PDS and Food Security

INTRODUCTION #

The Public Distribution System (PDS) provides subsidized food and fuel to a large number of people in India. Of all the social safety net programs of Government of India and various State Govern- ments, the subsidies on food and fuel are perhaps the most important ones. Affordable food is a source of sustenance for a large segment of the population; affordable kerosene is extensively used for cooking and lighting by the poor.

Given the importance of food and kerosene for sustenance, it is not surprising that these subsidies account for a large fraction of the total subsidy expenditure of the Government of India.

However, deficiencies in the implementation of PDS have plagued the system. In many cases, the true beneficiaries of these subsidies suffer due to wholesale problems such as large-scale pilfer- age and diversion, and retail level problems such as duplicates and ghost beneficiaries, wrongful exclusion and inclusion, availability and quality of the commodities, as well as Fair Price Shop level pilferage. While implementation varies from state to state, there are a number of areas in the PDS system which requires immediate attention.

A number of suggestions have been made over time to reform PDS. These reforms include:

• Grassroots level transparency that include increased social audits, painting of PDS off take on walls of the FPS shops, painting of trucks;
• Beneficiary empowerment through the use of coupons, or technology such as smartcards, or even direct cash transfers;

• Monitoring the movement of goods through the use of technology, such as GPS tracking of trucks; and
• Increased monitoring, supervision, accounta- bility, and transparency.

Along with the reforms suggested above, the following features also need to be accounted for in order to attempt a comprehensive solution for deficiencies in PDS:

1. A solution that is incentive-compatible for all stakeholders, so that they should get benefit by participating in the system, rather than trying to benefit through subverting the sys- tem. For example, commission rates for FPS owners should be set to ensure that they earn adequate returns on their investment;
   1. Strengthening the public provision of the State with appropriate use of technology, to bring it on par with best practices in the field. Strategic control needs to be retained within Government at all times;
   1. A token-agnostic technology solution that can accept physical coupons, smartcards, elec- tronic coupons, and even facilitate direct cash transfers where different states may choose from different solutions based on their own requirements;
   1. Provide beneficiaries maximum choice:
      1. Choice of location;
      1. Choice of the mix of commodities;
      1. Choice to purchase commodities in con- venient quantities, and in any number of installments; and
      1. Choice to purchase commodities or re- ceive a direct transfer of subsidy.

• Aadhaar can be used in PDS to simplify a number of processes:
  • Simplification of Ration Card registration, so that beneficiaries can apply for a Ra- tion Card conveniently;
  • Cleaning up the beneficiary database;
  • Use of Aadhaar authentication as appro- priate; and
  • State Governments can use Aadhaar Pay- ments Bridge and Aadhaar Enabled Pay- ments Systems to channel subsidy funds for approved commodities to Aadhaar-en- abled Bank Accounts.

Given the complexity, scale, and mission-critical nature of PDS operations, a dedicated professional institution is necessary to design and operate the solution centrally. The Task Force recommends the setting up of a National Information Utility called the Public Distribution System Network (PDSN), which operates as a technology back-office and central system for MoCAFPD, MoPNG, and State Governments. It will provide support in IT-intensive areas such as development, operation and mainte- nance of technology, supply chain management, transparency portal, and electronic payments. It will also provide integration with the IT systems of other key stakeholders and other e-governance systems as they are designed over time.

In order to achieve these outcomes, PDSN should be staffed professionally. It will promise minimum service levels to States through Service Level Agreements, and lower costs by offering a common customizable platform. The development of a common software solution will also ensure that best practices and successes observed in any state can be rapidly deployed in all other states.

The Task Force recognizes that the MoCAFPD will need to undertake a number of immediate meas- ures to achieve end to end computerization in order to implement the orders of the H’ble Supreme Court.

The recommendations of the Task Force will provide the basis for implementing some of the long term institutional needs of IT-enabled reform in PDS. The recommendations should also complement the immediate measures that the MoCAFPD will be undertaking in this regard.

While PDSN operates the central common infra- structure, a number of customizations will have to be performed at the state level. The IT infrastructure being put in place such as State Data Centres and the SWAN network will need to be integrated by each participating state with PDSN. The State units of the NIC can be actively engaged by the State Governments when PDSN is leveraged. The services of the NIC can be utilized by the State Governments while implementing the computerization project leveraging the PDSN.

The Task Force recognizes the present efforts at computerization by different states and NIC. The NIC has also been engaged in building a common software. The PDSN seeks to consolidate, comple- ment and converge these efforts. It is a value addition and offers a number of additional modules to the states to strengthen their ongoing computerization efforts. States that already have some computeriza- tion can enhance their capability by using selective modules from PDSN. States that have very little or no computerization can use the entire software platform from PDSN.

The proposed National Food Security Bill has necessitated a major advancement of IT capability in the PDS reform which is possible though PDSN. The creation of a PDSN offers scale, speed, cost-effec- tiveness, empowerment, quality, federal autonomy, possibility of asynchronous roll-out and building of an ecosystem.

The states will also have a choice of subsidy transfer modules while partnering with the PDSN and the linkage with Aadhaar will take place in Phase II of partnering with the PDSN. While imple- menting PDSN, steps will have to be taken by each State to align their PDSN roll-out with their existing IT investments to derive full benefits and reduce duplication.

The Task Force believes that participation of States in PDSN should be voluntary, and should not affect existing computerization efforts. The States are undertaking a number of initiatives regarding computerization of PDS. The recommendations of the Task Force in no way impede the progress of these initiatives. States can opt to partner with the PDSN or can continue their computerization efforts as before. The Department of Food and Public

Distribution had suggested that the proposed PDSN may perform the role of the “separate and dedicated institutional mechanism” to be incorporated as per the orders of the Hon’ble Supreme Court. The Task Force deliberated the issue and recommended that PDSN proposed in this Report is a long term solu- tion that envisages putting in place an institutional mechanism to undertake end to end computerization. The report in no way affects the immediate measures that need to be undertaken by the Department as per the orders of the Hon’ble Supreme Court since this report primarily focuses on the long term, strategic, institutional mechanism that needs to be put in place for an IT strategy for PDS. Further, the solution comprising of the central system at PDSN and state level customizations should be fully aligned with the framework and guidelines of the National e-Governance plan.

The solution will be implemented in two phases. Phase I of the solution focuses on providing infor- mation visibility in the supply chain using the Sup- ply Chain Management System (SCM PDS). Phase I of the solution is not dependent upon Aadhaar. Phase II of the solution will implement the Core Subsidy Management System (CSMS-PDS), which will leverage Aadhaar.

The States can also opt in for particular modules and solutions (like payments, fraud analytics etc) from the PDSN while continuing with their exist- ing efforts. The States can also customize various parameters based on local needs such as the eligi- bility, type and quantity of commodities, the type of token (coupon, smartcard, electronic, mobile phone), the prices of food and kerosene, and the form of direct subsidy transfer.

This solution, when deployed, can also help to address leakages and other challenges in the PDS due to the following reasons:

• Creating information visibility of supply chain will reduce diversion;
• Moving commodities at market price all the way till the sale point (or as close to the sale point as possible) will reduce incentives for diversion;
• Real-time fraud analytics will help in moni- toring and apprehending fraud;

• The proposed electronic Ration Card registra- tion process will allow beneficiaries to get their
• Ration Cards with ease;
• Entitlement portability will put bargaining power into hands of beneficiaries, which will make it possible for them to relocate or migrate, without worrying about losing their government benefits;
• Entitlement portability will also bring about competition among FPSs, due to which shops that adulterate, or are unfriendly to the cus- tomers will eventually see lesser business; and
• Self-service inquiries through mobile phones, a toll-free contact centre, and online account status on the internet will empower bene- ficiaries, since this establishes a direct and transparent grievance redressal channel.

The social programs of India are complex sys- tems with millions of participants that have evolved over the last few decades. Hundreds of millions of beneficiaries depend upon these programs for basic sustenance. Such systems can only be reformed through systematic change management.

Eventual success will hinge upon political will, good governance, incentive-compatible solution design, judicious use of technology, a structured transition plan, meticulous project management, effective supervision, people’s participation, audit, and execution. The Task Force believes that the ideal solution will involve using technology to strengthen the role of Government in public provision, while also leveraging some of the efficiencies that the market has to offer.

The Task Force is only recommending an IT strategy for PDS reform. It does not address the other policy initiatives that may have to be under- taken to improve the PDS functioning. The Task Force believes that a strong, robust IT infrastructure backbone is critical for reforming the functioning of the PDS.

CHALLENGES    FACED   BY    PDS TODAY CHALLENGES #

With a network of more than 4.62 lakh fair price shops (FPS) distributing commodities worth

more than Rs 30,000 crore annually to about 180 million families, the PDS in India is perhaps the largest distribution network of its kind in the world. However, there are huge challenges faced by the PDS across the country.

In 2008, an study for TPDS was carried out by National Institute of Smart Government in four states viz. Andhra Pradesh, Assam, Chhattisgarh and Delhi. The team covered various aspects of the func- tional areas with the perspective of People, Process and Technology. Challenges in the following six key functional areas were studied: allocation, movement, storage, finance, licensing and regulation of FPSs, and grievance redressal.

The challenges noted were: Allocation #

• Non-availability/delay of utilization informa- tion to the Centre from States
• Non-availability/delay of closing balance details and updated card status at State level from the districts, block and FPS levels.
• Inaccurate data reporting by FPS.
• Longer time taken for allocation cycle.

Movement #

• Absence of truck tracking system leading to delayed delivery, diversions, siphoning etc.
• Non-standard transportation rates.
• Cartel formation by transporters.
• Late submission of demand drafts/cash by FPS for lifting leads to sub optimal route planning.

Storage and Quality Control (QC) #

• Non-availability of stock positions in few states leads to inappropriate allocation and excess stock buildup at intermediary storage points.
• Poor quality of packaging leads to loss of food grains.
• Extensive use of hooks leads to spillage.
• Insufficient godown capacity of intermediate storage points result in multiple shipments.
• Temperature fluctuations due to weather leads to variations in weight of food grains.

• Loss of food grains due to infestation.
• Manpower shortage leads to delay in dis- patches and noncompliance to policies.

Finance #

• Poor financial condition of FPS and GPSS/ WCCS(in Assam).
• Cost and time incurred on preparation of multiple DDs by FPS results in increased financial burden on the FPS/GPSS.

Licensing and Regulation #

• Inadequate monitoring leading to diversion of stock.
• Selection of inappropriate dealer leading to malpractices.
• Lack of standard selection procedure and guidelines.
• Difficulty in identification of elapsed licenses.

Grievance Redressal #

• Absence of response and monitoring mecha- nism because of which, higher authorities are unaware of number and status of grievances registered and thus grievances are not getting resolved on time.
• The service level agreements for grievance redressal are not clearly defined.
• Bogus complaints result in wastage of offi- cials’ time.
• Lack of integration between various complaint and registration channels leads to multiple actions at different levels.

Based on the above study, a scheme for com- puterization of TPDS operations in select districts of four pilot States of Andhra Pradesh, Assam, Chhat- tisgarh and Delhi was taken up by the Department of Food and Public Distribution.

Apart from the challenges identified above, there remains the fundamental challenge of having an accurate database of eligible beneficiaries. The existing databases are plagued with inclusion and exclusion errors in identification of beneficiaries and fake ration cards.

ISSUES OF BUFFER STOCK #

Public sector food grain stocks are an important pillar of India’s food policy and food security.

These have been used to serve three important societal goals.

• To provide space for effective implementation of minimum support price for rice and wheat through procurement mechanism.
• To maintain price stability arising out of year to year fluctuations in output or any other exigency.
• As a source of supply for public distribution system and various other schemes to sustain food and nutrition security particularly of economically weaker sections.

Buffer stocks have come under frequent attack on three grounds. The level of stocks is said to be too high in relation to the buffer stock norms which is causing huge cost in terms of storage, interest on value of produce, and wastage.

It is made out that price stabilization can be better achieved through trade rather than stocks and the former is found to be much cheaper than latter. It is also argued that buffer stocks for absorbing shocks due to production fluctuation were justified when India did not have enough foreign exchange reserve to maintain excessive stocks held by public agencies. The problem is not with the buffer stock per se but with our storage capacity and imprudent management of grains.

PDS REFORMS: DIGITIZATION #

Recently the Food ministry said that the digiti- zation helped to clean up the back-end of the sub- sidized public distribution system (PDS) and over 6 million bogus ration cards have been cancelled.

Why Digitization of PDS? #

• To better target subsidies and ensure leak- age-free distribution of food grains, the gov- ernment used direct benefit transfer (DBT) and automated ration shops.

• To successfully implement the National Food Security Act (NFSA), the central government has focused on end-to-end computerization, which will bring transparency and check leakages and diversion of food grains.
• A committee on restructuring the Food Cor- poration of India suggested in its report sub- mitted in January that the government begin direct cash transfers of food subsidy because the existing delivery mechanisms lead to a leakage of as much as 47%.
• It estimated that cash transfers alone could save the exchequer Rs.30,000 crore every year.
• Automation ensures food grains are distrib- uted via ration shops through point-of-sale (PoS) devices that authenticate beneficiaries and record the quantity of subsidized grains given to a family.

Effects of Digitization: #

• As a result of these efforts, 6.14 million bogus or duplicate ration cards have been cancelled in the past two years, stopping the diversion and misuse of PDS food grains amounting to about Rs.4,200 crore.
• So far, the beneficiary database has been digitized in 33 states and Union territories, while 17 states and Union territories are being allocated food grains online.
• The Government has achieved significant mile stones in the reforms of PDS. Almost 100% (99.9%) ration cards have been digi- tized across the country.
• Over 42 % ration cards have been even linked with Aadhaar cards and Point of Sale Devices, to keep electronic record of allocation to the beneficiaries, have been installed in over 77,000 ration shops.
• In nine states and Union territories, the entire supply chain has been computerized.