LEAKAGES IN THE CURRENT PDS SYSTEM IN INDIA

Rakesh kr. Purohit (DM-120)S. Bharadwaj (DM-128 )S.K. Chakravarthy (DM-129)Abhinav Akash(FN-02)Prashant Jain (FN-082)Aradhana Dayal (IB-019)

Objectives

• To understand the leakages in following Schemes and Subsidies:

• PDS• Mid Day meal scheme• Fertilizer subsidies• Power sector• NREGA

• The Road Ahead

Public Distribution System

• Public Distribution System (PDS), is a national food security system, established by the Government of India under Ministry of Consumer Affairs, Food and Public Distribution and managed jointly with state governments in India.

• It distributes subsidized food and non-food items to India's poor.

• Major commodities distributed to consumers include staple food grains such as wheat, rice, sugar and kerosene through a network of Fair Price Shops (FPS) established in several states across the country.

Contd..

• With a network of more than 5 lakh FPS claiming to distribute annually commodities worth more than Rs 15,000 crore to about 16 crore families, the PDS in India is perhaps the largest distribution network of its type in the world.

• PDS is operated under the joint responsibility of the central and state governments, with the former responsible for procurement, storage, transportation (upto the district headquarters) and bulk allocation of food grains.

• The state governments are responsible for distributing these foodgrains to consumers through a network of Fair Price Shops.

Contd…• 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 also responsible for movement of foodgrains from the district headquarters to the PDS shop, which requires storage at the sub-district level.

Leakages and Problems with PDS

• Large errors of exclusion of BPL families and inclusion of above poverty line (APL) families .

• Prevalence of ghost BPL/AAY cards .

• Diversion of subsidised grains to unintended beneficiaries .

• Section of the APL households not lifting their ration quota and thus a part of the entitlement of these households leaking out of the PDS supply chain.

Contd…

• The present procedure for selection of BPL beneficiaries is opaque, bureaucratic, and does not involve gram sabhas. The basis on which village wise cap on the maximum number of entitled beneficiaries is fixed, is not clear and not well defined.

• Some states, such as Bihar, Jharkhand and UP are not being released the APL quota on the ground that they did not lift it in the past when the market price was low.

• This policy favours the southern states which have been subsidising the APL quota out of state funds, and punishes the poorer states

Contd…

• Selection procedure of FPS dealers is not transparent, and often based on patronage or bribes

• Poor financial condition and Inadequate storage capacity with FCI in some districts

• Allocations from GoI are valid only for a month, and if the state government is not able to lift within that time, its quota lapses. Some poor states such as Bihar and Orissa are not able to lift their entire quota

• The poor do not have cash to buy 35 kg at a time, and often they are not permitted to buy in instalments. Also the shop does not open for more than 2-3 days in a month.

Contd…

• Low quality of foodgrains and often the price charged exceeds the official price by 10 to 14%

• Weak monitoring, lack of transparency and inadequate accountability of officials implementing the scheme

• Ration cards are mortgaged to ration shop owners

• No grievance redressal mechanism

Contd…

• A large number of homeless and poor living in unauthorised colonies in urban areas have been denied ration cards, and are thus not able to avail of PDS, despite being Indian citizens.

• Seasonal and temporary migrants face problems in receiving

their entitlements during the period they are out from the

village.

Leaks in NREGA

• Definition of a household

• Distribution of job cards

• Unsolicited fees being charged for work application forms

• Non-issuance of receipts

• Presence of contractors

• Non-availability of muster rolls at the worksite

Mid Day MEAL

Fertilizer subsidy leakages

• Fertiliser subsidy leakage may likely total to a shocking 10 percent plus of the country's massive subsidy bill this year(in 2010).

• Estimates by the department of fertilisers (DoF) have pegged fertiliser subsidy leakage at a mind boggling Rs 12-15,000 crore in 2008-09 alone, when subsidy levels touched alarming proportions of Rs 76,603 crore.

• Significantly, much of the "leakage and over-charging“, in the Centre's fertiliser subsidy may have been facilitated by the much-vaunted but highly porous fertiliser monitoring system or FMS.

Power sector leakages

• The costs of unreliable quality and supply

• The costs of theft

• The costs of poor targeting

Leakages in kerosene distribution(kerosene scandal 2005)

• The kerosene subsidy bill is said to be Rs 10,000 crore(in 2005)

• Given the reported leakage of about 40 per cent of the total quantity of subsidised kerosene, the size of the scandal is about Rs 4,000 crore—many times Bofors

• A study by D K Pant of the National Council of Applied Economic Research, undertook a sample survey of 42,000 households across 23 states and union territories, with two-thirds of the households being rural

Contd…

• Inferences from the survey :– One is the siphoning off of kerosene meant for the

subsidised public distribution system (or PDS), for non-household use (read adulteration of diesel).

– The second is diversion from the PDS to the market.

– And the third is the purchase of PDS kerosene by households without a ration card or an entitlement card—which means the kerosene trader makes a killing.

Contd…

• Taken together, Dr Pant has found the leakage of PDS kerosene to be nearly 40 per cent of the total sale of PDS kerosene in 2004. In some states in the northern and eastern regions, the leakage is more than 50 per cent.

Steps taken by the GOI in the budget 2010-11

• Direct cash transfer will be implemented It refers to the practice of government placing some

amount of cash, based on requirement, into an individuals bank account in order to help him/her tide over a certain difficulty or to offset the removal of government subsidy that had been in place till then.

• A separate system for the appraisal of the government employees .

Advantages • Targeted Subsidies:-subsidies can be targeted and made to reach

only the people they were meant for.

• Massive Savings:-DCT will translate into good savings for the government.

• Responsible/Reduced Usage:-Because DCT will only compensate for a finite amount of resources consumed, it will encourage beneficiaries reduce their usage of these resources.

Pilot Implementation and Examples

• The state government’s incentive of a bicycle to a girl child joining the ninth standard under a scheme called Mukhyamantri Balika Cycle Yojana, started in 2006. Girls get Rs 2,000 to purchase bicycle and Rs 700 for uniforms. In three years, from 2007-08 to 2009-10, about 8,71,000 girls have received bicycles.

• Mexico – PROGRESSA – transfer of cash to the woman heads of the extremely poor rural families

Challenges

• Unwillingness -People might not be, initially, so receptive to the idea of universal subsidy being removed and a more targeted system being brought in to replace it.

• Mammoth Task - Creating bank accounts for millions of house holds across India will be no easy task and will require many changes/simplifications in the procedures for account creation

Steps needed for effective implementation of DCT

References http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?

From=Archive&Source=Page&Skin=pastissues2&BaseHref=ETD/2011/03/08&PageLabel=4&ForceGif=true&EntityId=Ar00400&ViewMode=HTML&GZ=T

--- UNIQUE IDENTITY ARTICLE IN “ THE ECONOMIC TIMES “ON 8TH MARCH 2011 “ REPORT ON PUBLIC DISTRIBUTION SYSTEM IN INDIA “ BY MR. RAVI

SHANKAR . “ PDS SYSTEM IN INDIA – SUGGESTIONS “ BY Dr. NARESH C SAXENA

( FORMER SECRETARY, PLANNING COMMISSION , GOVERNMENT OF INDIA)

“PERFORMANCE EVALUATION OF TARGETED PUBLIC DISTRIBUTION SYSTEM “ AN OFFICIAL REPORT BY THE PLANNING COMISSION OF INDIA

“ PUBLIC DISTRIBUTION SYSTEM “ – TENTH 5 YEAR PLAN REPORT .

References contd… http://www.business-standard.com/india/news/the-kerosene-scandal/

226264/ THE KEROSENE SCANDAL IN “BUSINESS STANDARD” 10TH MARCH 2011

http://www.financialexpress.com/news/food-leakages-in-pds-too-high-survey/754819/ -- “FOOD LEAKAGES IN INDIA TOO HIGH : SURVEY “ THE FINANCIAL EXPRESS ON FEBRUARY 25TH , 2011

http://awareness-2009.blogspot.com/2011/03/pds-vs-cash-transfer.html “ PDS VS CASH SUBSIDY ” IN “ THE HINDU “ ON MARCH 2 , 2011 http://southasia.oneworld.net/todaysheadlines/india-to-shift-to-direct-cash-

transfer-for-welfare-of-poor “INDIA TO SHIFT TO DIRECT CASH SUBSIDY “ in the “ONE WORLD SOUTH ASIA “ ON 2ND FEB 2011 .

http://www.voanews.com/english/news/asia/India-Considers-Changing-Food-Distribution-to-the-Poor-101479119.html -- “INDIA CONSIDERS CHANGING T HE FOOD DISTRIBUTION TO THE POOR “ IN THE “ VOICE OF AMERICA NEWS “ ON 10TH MARCH , 2011 .

References contd… http://www.hindustantimes.com/Raids-on-eateries-reveal-leakages-in-

public-distribution-system/Article1-615560.aspx - “RAIDS ON EATERIES REVEALS LEAKAGES IN PDS .” IN THE “ HINDUSTAN TIMES “ ON 10TH MARCH , 2011

http://www.business-standard.com/india/news/govt-%60subsidises%60-grain-leakagepublic-distribution-system/305478/ -- “ GOVT. SUBSIDISES LEAKAGE THROUGH PDS .” IN THE “ BUSINESS STANDARD “ ON 26TH NOV , 2007 .

http://www.hindustantimes.com/News-Feed/samar/The-invisible-hand/Article1-668717.aspx -- “ THE INVISIBLE HAND” IN THE “ HINDUSTAN TIMES “ ON 2ND MARCH , 2011

http://www.downtoearth.org.in/content/kind-cash -- “ KIND TO CASH “ BY THE “ DOWN TO EARTH ONLINE JOURNAL “ ON 15TH FEB , 2011

References contd… http://www.downtoearth.org.in/node/32978 -- “LATIN LESSONS “ IN

THE “DOWN TO EARTH ONLINE JOURNAL” ON 15TH FEB 2011 http://www.downtoearth.org.in/node/32980 --“ IS INDIA READY “ IN THE

“ DOWN TO EARTH ONLINE JOURNAL “ ON 15TH FEB 2011 “ CAG REPORT ON NREGA “ AN OFFICIAL PUBLIC REPORT ON JUNE 21 ,

2008 • http://blogs.wsj.com/indiarealtime/2011/03/07/economics-journal-the-

case-for-direct-cash-transfers/?mod=google_news_blog –“Economics Journal: The Case for Direct Cash Transfers” IN THE WALL STREET JOURNAL ON 7TH MARCH 2011.

• http://www.uidaicards.com/?p=3371 – “ AADHAR SETS STAGE FOR CASH TRANSFERS “ IN THE UID OFFICIAL WEBSITE ON 6TH MARCH , 2011

• •

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