId=25&Section=PDS&ParentID=0&Parent=1&check=0 (visited on March 2, 2008) 16 The next chapter deals with the latest development in the field of Public Distribution Systems, that is, the Targetted Public Distribution System (TPDS). 4. TARGETED PUBLIC DISTRIBUTION SYSTEM Till 1992, the PDS was a general entitlement scheme for all consumers without special targets. The RPDS was launched in 1992 in 1775 blocks in tribal, hill and drought prone areas. PDS as it stood earlier, had been widely criticized for its failure to serve the population Below the Poverty Line (BPL), its urban bias, limited coverage in the States with high concentration of the rural poor and lack of transparent and accountable arrangements for delivery. In June 1997, the Government of India launched the Targeted Public Distribution System (TPDS) with focus on the poor. Under the TPDS, States are required to formulate and implement foolproof arrangements for identification of the poor for delivery of food grains and for its distribution in a transparent and accountable manner at the FPS level. The scheme, when introduced, was intended to benefit about 6 crore poor families for whom a quantity of about 72 lakh tonnes of food grains was earmarked annually. The system is implemented in the following steps chronologically: 1. Identification of BPL families: The identification of the poor under the scheme is done by the States as per State-wise poverty estimates of the Planning Commission for 1993-94 based on the methodology of the ?Expert Group on estimation of proportion and number of poor? chaired by Late Prof Lakdaw 11ala. To work out the population below the poverty line under the TPDS, there was a general consensus at the Food Minister?s conference held in August 1996, for adopting the methodology used by the expert groups set up by the Planning Commission under the Chairmanship of Late Prof. Lakadawala. The BPL households were determined on the basis of population projections of the Registrar General of India for 1995 and the State wise poverty estimates of the Planning Commission for 1993-94. The total number of BPL households so determined was 596.23 lakh. Guidelines for 11 http://fcamin.nic.in/dfpd/EventDetails.asp?EventId=26&Section=PDS&Par (visited on March 2, 2008) 17 implementing the TPDS were issued in which the State Governments had been advised to identify the BPL families by involving the Gram Panchayats and Nagar Palikas. While doing so the thrust should be to include the really poor and vulnerable sections of the society such as landless agricultural labourers, marginal farmers, rural artisans/craftsmen such as potters, tappers, weavers, black-smith, carpenters etc. in the rural areas and slum dwellers and persons earning their livelihood on daily basis in the informal sector like potters, rickshaw-pullers, cart-pullers, fruit and flower sellers on the pavement etc. in urban areas. The Gram Panchayats and Gram-Sabhas should also be involved in the identification of eligible families. The number of BPL families has been increased in 2000, by shifting the base to the population projections of the Registrar General as on March 1, 2000 instead of the earlier population projections of 1995. With this increase the total number of BPL families is 652.03 lakh as against 596.23 lakh families originally estimated when TPDS was introduced in June 1997. 2. Allocation of Food-grains: The allocation of food grains to the States/UTs was made on the basis of average consumption in the past i.e. average annual off-take of food grains under the PDS during the past ten years at the time of introduction of TPDS. 3. Transitory Allocation: The quantum of food grains in excess of the requirement of BPL families was provided to the State as ?transitory allocation? for which a quantum of 103 lakh tonnes of food grains was earmarked annually. The transitory allocation was intended for continuation of benefit of subsidized food grains to the population Above the Poverty Line (APL) as any sudden withdrawal of benefits existing under PDS from them was not considered desirable. The transitory allocation was issued at prices, which were subsidized but were higher than the prices for the BPL quota of food grains. Keeping in view the consensus on increasing the allocation of food grains to BPL families, and to better target the food subsidy, Government of India increased the allocation to BPL families from 10 kg to 20 18 kg of food grains per family per month at 50% of the economic cost and allocation to APL families at economic cost from April 2000. 4. Central Issue Prices: Though the allocation of APL families was retained at the same level as at the time of introduction of TPDS but the Central Issue Prices (CIP) for APL were fixed at 100% of economic cost from that date so that the entire consumer subsidy could be directed to the benefit of the BPL population. Wheat and rice are issued to the State Governments/UT Administrations from the Central pool at the uniform Central Issue Prices (CIP) for distribution under Targeted Public Distribution System (TPDS). Under the TPDS introduced w.e.f. 1.6.1997, the Central Issue Prices of wheat and rice are fixed for BPL and APL families separately. The CIPs of wheat and rice are subsidized and have remained unchanged for BPL families since July, 2000. The Central Issue Prices of wheat and rice are as under: CIPs of whea 12t Effective from BPL APL AAY 1.7.2002 to till 415 610 200 date (w.e.f. 25.12.2000) CIPs of R 13ice Effective from BPL APL AAY 1.7.2002 to till 565 830 300 date (w.e.f. 25.12.2000) 12http://fcamin.nic.in/dfpd/EventListing.asp?Section=Central%20Issues%20Prices&id_pk=10&ParentID=0 (visited on March 2, 2008) 13 Ibid 19 5. Fixation of the End Retail Prices: The end retail price is fixed by the States/UTs after taking into account margins for wholesalers/retailers, transportations charges, levies, local taxes etc. Under the TPDS the States were requested to issue food-grains at a difference of not more than 50 paise per kg over and above the CIP for BPL families. Flexibility to States/UTs. has been given in the matter of fixing the retail issue prices by removing the restriction of 50 paise per kg over and above the CIP for distribution of food grains under TPDS except with respect to Antyodaya Anna Yojana where the end retail price is to be retained at Rs. 2/Kg. for wheat and Rs. 3/Kg. for rice. There are a few other topics to the TPDS that are discussed in short here. Antodaya Anna Yojana (AAY) AAY is a step in the direction of making TPDS aim at reducing hunger among the poorest segments of the BPL population. A National Sample Survey Exercise points towards the fact that about 5 % of the total population in the country sleeps without two square meals a day. This section of the population can be called as ?hungry?. In order to make TPDS more focused and targeted towards this category of population, the ?Antyodaya Anna Yojana? (AAY) was launched in December, 2000 for one crore poorest of the poor families. AAY contemplates identification of one crore poorest of the poor families from amongst the number of BPL families covered under TPDS within the States and providing them food grains at a highly subsidized rate of Rs.2/ per kg. for wheat and Rs. 3/ per kg for rice. The States/UTs are required to bear the distribution cost, including margin to dealers and retailers as well as the transportation cost. Thus the entire food subsidy is being passed on to the consumers under the scheme. The scale of issue that was initially 25 kg per family per month has been increased to 35 kg per family per month with effect from 1st April 2002. 20 There were three expansions in the number of families included under the AAY. As of date, it was announced in the Union Budget 2005-06, that the AAY has further been expanded to cover 2.5 crore households.(i.e. 38% of BPL). The identification of the Antyodaya families and issuing of distinctive Ration Cards to these families is the responsibility of the concerned State Governments. The present monthly allocation of food grains under AAY is around 7.27 lakh tonnes per month. Minimum Support Price Minimum Support Price refers to price being fixed above the equilibrium price of the market. These programmes are meant to insulate farmers from income fluctuations resulting from price variations in the free market. It is noteworthy that while price control programmes are commonly observed in developing countries rather than in developed countries, agricultural price support programmes have been common in both groups of countries. However, many price support programmes have been common in both groups of countries. However, many price support programmes are being phased out now in both developed and developing countries, because of their commitments made to World Trade Organization as members. In formulating the recommendations in respect of the level of minimum support prices and other non-price measures, the Commission for Costs and Prices takes into account a comprehensive view of the entire structure of the economy of a particular commodity or group of commodities, besides other factors like cost of production, demand and supply, effect on cost of living, effect on general price level, effect on issue prices and implications for subsidy, etc. The Commission makes use of both micro-level data and aggregates at the level of district, state and the country 14. 25 agricultural commodities are currently covered under the mandate given to the CACP for advising the government in respect of the price policy. The Commission is required to convey its recommendations to the Government well before the sowing season of the crop. The Minimum Support Price (MSP) of crops should be linked to the input costs. The Government should procure the staple grains needed for the Public Distribution System (PDS) at the prices that private traders are willing to pay to farmers. The MSP should be 14 http://dacnet.nic.in/cacp/ (visited on March 3, 2008) 21 at least 50 per cent more than the weighted average cost of production and should be expanded to cover all crops of importance for ensuring food and income security to the 15 small farmers. The PDS should be universal and should undertake the task of enlarging the food security basket. Scale of Issue of food grains under TPDS i. Since 1997, the Scale of issue of the BPL families has been gradually increased from 10 kg. to 35 kg. per family per month. ii. The scale of issue was increased from 10 kg to 20 kg per family per month with effect from April 2000. iii. The allocation for APL families has been retained at the same level as at the time of introduction of TPDS (i.e. 10 kg. per family per month). iv. The allocation of food grains for the BPL families has been further increased from 20 kg to 25 kg per family per month with effect from July, 2001. v. Initially, the Antyodaya families were provided 25 kg of food grains per family per month at the time of launching of the scheme. vi. The scale of issue under APL, BPL and AAY has been revised to 35 kg per family per month with effect from April 2002 with a view to enhancing the food security at the household level. Procurement Policy Existing Policy of Food-grains Procurement The Central Government extends price support to paddy, coarse grains and wheat through the FCI and State Agencies. All the food-grains conforming to the prescribed specifications offered for sale at specified centers are bought by the public procurement agencies at the Minimum Support Price (MSP). The producers have the option to sell their produce to FCI/State Agencies at MSP or in the open market as is advantageous to 15 rbidocs.rbi.org.in/rdocs/AnnualReportPDFs/79548.pdf (visited on March 3, 2008) 22 them. Food-grains procured by the State Governments and their agencies are ultimately taken over by the FCI for distribution through out the country. Objectives of food-grains procurement by Government Agencies i. To ensure that farmers get remunerative prices for their produce and do not have to resort to distress sale. ii. To service the TPDS and other welfare schemes of the Government so that subsidized food-grains are supplied to the poor and needy. iii. To build up buffer stocks of food-grains to ensure food-grain security. Procurement of rice under levy system Rice is also procured by the Government through statutory levy on rice millers and rice dealers. The percentage of levy rice is fixed by State Governments with the approval of Central Government taking into account requirements for the Central Pool, domestic consumption and marketable surplus. Prices of levy rice are fixed by the Government of India before commencement of every Kharif Marketing Season. Rice and wheat are predominant cereals in procurement of food-grains. Overall procurement which reached 42.4 million tonnes in 2005-06 declined to 35.8 million tonnes in 2006-07. The decline in wheat procurement in RMS 2006-07 and 2007-08 is attributed to less than the targeted production of wheat, lower market arrivals, high ruling market prices, negative market sentiments due to low stocks of wheat in the Central pool, and aggressive purchases by the private traders. To encourage farmers to increase production of wheat as well as to enhance procurement in RMS 2007-08, the Government announced MSP of Rs. 850 per quintal (inclusive of bonus). Procurement, however, increased only in a limited way to 11.1 million tonnes, compared to 9.2 million tonnes in RMS 2006-07. However, procurement of wheat was substantially less than the targets in Uttar Pradesh, Madhya Pradesh and Bihar. Rice procurement also fell marginally to 26.3 million tonnes during 2006-07 from 26.7 million tonnes during 2005-06. MSP, inclusive of bonus, for paddy was raised for the 2007-08 kharif marketing season by Rs. 125 per quintal. To incentivise the procurement, MSP (plus bonus) was fixed at 23 Rs. 745 per quintal for common varieties of paddy and to Rs. 775 per quintal for Grade 'A' varieties. Further, to maximize procurement of rice, a ban on export of non-basmati rice was imposed on October 9, 2007. However, on October 25, 2007, a decision to reverse the ban was taken on non-basmati rice above the Minimum Export Price (MEP) of $425 per tonne (FoB), which was raised to $500 per tonne on December 27, 2007. It is expected that the estimated procurement of 26 million tonnes for the current year will be achieved. In KMS 2007-08, procurement up to December 31, 2007, is 17.19 million tonnes compared to 16.76 million tonnes in the corresponding period last year. P 6rocurement and Off-take of Wheat and R 1ice The procurement of foodgrains by FCI continues to be higher in States such as Punjab, Haryana, Uttar Pradesh and Andhra Pradesh. These four States accounted for nearly 71 per cent of rice procured for the Central pool in KMS 2004-05, 68.8 per cent in 2005-06 and 69.7 per cent in 2006-07. Punjab and Haryana accounted for more than 91 per cent of wheat procurement in RMS 2005-06 (Table 7.24) which increased to 99.5 per cent in 2006-07 but declined to 91.1 per cent in 2007-08. In some of the major rice and wheat producing States, procurement by the State agencies, however, remained poor. 16 indiabudget.nic.in/es2007-08/chapt2008/chap75.pdf (visited on March 2, 2008) 24 Procurement of wheat in Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh was significantly lower relative to their production. Similarly, for rice, the ratio of procurement to production was significantly lower in West Bengal, Tamil Nadu, Bihar, Karnataka, Maharashtra and Jharkhand. There may be a need to strengthen the procurement machinery in these States. Buffer Stocks In addition to the requirements of wheat and rice under the Targeted PDS, the Central Pool is required to have sufficient stocks of these in order to meet any emergencies like drought/failures of crop, as well as to enable open market intervention in case of price rise. Therefore, the minimum stocks that should be available in the Central Pool at the beginning of the four quarters of a year are as follows: (With effect from April 2005) In Lakh Tonn 17es DATE RICE WHEAT TOTAL 1st April 122.0 40.0 162.0 1st July 98.0 171.0 269.0 1st Oct. 52.0 110.0 162.0 1st Jan. 118.0 82.0 200.0 The years 2001-03 witnessed high levels of stock build up in the Central pool. The food- grains stocks reached a peak of 64.7 million tonnes, an all-time record, in June 2002. The year 2003-04 witnessed a general easing in the food-grains stocks with the FCI, because of relatively lower procurement of rice and wheat following a bad agricultural year in 2002-03 combined with relatively high off-take of food-grains, especially for drought relief operations, as shown in the table given below. 17 http://fcamin.nic.in/dfpd/EventListing.asp?Section=Procurement%20Policy&id_pk=7&ParentID=0 (visited on March 2, 2008) 25 Bu 8ffer norms and Actual Stocks of Wheat and R 1ice The steady reduction in stocks prompted the Government to stop fresh allocation of rice and wheat for export from August 2003. The year 2004-05 started with a much lower level of stock at 20 million tonnes on April 1, 2004, as compared to the stock level of 32.8 million tonnes on April 1, 2003. The food-grains stocks, however, remained consistently higher than the buffer requirement during 2004-05, on account of good procurement of rice and wheat and relatively lower off-take than in the previous year. As on April 1, 2005, the stock was 17.4 million tonnes against the buffer norms of 16.2 million tonnes. The stock of food-grains as on April 1, 2006, was 15.7 million tonnes against the buffer norms of 16.2 million tonnes. The present stock position of food-grains as on January 1, 2008, is 19.2 million tonnes comprising of 11.5 million tonnes of rice and 7.7 million tonnes of wheat which along with projected arrivals of wheat imports will be adequate for meeting the requirements under TPDS and welfare schemes during the current financial year. Economic Costs Involved The economic cost of food-grains consists of three components: i. MSP as the price paid to farmers, 18 indiabudget.nic.in/es2007-08/chapt2008/chap75.pdf (visited on March 2, 2008) 26 ii. procurement incidentals and iii. the cost of distribution. The economic cost has witnessed a significant increase for both wheat and rice in 2007- 08. While in part it is due to an increase in MSP for wheat and rice, it has also been due to an increase in procurement incidentals, particularly for rice. As shown in the table below, economic cost of wheat for 2007-08 is Rs. 1,371.3 per quintal as against Rs. 1,214.4 per quintal in 2006-07. Similarly, economic cost of rice in 2007-08 was Rs. 1,572.6 per quintal as against Rs. 1,411.6 per quintal in 2006- 07. The substantial increase in the MSPs of rice and wheat and bonus are the main reasons for increase of economic cost of food-grains. The difference between the economic cost of food-grains and the issue price is reimbursed to FCI. The incidence of taxation and levies on wheat and rice continues to be high in large procuring States like Punjab. The major procurement States, namely, Punjab, Haryana and Andhra Pradesh, have been imposing State taxes and levies of over 10 per cent ad valorem on the procurement of food-grains, thereby inflating the economic cost. Economic Cost of Wheat and Rice (Rs. p 19er Quintal) Food Subsidy The difference between the economic cost of food-grains and the issue price is reimbursed to FCI. Provision of minimum nutritional support to the poor through 19 Ibid 27 subsidized foodgrains and ensuring price stability in different States are the twin objectives of the food security system. By fulfilling the obligation towards distributive justice, the Government incurs food subsidies. Food subsidy showed an annual increase of above 30 per cent during each of the three years namely, 2000-01, 2001-02 and 2002- 03 but it is relatively stable since 2003-04 as can be seen in the table below. Growth of Food Subsidy in India20 Food subsidy being the difference between the economic cost of wheat and rice and their issue prices for different groups of beneficiaries are linked to the increase in the economic cost and the issue prices. While the economic cost of wheat and rice has gone up due to an increase in MSP, the issue price has been kept unchanged since July 1, 2002. MSP and Issue Price for Wheat and Rice under TPDS21 Though the total amount of subsidy has continued to rise, State-wise allocations of subsidies do not seem to be related to the poverty levels. The ratio of the percentage 20 Ibid 21 Ibid 28 allocation of subsidies as given by the offtake of foodgrains under TPDS and the proportion of people below poverty line is less than one for many of the poorer States. Achievements of TPDS ? After June 1997, PDS has now become pro-poor. ? The urban bias has been completely eliminated as a larger proportion of BPL families are living in rural areas. ? Though PDS is supplemental in nature, but now the enhanced allocation of food grains fulfills around 50% of the cereal requirement every month of an average BPL household. ? The CIP of food grains for BPL families has not been revised since 25.07.2000. ? In accordance with the commitment of the Government to create a hunger free India and to reform the PDS so as to serve the poorest of the poor, the AAY scheme was launched in December 2000. The CIP for AAY category was kept lowest i.e. Rs.2/kg for wheat and Rs.3/kg for rice. The number of AAY households has been increased to 2.5 crores. 5. CONCLUSION Poverty and agriculture are the two main economic variables on which the whole public distribution system is based. As has been seen in the previous chapters, the poverty situation of India is improving at a slow pace primarily due to the growth rate of population. The other factors related to population which are responsible for this are illiteracy and diseases like AIDS to name a few. Though India had remained in a comfortable position with regard to food security since the days of the Green Revolution, the current trends do not present a very rosy picture. The government has to look into the agricultural sector urgently as it has been showing signs of slowing down its growth over the last 3-4 years. If the rate of growth comes to a standstill or worse still, becomes negative, it would spell instant danger to the Indian economy. Though India is riding high on the success of secondary and tertiary sectors, it is important that the policy framers also keep the growth of the primary sector 29 in mind. This is because a country does not have any option left other than importing food-grains when it faces a crisis in its food-producing capacity. This is a graver situation for India since its population growth is still going strong. So without increase in food supply, it cannot aim at coping with the rise in the demand for food-grains. Though PDS is a way of solving the food problem, it won?t be able to function if there is no increase in food production. The prices are bound to shoot up due to the market forces as supply will come down. The government will then be forced to increase its subsidies in order to protect the interests of both the farmers and the consumers. The economy will have to then borrow more money and fall into a debt trap. This will make the economy go back to square one as it was in 1990-91. The earlier PDS was an utter failure, as has been shown in the earlier chapters, mainly due to the fact that the implementers did not take into account the fact of our country?s diversity on the geographic as well as economic planes. Now, the new system of TPDS that was introduced in the later half of the nineties has shown some good results though a lot remains to be done. It might function more efficiently if the supervisory functions are performed properly. The problem that has been plaguing India since independence is that there are perfect plans on paper but all these plans either fail or take much more than their estimated time to become successful due to faults in implementation. So such root causes has to weed out from the system. Then there will be much ease in the functioning of any plan that is taken in the future. If some concrete steps are not taken now, then matters might get out of hand. So policy makers, implementers and the common man has to unite and work together on a war footing so that the economy can run smoothly on the targeted growth line.
Posted: 17 March 2010

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