PUBLIC DISTRIBUTION SYSTEM IN INDIA: A Success Story?

PROJECT
Submitted For the partial fulfillment for the degree of B.B.A.LL.B./B.A.LL.B.

Submitted to: Ms. Reeta Rautela Economics Faculty

Submitted by: Avishek Pradhan B.A.LL.B. 3rdSem.

Siddhartha Law College, Dehradun (Affiliated to Uttarakhand Technical University, Dehradun)

PREFACE

India is a country which has the second largest population in the world. The main dominant economy in our country is agro based. In spite of this, a large number of populations in our country suffers from malnutrition and have no source of attaining their daily basic needs. To overcome this, the Indian Government has introduced a system called the Public Distribution System. This system tries to protect and help secure the individuals living in below poverty line in the country to attain the basic needs such as food. This paper tries to study the way the Public Distribution System works, point out its loop-holes, and tries to discuss the various issues that needs to be tackled and also gives suggestions that could be incorporated with the existing strategies. This project will be helpful to students who are currently pursuing B.A. LLB. 5 years integrated degree. I would like to thank our economics teacher, Ms. Reeta Rautela, and several others who have contributed in this project.

Thanking You All

Researcher

CONTENTS

Topic.

Page no.

1. Abstract.4 2. Introduction..5 3. Historical Background of Public Distribution in India.....5-7 4. Objectives of research paper...7 5. Characteristics of Public Distribution System.............................................8-9 6. The Organization and Working of the Public Distribution System...9-11 Food Corporation of India (FCI)......9-10 Central Warehousing Corporations (CWC)...10-11 7. The Organizational Design of Public Distribution System in India..12 8. Public Distribution System & Corruption....13-15 Stage 1.13 Stage 2.....13 Stage 3.13 Stage 4....14-15

9. Methods to control Corruption in Public Distribution System..16 10. Conclusion...17 11. References...18

PUBLIC DISTRIBUTION SYSTEM IN INDIA: A Success Story? -Avishek Pradhan*

ABSTRACT
Food is one of the basic requirements of life. A person has to earn his bread in order to survive in this cruel and ruthless world. But what if due to several reasons like, illiteracy, unemployment, lack of opportunity etc. one is not able to earn and therefore fulfill his needs. To rescue a person from such a situation, The Food Corporation of India (FCI) and the Indian Government has taken the initiative of the P.D.S. or Public Distribution System in the country. This system is a joint endeavor of the Central and the State Governments in India. It works as a backbone for the people in need, in the country who cannot afford to buy three square meal a day and other goods which are a necessity of life. The needy get all the necessities of life like food etc. at a subsidized rate through this programme. This paper attempts to analyze the current Public Distribution System in the country, and also discusses the various issues that need to be tackled and also gives suggestions that could be incorporated with the existing strategies.

Keywords: Country, Food, Government, Necessities, Public Distribution System, System.

*Student of B.A.L.L.B. 3rd Semester | Email id. - avishekp18@gmail.com

INTRODUCTION
There are so many people in the world so hungry, that God cannot appear to them except in the form of bread. -Mohandas Karamchand Gandhi (Mahatma Gandhi) Food has always been the biggest reason and the most important cause for all the wars and conflict in the human history. Its security has been one of the biggest concerns of the Governments of various countries so that even in bitter impoverished conditions, food is never found to be scarce and it is available to all. To achieve this, The Government of India established what is called the Public Distribution System or PDS in India. The journey of the Public Distribution System (PDS) has been a total roller coaster ride with a lot of ups and downs. This paper tries to study how the system of PDS has helped or rather tried to help the needy in the country who still dreams of having three square meals a day without worrying on how to attain it.

HISTORICAL BACKGROUND OF THE PUBLIC DISTRIBUTION SYSTEM IN INDIA

The Genesis of the modern system of the Public Distribution was the gift from the Britishers who during the World War II gave a structured view of publically distributing cereals in the form of rationing firstly in Bombay (Mumbai) and then spread it further to several other cities in India. Later after the Second World War came to an end, this system was abolished. But it was reintroduced in around 1960-1970 again to combat the inflationary pressures and this brought major changes in the already once existed PDS system. This system of PDS continued till mid 90s when the Government of India decided to take several major changes in the existing system by changing the ways of securing food, procuring it as well and also providing new methods of storage. From 1991 to the present, the policy of universal PDS has been replaced by a targeted policy in line with the objectives of economic liberalization.

Thus, over the entire period, the PDS grew from a rationing scheme in selected cities to a national universal programme of food distribution and then to a policy targeted at the incomepoor. The Essential Commodities (EC) Act, 1955 that came into force on that very year was meant to facilitate Government regulation of trade and commerce. The EC Act, 1955 empowered The Public Officials in enforcing the Public Distribution System. The 1955 Act however was not the first one for imposition of controls on trade and distribution. It was however the first one in Independent India. The British Colonial Government under the Defense of India Rules had implemented some control measures. Since 1946 there came legislation in the form of the Essential Supplies (Temporary Powers) Act, 1946 which was in fact replaced by the EC Act of 1955. The number of commodities declared essential under the Act has rapidly increased from 10 items in 1955 to 60 in 1992. In August 1992, it was decided to 9 items to extend the EC (Special Provisions) Act, 1992 by another five years.

In 1997, following the advice given in an influential World Bank document (World Bank, 1996) the Government of India introduced what is called the Targeted Public Distribution System (TPDS) in order to focus on the needs of the poorer sections of the Indian Society (GOI, 1997)1. The policy initiated targeting of households on the basis of an income criterion that used the income poverty line to demarcate poor and non-poor households and classified them as APL i.e. Above Poverty Line, and, BPL i.e. Below Poverty Line families. But, the bottom line was that the Indian PDS is plagued by various problems such as corruption, diversion of commodities, inclusion of people above the poverty line and exclusion of the desired candidates and wastage of supplies. In order to make Targeted Public Distribution System (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. Since then the scheme has been expanded thrice. The first expansion took place on 5th June, 2003, second expansion on 3rd August, 2004 and third expansion on 12th May 2005, increasing the number of families by 50 lakhs at each expansion, thus raising the total coverage of AAY families to 2.50 crores.

Targeted Public Distribution System, Government of India, 1997, Department of Food and Distribution,

http://dfpd.nic.in/?q=node/101

So, PDS is a huge scheme, which is operated under the joint responsibility of the Central and State Governments, with the former responsible for procurement, storage, transportation (Up to the district headquarters) and bulk allocation of food grains. The state Governments are responsible for distributing these food-grains to consumers through a network of Fair Price Shops. This responsibility includes identification of families below poverty line (BPL), issue of BPL cards, and supervision and monitoring of the functioning of the Fair Price Shops. States are responsible for movement of food grains from the district headquarters to the PDS shop, which requires storage at the sub-district level. As food was always a non-plan subject, such an infrastructure is often weak in the northern states.2

OBJECTIVES OF THE STUDY

We are going to study the objectives of the PDS that the Government of India has promised to fulfill and whether they have really kept their promise or have just been flaring the trumpets loud without much care to fulfill it or not. The objectives that we are going to discuss here are: To analyze the functioning of the Public Distribution System. Has PDS really been able to fulfill its real goal for which it had been established i.e. serving the interests of the poor and being an easy access to all of those who need it? The impact of Corruption in the PDS, which has caused a large strain over the poor and the needy. The need to make changes or continue with the existing system of PDS.

Department of Food and Distribution, India, FAQs, http://dfpd.nic.in/?q=node/101

CHARACTERISTICS OF PUBLIC DISTRIBUTION SYSTEM

What once started as a programme of food supplies to the famine and drought victims in 1939 by the Britishers, PDS has increased its scope of work to include a larger sphere of operations for procurement, and distribution of food grains and other civil supplies, pricing policies and so on. The essential features of the PDS can be summarized as follows under these points:

1. Public Distribution System is a system of distribution of essential goods through the fair price shops (commonly known as ration shops or co-operatives, which are usually owned by the Government, which are operated by private dealers under the Government's control and direction. 2. Rice, wheat and sugar have continued to occupy a predominant position throughout the period. The other important items are kerosene, edible oil etc. 3. The working of the PDS has not caused any hindrance to the functioning of the free market mechanism except in the limited statutory rationing areas but where it works along with it. Hence, this way of working could be viewed as a "dual economy" in the essential commodities. Consumers are left free either to purchase through Fair Price Shops or in the open market. 4. The Government through internal procurement and or through imports obtains the required amounts of food grains and other items and a buffer stock is maintained with a view to meet scarcity situation. The Government feeds the PDS with supplies, bears the cost of subsidy, decides as to which goods to supply, at what rates, what amount to be sold per head or per family etc. 5. The aim is to provide at least a basic minimum quantity of essential items at reasonable prices especially to the more vulnerable sections' of population and also to stabilize their open market prices or at least to prevent an undue rise in such prices under conditions of shortage. The prices charged are usually lower than open market prices and also lower than the procurement and other costs incurred by the Government.

6. It has been primarily an urban oriented system. Its genesis as well as growth has been in those sensitive urban areas where a shortage of food grains and other essential commodities could become political liabilities of Government.3

THE ORGANIZATION AND WORKING OF THE PUBLIC DISTRIBUTION SYSTEM

According to Pal, B in his research says, in order to have a smooth functioning of the Public Distribution System, the Government has introduced two major bodies which are to look and organize this system properly. They are: Ministry of Consumer Affairs and Food and Public Distribution. The ministry has also been divided into two important departments i.e., Department of Food and Public Distribution and Department of Consumer Affairs. The department of Food and Public Distribution is again divided into two parts for the purchase and storage of food grain.4

FOOD CORPORATION OF INDIA (FCI)

Food Corporation of India of the FCI was setup on 14th January 1965 and its headquarters is at Chennai, which is made under the Food Corporations Act 1964 to implement the undermentioned objectives of the National Food Policy: Healthy and efficient price support operations for preserving the interests of the farmers. Distribution of food grains throughout the country by the system of Public Distribution System and Maintaining satisfactory level of operational and buffer stocks of food grains to ensure National Food Security even during the time of scarcity and need.

FCI is one of the largest Corporation in India and probably the largest supply chain management in Asia even today. It operates through 5 zonal offices and 26 regional offices. Each year, the Food Corporation of India purchases roughly 15-20 per cent of India's wheat output and 12-15
3 4

Pal, B, 2011, Organization and Working of Public Distribution System India: A Critical Analysis, vol. 1 no.1, p. 5Ibid 3

per cent of its rice output5. The purchases are made from the farmers at the rates declared by the Government of India. This rate is also known as MSP (Minimum support Price). There is no limit for procurement in terms of volume; any quantity can be procured by FCI provided the stock satisfies FAQ (Fair Average Quality) specifications with respect to FCI. The stocks are supplied throughout India and issued to the State Government nominees at the rates affirmed by the Government of India for further distribution under the PDS for the use of the ration cardholders. FCI itself does not directly deal out any stock under PDS and its operation end at the way out of the stock from its depots. The Union Government in the form of Food Subsidy reimburses the difference between the purchase price and sale price, along with internal costs. At present the annual subsidy is around $14 billion (Year 2013)6. FCI by itself is not a Decision making authority; it does not decide anything about the MSP, imports or exports. It just implements the decisions made by the Ministry of Food and Ministry of Agriculture.

CENTRAL WAREHOUSING CORPORATIONS (CWC)

There is a policy proposed to attain certain heights when PDS is the question that is discussed. This policy is purposed to produce available storage ability necessary for: A. Buffering and making ready stock of food grains to supply to the Public Distribution System and, B. General Warehousing.

The attempt is to update storage ability and to decrease dependence on the capacity under Cover and Plinth (CAP). There are three agencies in the public sector, which are engaged in building large-scale storage/ warehousing capacity, namely, Food Corporation of India (FCI), Central Warehousing Corporation (CWC) and 17 State Warehousing Corporations (SWCs). While the ability accessible with FCI is used mainly for storage of food grains, but CWC and SWCs is used for storage of food grains and also other notified commodities.

Performance Evaluation of Targeted Public Distribution System (TPDS), Programme Evaluation Organization

Planning Commission Government of India New Delhi, March 2005

6

Ministry of Finance, Department of Economic Affairs, Economic Division

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The Warehousing (Development and Regulation) Act 2007 was enacted and notified in September 2007. The Act ensures that the farmers are able to keep their goods in certified warehouses and use warehouses receipt as a negotiable instrument. With the full execution of this Act, farmers would find it easy to take loans from commercial banks against negotiable warehouse receipts and not resort to distress sales to take care of their urgent cash needs. The Act has since been given effect to in September 2010. A regulatory Authority namely Warehousing Development & Regulatory Authority (WDRA) has been set up on 26.10.2010 under the Act to register and regulate warehouses issuing negotiable warehouse receipts and to implement other Provision of the Act. The Department of Food & Public Distribution has finalized a special scheme for construction of godowns in the North Eastern Region by FCI. Earlier, the Planning Commission had approved an outlay of Rs.149.00 crores which included Rs.125 crores as equity to FCI for construction of godowns in the North Eastern States as well as some other deficit States and Rs.24.00 crores to be released to the State Governments of North-East (NE) States as Grants in Aid. The present scheme is revision of the existing scheme envisaging construction of godowns to create a total additional storage space of 5.4 lakh tonne in the NE States by the FCI with an allocation of Rs.568.17 crores, which has since been approved by the Planning Commission / Ministry of Finance. For the areas other than NE Region for the 12th Five Year Plan, an Rs.20.00 crores has been proposed for creation of storage godowns. BE for 2012-13 for this scheme is Rs.60.00 crores.7

Annual Plan 2012-13, Department of Food & Public Distribution Plan Schemes (Continuing)

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THE ORGANISATIONAL DESIGN OF PUBLIC DISTRIBUTION SYSTEM ININDIA

The design/structure of the Public Distribution System, which is followed by India, is given below:

Source: Tyagi& V.S Vyas (1990): Increasing Access to Food: The Asian Experience, Sage Publications, and New Delhi.

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PUBLIC DISTRIBUTION SYSTEM & CORRUPTION

Public Distribution system has been one of the biggest and the most controversial projects that it had ever introduced. Corruption in India is one of the biggest problems that has crept into our society and this is to be dealt with. But the chain of Corruption in the public Distribution System begins at the sourcing stage itself. Some of the produce that is sourced by the Government for public distribution finds its way into the open market. Then, there are issues related to obtaining a ration card, and the quality of service at the ration shops.

Stage 1. The Politics of Support prices:

The Government allocates funds for the Public Distribution scheme. The scheme aims to provide food grains and commodities to poor people at affordable prices. The Government sources produce for the system from farmers; it sets a minimum support price to do so. The MSP is usually governed by factors such as the monsoon, crop yield, and vote-bank politics.

Stage 2. Procurement and Pilferage:

The Government-owned Food Corporation of India procures farm produce. Sometimes, the support price is so low that it can only attract low-quality produce; the rest goes to the open market. The Government tries to avoid this by upping the support price if it looks like it cannot procure the amount of grain it needs. Still, a portion of the procured grain sometimes finds its way into the open market. The study says that in Nagaland, 100% of the grain procured ends up in the open market. The figure is 70% for Punjab.

Stage 3. Identification, Inclusion and Exclusion:

Ration cards are supposed to be issued to people living below or on the verge of the poverty line. The process of issuing cards is, again, rife with corruption. Money and influence are the usual determinants of who gets ration cards, and who doesn't. Worse, bogus cards are often used to divert supplies to the open market. And it takes a lot to effect changes in ration cards.
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Stage 4. Pain at the Point of Sale:

People have difficulty in getting whatever little reaches ration shops. Shop-owners usually get Licenses to run shops on the basis of political patronage or outright bribes. The only way they can earn profits is by diverting produce to the open market. Result: people get less than they are entitled to, or are charged more for what they get8. All these stages lead to the loss of the public at large and this is not correct as all have their right to get what they deserve. An instance of corruption was printed in the Times of India, which is one of the leading news papers in the country which said:

On one hand, the Union government is thinking of enacting the Food Security Act. On the other hand, a committee appointed by the Supreme Court (SC) to suggest ways to revamp the public distribution system (PDS) feels that it is next to impossible to eradicate corruption from PDS. This statement comes even before the committee completes public hearings and starts work on its final report. The central vigilance committee under retired SC judge DP Wadhwa is touring the entire country to take suggestions from consumers to improve PDS. It held a public hearing at Deshpande Hall on Wednesday. Many ration shop owners admitted during the hearing that they resorted to corrupt practices because of low commission, and claimed that if it were increased to satisfactory levels the malpractices would stop automatically. Justice Wadhwa, however, told the media after the hearing that due to huge difference in PDS and market rates it was difficult to put an end to corruption. "It is human nature. Why do people buy pirated DVDs when original ones are available? The shopkeepers cannot earn much if they run their shops honestly, so they resort to malpractices. A Punjab minister told me that nobody could run a PDS shop profitably if he was honest," he said frankly.

http://www.livemint.com/r/LiveMint/Period1/oldpdf/a348945b-1ec7-4808-8d72e5ed35a26be2.pdf

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Replying to a query, Wadhwa said that increasing commission would not stop corruption. "West Bengal gives 30 paise per kg commission while Maharashtra gives 50 paise per kg. This has not made any difference in corruption." Commenting on the district-level PDS vigilance committees, the ex-SC judge said that they had proved to be parasites in Tamil Nadu. "In Bihar, the non-official members did not bother to attend meetings until the government started paying them Rs 100 allowance per meeting." While he has a negative view of PDS in the country, justice Wadhwa feels that Gujarat and Chhattisgarh's PDS were the best. "The case of Tamil Nadu is different, because there PDS is universal." On common complaints received from consumers so far, he said that corruption was the biggest complaint. People were not getting rations on time and in some areas it was not available at all. "In many places only 50% of allotted quantity reaches the end users. Diversion takes place during transport as well as at shops. Longer the transport distance, higher is the quantum of diversion of PDS items," he said. The judge feels that use of information technology is the only way to reduce corruption in the system, as human intervention was useless. He is also exploring other mechanisms to devise the best possible system for PDS.9 Corruption in PDS is almost impossible to eliminate, as per this article. This means we need to chalk out other mechanisms for PDS. As rightly pointed out by the ex SC-judge, used of IT in this system may be useful. There are certain other ways to protect the masses from corrupt officials which could be used or experimented in order to see whether the rights of the individuals especially living in below poverty line is not ignored and they are given full benefits of this system.

The Times of India, 'Corruption in PDS can't be stopped'- Ashish Roy, TNN Feb 17, 2011, 12.05am IST

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METHODS TO CONTROL CORRUPTION IN PUBLIC DISTRIBUTION SYSTEM

1. Food vouchers: The current system makes ration cardholders captive customers of specified ration shops. The government could consider issuing food vouchers to cardholders. These vouchers can be exchanged for food from any shop. The owners of these shops can trade these vouchers in for cash. The quality of the produce, its price, and the way shop-owners (private shop owners) procure their supplies will all be market-determined, as will be the quality of customer service and efficiency, from procurement to distribution. 2. Local procurement and distribution: One reason for the inefficiencies and corruption that plague the current system is the long distribution chain. Food supplies go waste or are diverted at each step of the process. It also takes a long time for food produce to reach ends of the chain (this also increases the cost of managing the public distribution system). If the local administration takes charge of procurement (unless certain foods are not available locally), it can collect food produce locally. This can then be distributed locally to eligible households. 3. Community grain fund: The problems can also be addressed by involving local people in the process. Thus, procurement and storage of grain is done at the local level, and could be managed by local women. These locals also identify eligible households through a participatory wealth ranking process. This addresses issues related to exclusion and inclusion, a major problem in the current public distribution system. The fund can also lend money to farmers to cultivate crops and take a part of the produce as repayment in kind, further simplifying the procurement process.10

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The methods have been used as a reference from the website: www.livemint.com

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CONCLUSION
This paper tries to bring forward the areas of utter concern with respect to the policy reforms in the context of PDS and securitization of food in India. The areas of concern which we found out were the unorganized supply chain performance, corruption and identification and the level of IT intervention in the current system. One thing has been concluded that a well functioning PDS is still needed in the nation and can be the only means to ensure adequate physical access to food at the local and household levels. There are a number of states who are already trying to innovate a lot of new ideas in PDS execution, and improved performance can be seen in some cases. Lastly what we can figure about this system in India is that it has become more of a bloated acting propaganda, a mere blasphemy, than a success story which one can share without much effort.

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REFERENCES

Books: Tyagi& V.S Vyas, 1990, Increasing Access to Food: The Asian Experience, Sage Publications, New Delhi Journals: Khera, Reetika(2011) 'India's Public Distribution System: Utilization and Impact', Journal of Development Studies, First published on: 07 March 2011 (iFirst) Majumdar, B, 2011, Public Distribution System of Essential Commodities as a Social Safety Net -A Study of the District of Allahabad, Uttar Pradesh Pal, B, 2011, Organization and Working of Public Distribution System India: A Critical Analysis, vol. 1 no.1, p. 5-6. Reports: Programme Evaluation Organization, Planning Commission, Government of India, 2005, Performance Evaluation of Targeted Public Distribution System (TPDS) Websites: Department of Food & Public Distribution, Annual Report 2012-13,

http://dfpd.nic.in/?q=node/1241 (September 17, 2013) Department of Food & Public Distribution, TPDS, http://dfpd.nic.in/?q=node/999 (September 20, 2013) Live mint, Corruption Catalogue, Public Distribution system,

http://www.livemint.com/r/LiveMint/Period1/oldpdf/a348945b-1ec7-48088d72e5ed35a26be2.pdf (September 26, 2013) Newspaper Articles: Roy, A., 2011, Corruption in PDS cant be stopped, The Times of India, http://articles.timesofindia.indiatimes.com/2011-02-17/nagpur/28554198_1_pds-shopfood-security-act-public-distribution-system (September 25, 2013)

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