Home > Musings > The mess called PDS: How Fair Price Shops have been made unfair

The mess called PDS: How Fair Price Shops have been made unfair

August 5, 2011

There has been so much of excitement about the recent ‘mining report’ the Hon’ble Lok Ayukta Justice Santosh Hegde submitted to the Chief Secretary last week that very few noticed another significant report he had turned in a day earlier. This was the report on the investigation of the Public Distribution System in Karnataka that he commissioned me to do using his suo moto powers in Sept 2010.

While the mining report identified cumulative losses of around Rs. 16,000 crore over the last few years and Rs. 1,800 over the last 1 year, the report on the PDS identified an annual economic loss of Rs. 1737 crore. Undertaking this investigation was indeed a great learning experience for me. Though I knew that huge sums of money were being siphoned off each month by a well-oiled mafia, little did I expect it to be so huge. What makes it all the more worrisome is the fact that this leakage has been going on for years with little or no intent from either the Government or the political class in plugging it. For all the noise that many are now creating about the Lokpal Bill and the mining report, it is indeed puzzling why no one has expressed concern over this large-scale looting of the money meant for the poor. A friend who is in the know of things recently mentioned to me that the world would have possibly noticed this scam if the names of a few politicians and officials had been thrown in. I would like to look at it from a different paradigm. This report would have made news if the people affected were either the upper middle class or the rich. Matters that concern the poor no longer matter in a country where growth is measured in limited monetary terms. The media, except for a few socially conscious ones, also seem to be content with reporting the ongoing political tamasha. This article is an attempt to familiarize the reader about the PDS in India and Karnataka and the leakages and inefficiencies that I could identify in my 10-month long investigation.

The Indian PDS is the largest food distribution network in the world. It is the Government’s major economic policy for ensuring food security to the poor. It has a network of more than 4 lakh Fair Price Shops (FPS) that distribute commodities at a cost of more than Rs 15,000 crore every year to 16 crore households. The PDS system is such that the central government is responsible for storage, transportation and bulk allocation of food grains, while the State government is responsible for the implementation/monitoring of Fair Price Shops (FPSs) and the identification of the Below Poverty Line (BPL) population. Until 1997, the PDS provided food subsidies to all consumers without any targeting. Targeting was introduced in 1997 by the central government. In order to target the consumers who need the food subsidies the most, the population was divided into two primary categories: APL (Above Poverty Line) and BPL, based on the criteria defined by the Planning Commission. The BPL population receives food grains at highly subsidized prices in comparison to the APL population that receives food grains at prices closer to the open market rates.

Another scheme was later introduced by the central government: the Antyodaya Anna Yojana (AAY), which provides even more subsidized commodities to the extremely poor and disadvantaged. Six such disadvantaged groups or communities are given high priority under this scheme. The annual food subsidy involved in the PDS is enormous. The level of food subsidies as a proportion of total government expenditure has increased from less than 2.5 percent in the early 1990s to more than 5 percent today. The truth is that today, 57 percent of the PDS food grain does not reach the intended beneficiaries. The Planning Commission has itself identified that for every Rs. 4 spent on the PDS, only Re. 1 reaches the poor. The food subsidy bill for 2006-07 for the central government was Rs. 242 billion. 36 million tons of grain was procured that year and 31.6 million tons was distributed through ration shops. With such huge quantities of grains and large sums of money involved, it is only natural that our political and bureaucratic class conspire to keep the system inefficient, opaque and easy to manipulate.

As per the Planning Commission, the total number of BPL families in Karnataka is 31.29 lakh where as the Government of Karnataka claims that there are 96 lakh BPL families. One finds it amusing that the Government issues full-page newspaper advertisements proclaiming Karnataka as a progressive State on one hand, while officially maintaining that nearly 80 percent of Karnataka’s population is living below the poverty line. Keeping the State’s own poverty assessment criteria as the base, i found only 44 lakh families who could be genuinely categorized as BPL. How was this mess created? Expectedly, this was the result of political shortsightedness. Between the months of December 2008 and March 2009, the Government of Karnataka under the directions of the highest political office, mandated that any family could be called BPL, provided a self-declared affidavit saying that they were poor was given. Nowhere else in the world is poverty determined by a self-declared affidavit, but then Karnataka does have many firsts to its credit! This was keeping the May 2009 Parliament elections in mind. After reaping the benefits of such an overtly political but clearly shortsighted decision, the public exchequer and the citizenry are now left to grapple with the mess that it has left behind.

Today the Government has managed to distribute 1.6 crore ration cards, whereas the State has only 1.2 crore families. This means that there are nearly 40 lakh ghost and ineligible cards. After creating this mess, the department has cleverly transferred the responsibility of cleaning it up to the citizens. They are now trying to cross verify it by asking the people to produce their ration cards along with the electricity bills in urban areas and the copy of the taxes paid on their property in rural areas.

Since the state claims it has 65 lakh more BPL families (it calls it Extra BPL), it must dip into its own funds to meet the excess food security it wants to extend. So when the centre gives rice at Rs. 5.40 per kg to the state, Karnataka further subsidises this by Rs. 2.40, so that it can sell rice to the BPL cardholders at Rs. 3 per kg. The centre also gives rice at Rs. 8.30 a kg to APL families, but since Karnataka has slotted most of the APL families also as BPL, it is bound to give them rice at Rs. 3 a kg too. It does this by spending another Rs. 5.30 a kg for APL families. In other words, Karnataka subsidises the rich far more than it does its really poor! The takeaway from the PDS irregularities report is that not only the undeserving people are accessing subsidies, but also that the really poor are being shortchanged.

Since there is only a constant amount of ration (rice, wheat, sugar, kerosene) from the central PDS, the Karnataka government devised a new system to be able to distribute ration to about 80 percent of its population it had declared BPL. Instead of the per family norm followed in every Indian state, Karnataka introduced a new ‘unit’ system. One unit is any person who is above 10 years of age. Every unit was entitled to four kg of rice, and no family was allowed to claim rice for more than five units, or five family members. This meant that the government never gave more than 20 kg per month to a family, even though the central law stipulates that every family should get 29 kg of rice per month, whether it has five or two members. The Karnataka chapter of the Right to Food Campaign has challenged this in the Karnataka High Court. Last year, the court declared the unit system illegal, but the state has shown no sign of reverting to the family system of food security.

The two big sources of loss are ‘over-allotment loss’ and ‘distribution leakage loss’. Over-allotment losses, that occur due to the Government not knowing how many families are currently active, accounts for about 38 percent (Rs. 54.4 crore) of total losses every month. Distribution or leakages losses account for 39 per cent (Rs. 56.6 crore), which occurs during wholesale transport. The rest is attributed to ‘active suspect loss’ (which occurs due to families suspected to be ineligible drawing rations), transport cost losses and stolen subsidy loss. The total loss is Rs. 144.8 crore every month and one must keep in mind that these economic losses are to both the State and the general public, mostly the poor.

One of the reasons such leakages go unplugged is that the entire system is deliberately allowed to be opaque. The inventory management, once food grains leave the Food Corporation of India godowns, is manual, leaving huge room for manipulation. The State government, sometime ago, said that it would usher in a ‘point of sale system’, which computerizes the process. The process was mysteriously suspended six months ago. Apart from the various issues that the investigation went into, I found that at the field level, most Fair Price Shops were open only for 4-6 days a month. Few followed the timings prescribed by the State. Giving bills for the transactions undertaken was more the exception rather than the rule. Most of the FPS owners spoke about the ‘mamool’ that they had to dole out each month. They had legitimate issues with their commissions not being enhanced for more that a decade.

The report has also made specific recommendations keeping in mind the leakages that occur at different levels. If the Government makes up its mind, setting right the system is not ‘rocket science’ and can be done within the next 4-6 months. My fear is that in the context of such large-scale inefficiency, the proposed Food Security Bill will only widen the system of corruption and maladministration and give our corrupt officials and politicians further fodder to chew on.


Related article in Tehelka Magazine: The Other Scam You Forgot About

Article in The Pioneer: Lokayukta indicts BSY over PDS

Categories: Musings