PDS & FOOD SUBSIDY

The Public Distribution System (PDS was changed to Targeted PDS in 1997) strives to ensure food security through timely and affordable distribution of foodgrains to the BPL population as this section can not afford to pay market prices for their food. This involves procurement of foodgrain at MSP by the Government, building up and maintenance of food stocks, their storage, and timely distribution, making foodgrains accessible at reasonable prices to the vulnerable sections of the population.

However, the system of PDS has many weaknesses leading to leakages and targeted beneficiaries being left out of the system. The PDS incurs high costs for procurement, storage and distribution of foodgrains. There is scope to increase efficiency of the PDS operations and reduce costs. Only a small proportion of the public expenditure/subsidy on PDS reaches the beneficiary. There is a case for introducing DBT (Direct Benefit Transfer) for consumers of food and kerosene as is under way in Andhra Pradesh . Though, there are challenges in implementing DBT.

As per the Economic Survey 2016-17, despite increased procurement of foodgains offtakes from PDS have been declining in past few years. This suggests that despite enhanced availability in the PDS and high inflation in foodgrains, dependence on the PDS is reducing – this could be only due to two reasons –

(i) Foodgrains are not made available timely by the PDS, and/or

(ii) Quality of the PDS foodgrains are inferior in comparison to their counterparts in the open market.

There are certain anomalies in India’s food management under the PDS which need immediate attention –

(i) The percentage distribution of the economic cost of wheat and rice has been rising fast. The pooled cost of foodgrains (MSP plus the Bonus which are offered by the individual states) accounts for two-thirds of the economic cost of wheat and rice. This has made the economic cost of foodgrains to the Food Corporation of India (FCI) increase over the years.

(ii) Increasing costs of labour, fertilizers, pesticides and other inputs have made production of crops costlier over the time. This forced the government to keep on increasing the MSPs of the crops, too.

(iii) The increase in the food subsidy bill is determined by the rate at which the MSPs for wheat and rice increase and the economic cost of handling grains (their procurement, stocking and distribution to the targeted households). This has been the major factor for ballooning food subsidy bill. Food subsidy bill has increased to over 15 per cent of agri-GDP by 2016-17 from 5 per cent of 2005-06 (as per the Commission for Agricultural Costs and Prices-CACP ).

(iv) The procurement incidentals of wheat and rice consist of costs related to mandi charges and taxes, cost of gunny bags, arhatiya commission, mandi labour, forwarding charges, internal movement, storage charges, interest, administrative charges and others. Out of these costs, mandi charges and taxes constitute more than 40 per cent of the total costs.

Opportunity cost of running the PDS have been very high. This is particularly due to increased levels of fund diversion for food subsidy, the government could not support adequate amount of investment in the agricultural sector. This prevented capacity building in the sector.

Over the time, several discrepancies seeped into the PDS, such as,

(i) high operation costs,

(ii) high levels of leakages,

(iii) high administrative costs,

(iv) corruption, and

(v) mismanagement.

Subsidies created some other problems, too.Firstly, subsidies brought distortions in the market, which hamper the domestic as well as the external interests and secondly, caused a heavy drain on the government exchequer. PDS poses even higher challenge when domestic or international prices are on the rise and the government is forced to raise the MSPs of crops.