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Food prices and PDS

The United Progressive Alliance (UPA) government loves committees. Have problem, will deliberate, seems to be the government’s motto. So, it is not surprising that the chief ministers’ conference on price rise ended with yet another committee being appointed, this time on the overhaul of the public distribution system (PDS). This despite the fact that the recent surge in prices had nothing to do with the absence of a universal PDS in India. Nor is it likely that a PDS system would be able to deal with price spurts if the coverage is not universal and the delivery mechanism is weak. Several committees have studied the PDS in the past and tried to reform it and widen its reach. The extant PDS system has problems both on account of its scale and scope, and its efficiency in delivery. In its latest avatar, the targeted PDS (TPDS) caters to beneficiaries categorised into above and below poverty line (APL and BPL) and the poorest of the poor covered under the Antyodaya Anna Yojna (AAY). One can only hope that the new committee of chief ministers and Union ministers, chaired by the prime minister, will be able to address the failings of the existing PDS, like large-scale leakages and diversion of highly-subsidised foodgrains to non-targeted destinations; inclusion and exclusion errors in the selection of beneficiaries; and misuse of ration cards, before the system is extended to newer regions.

It is worth recalling that even during its previous term in office, the UPA government had tried to revamp the PDS, but in vain. That bid was based on studies carried out by the Planning Commission, National Council for Applied Economic Research (NCAER) and consultancy organisations like ORG Marg and McKinsey & Co. Their findings and recommendations are still relevant. The NCAER study found the PDS seldom meets the full requirement of cereals of the poor households which have to fall back on the market for sourcing the supplies. Consequently, these households spend as much as 60 per cent of their income on food items. Which means the battle against price rise must go beyond PDS reform and focus on the entire market for food products.

In many countries, food stamps have been used to protect the poor from the adverse impact of food price inflation. Food stamps help target food subsidies better and relieve the government of the burden of maintaining a huge PDS system. The government must realise that in recent months some of its own actions may have contributed to the food price inflation. For example, by putting unreasonably tight stock-holding limits, the government has virtually ousted the private trade from the grain market. While prior to 2004, public agencies used to mop up only around 50 per cent of the post-harvest mandi arrivals, leaving the rest in the market to maintain year-round supplies, now over 90 per cent of the arrivals are cornered by government agencies, starving the market of supplies.