Centre for Development Studies, Delhi School of Economics, Working Paper No. 198, March, New Delhi Khera, Reetika (2011)

The diversion of grains from the Public Distribution System and the scale and coverage of the institution’s operation has been closely interlinked in India in recent times.

The Public Distribution System (PDS) in India, in spite of its down-sizing over the past decade, still remains one of the largest state interventions in the food market across the globe. The PDS serves as an important institution in India for enhancing nutritional status of the population. In the context of the fact that South Asia, and in particular India, is a hotbed of hunger and persisting under-nutrition, the PDS is all the more of crucial importance in the country. Global estimates by organizations like the FAO reveal that more than around 12 per cent of the world’s hungry reside in India, which has otherwise been one of the fastest growing countries in the world in recent history.

The recent debate on food delivery in India has witnessed serious concerns over large-scale leakages of subsidized grain from the PDS. Many policymakers and economists have also argued for a shift from direct food distribution to the poor to cash transfers, the latter being considered as a more efficient system. Certain studies have estimated this grain leakage as high as three-fourth of the total grains allocated to the PDS.

This debate serves as the background for the study by Khera on the diversion of food-grains from the PDS. The study undertakes an examination of what the actual magnitude of grain leakages are. The author also enquires whether this trend of increasing leakage from the PDS is a homogeneous phenomenon across the country. The findings of this paper, therefore, have important implications for policy-making and social welfare, particularly in rural areas where significant sections of the population are dependent on the PDS.

This paper is an inter-state study of the functioning of the PDS covering the major states in India. The author uses data on ‘off-take’ of grains by different state governments from the Food Corporation of India, available in the ’Monthly Foodgrains Bulletin’ of the Department of Food and Civil Supplies of the government. In order to measure the rates of diversion of grain from the PDS for different states, this is then contrasted with estimates of grain actually purchased from the PDS by households, which is derived from various National Sample Survey rounds reporting on grain purchases by households. These estimates are arrived at for five different years: 1999-2000, 2001-2, 2004-5, 2006-7 and 2007-8, the first of which is a year, when the PDS was still universal in effect and targeted operations had not yet started.

The study finds that for the country, the average purchase of PDS grains is 1kg/month for rice and 0.5 kg/month for wheat. This variable also exhibits sizeable fluctuations across states. Based on the per capita purchase of rice and wheat, the states have been categorized into three categories. States, where the per capita purchase of grains (rice and wheat together) has remained below 1kg/month for the entire period are grouped as ‘languishing’ states. Those states, which have remained around 1 kg/month at the beginning of the period, and improved over the period, are categorized as ‘reforming’ states. The third group are the ‘functioning’ states, where the per capita purchase of grains from PDS is above the benchmark.

The ‘languishing’ group comprises of several north Indian states like Haryana, Punjab, Rajasthan and eastern states like Assam, Bihar, Jharkhand and West Bengal. The fast developing state of Gujarat also has an increasingly non-functional PDS. The reforming states consist of Orissa, Chhattisgarh, Madhya Pradesh, Uttaranchal and Uttar Pradesh. In contrast, PDS is ‘functional’ in South Indian states like Andhra Pradesh, Karnataka, Tamil Nadu and Kerala and other states like Maharashtra, Himachal Pradesh and Jammu and Kashmir.

The estimation of diversion of grains reveals a basic trend that over the period of study, the diversion has increased manifold. The diversion of rice increased from 10 percent in 1999-00 to 41.3 per cent in 2004-05; the diversion for wheat was already high at 49.3 percent in 1999-00. Overall, the leakage from the PDS increased from 24 percent to 54 percent in this period. In 2007-08, the diversion declined somewhat to 44 percent. The period after targeting was introduced in the PDS has witnessed an escalation of diversion of grains from the PDS and sale of subsidized grains in the open market.

On the other hand, the classification of states into similar categories as above, using the average diversion rates in rural areas as the benchmark, reveal that nearly the same states get grouped into the ‘languishing’, ‘reforming’ and ‘functioning’ states. The only exception being Punjab and Haryana, where diversion rates have declined to below average over time and this was more due to a decline in the grain off-takes from the central pool rather than any decline in absolutes volumes of grains being diverted.

What the study indicates is that states where the PDS is functioning in terms of coverage and access to people are also the states that have low diversion rates.

These states are also the ones which have not refrained from down-sizing the PDS in the era of targeting and have spent states resources to maintain a quasi-universal PDS in terms of coverage. Tamil Nadu and Chhattisgarh deserve special mention in this respect. Tamil Nadu has undertaken important reforms in the PDS operations including electronic tracking of consignments of grains leaving and entering PDS godowns. Chhattisgarh by revamping of PDS back to a universal one around 2005 has actually brought down the diversion rates near to zero.

The heterogeneity in the functioning of the PDS across states in the country and particularly, the experience of the ‘functioning’ states actually point to the fact that there are enough possibilities to restore the efficiency of the PDS such that it fosters equality and welfare in the society. Arguments for a replacement of the PDS by cash transfers appear pre-matured, though the latter may supplement the welfare objectives of the PDS. The author concludes on the note that there is ample scope for making the PDS a more effective policy instrument for battling hunger in the sub-continent.