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Tuesday, July 27, 2021

A switch in time

Bihar has successfully overhauled its PDS, but in the long term, shift to cash transfers is still the way to go.

By: Express News Service |
Updated: February 6, 2015 11:56:06 pm

A new study by Jean Dreze and Reetika Khera reveals dramatic improvement in Bihar’s public distribution system (PDS), with grain leakages coming down from 90.9 per cent in 2004-05 to 24.2 per cent in 2011-12. True, there is need for more micro and ground-level research to ascertain these findings, which are based on mere comparison of household PDS consumption data from National Sample Survey rounds with official grain offtake figures from the FCI. But if they are reasonably accurate, the figures on leakages are heartening. Seen alongside the vastly improved functioning of the PDS in Chhattisgarh and Odisha, they suggest it is possible to ensure proper delivery of entitlements even in poor states. Indeed, once people start accessing their due rights, the pressure on the system to deliver also increases.

Having said that, however, the current system of grain procurement and distribution isn’t the best way to deliver entitlements. It is too deeply reliant on political will and the benevolence of individual chief ministers to work. Leakages are the default setting, hardwired into the system’s DNA. That comes from the very fact that rice sells in the open market for Rs 25-30/ kg, whereas it is sold through the PDS at Rs 3. To make this grain available, the FCI incurs an economic cost of Rs 30/ kg on procurement, stocking, transport and distribution. Indeed, it is less expensive as well as more efficient for the Centre to simply transfer the subsidy directly into the bank accounts of the targeted beneficiaries, for the latter to purchase their grain requirements from the open market. The government can always procure and stock just enough grain for it to undertake market intervention to contain any price volatility. With nearly 12 crore bank accounts having been opened under the Jan Dhan Yojana so far, this switch is possible.


The other reason why such a shift is necessary is that the average poor household consumes more grains, around 50 kg per month, as against the entitlement of 25 kg under the National Food Security Act. These families have to, then, acquire the balance from the open market. But with the government mopping up a third of India’s rice and wheat production — and probably half the marketable surplus — the markets are shallow and denuded of supply. Direct benefit transfers will not make the poor any worse off than if they obtain their full PDS entitlements, while making access to markets for the remainder of their dietary requirements easier.

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