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Targeted Public Distribution SystemBest Practice SolutionFebruary 2014

Targeted Public Distribution SystemBest Practice Solution

February 2014

Table of Contents

1 Introduction 5

2 Solution Design Approach 9

3 Recommended Best Practice Solution 11

4 Implementation Plan 31

5. Financial Feasibility 33

6. Conclusion 38

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List of Abbreviations and Terms used in this Document

AAY : Antyodaya Anna Yojana

APL : Above Poverty Line

BCG : Boston Consulting Group

BPL : Below Poverty Line

COREPDS : Centralised Online Real-Time Electronic Public Distribution System

DBT :DirectBenefitTransfer

DFPD :DepartmentofFoodandPublicDistribution

EPIC : Elector Photo Identity Card

FPS : Fair Price Shop/s

GPS : Global Positioning System

ID :IdentificationDocument

IT :InformationTechnology

MIS :ManagementInformationSystem

MOU :MemorandumofUnderstanding

NIC :NationalInformaticsCentre

NFSA (2013) : National Food Security Act, 2013

NPR : National Population Register

PDS : Public Distribution System

PoS :PointofSale

Rs : Rupees (60 Indian Rupees are roughly equivalent to 1 USD; all currency conversions in this document were done based on this rate)

SECC : Socio - Economic Caste Census

SMS : Short Messaging Service

TPDS : Targeted Public Distribution System

UIDAI :UniqueIdentificationAuthorityofIndia

USD : United States Dollars

VSAT : Very Small Aperture Terminal

WiMAX :WorldwideInteroperabilityforMicrowaveAccess

Crore : One crore is equivalent to 10 million

Lakh : One lakh is equivalent to 100,000

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1. Introduction

1.1 BACKGROUND

India’s Targeted Public Distribution System (TPDS)isoneoftheworld’slargestfoodsecurity schemes. The TPDS was created in 1997bymodifyingthepreviouslyuniversalPublic Distribution System (PDS) to improve thetargetingofsubsidiestopeoplethatneedthemthemost.BeneficiarieswereidentifiedasbeingBelowPovertyLine(BPL) or Above Poverty Line (APL), with eachgroupentitledtothesamefoodgrainsbutatdifferingquantityandsaleprice.In2000,additionalclassificationofAntyodayaAnnaYojana(AAY)outofBPLfamilieswasincludedtoprovidededicatedfoodgrainallotments at highly subsidised prices to thepoorestofthepoor.TheTPDScurrentlyserves6.52crore(65.2million)BPLfamiliesincluding2.5crore(25million)AAYfamilies,as well as 11.5 crore (115 million) APL families1; these numbers will change post theimplementationoftheNationalFoodSecurity Act, 2013 (NFSA (2013))2.

Asisthecasewithmanyinitiativesofthissize and complexity, the TPDS has had mixed success in achieving its intended goals.ThereissignificantvariationintheperformanceoftheTPDSacrossthecountry. On the whole, the TPDS is in need ofstrengtheningtoensurethatitprovidesitsbeneficiarieswiththefoodsecuritythatwas originally envisaged under the scheme. According to evaluation studies on the functioningoftheTPDS,thereareleakagesordiversionsoffoodgrainsandtheTPDS subsidy does not reach all intended beneficiaries.Leakagesordiversionoffoodgrainsfromthesystemstemsfromissuesinbeneficiaryidentificationaswellasfromalackoftransparencyinthesystemthatmakesitpossibletoshowissuanceoffoodgrainstobeneficiariesevenincaseswhenthis may not be occurring.

Afewstateshavemadeeffortstoaddress these problems with varying degreesofsuccess.TheCentralVigilanceCommittee chaired by Justice D.P. Wadhwa hasalsomadeanumberofvaluablerecommendations3 to the Supreme Court ofIndia,basedonitsreviewofdifferentstateTPDSoperationsoverthepastfewyears.TheserecommendationsformthebasisoftheSeptember2011rulingsoftheSupreme Court4 on the computerisation oftheTPDSwhichhavebeenasignificantdriverofcomputerisationeffortsthroughoutthe country in recent years. However, the majorityofstateeffortsontheTPDSareintheformofpilotprojectsthatareatarelativelysmallscale.Informationonthebroaderapplicabilityofthesepilotsandthepotentialfortheirsuccessinotherpartsofthe country is currently limited.

The NFSA, passed by the Parliament in September 2013 and the potential expansionandadaptationofDirectBenefitTransfer(DBT)totheTPDSatsomepointinthefuture,willrequiresignificantchangestothedesignandoperationsoftheTPDS.

The NFSA (2013) seeks to address the issueoffoodsecuritybycombiningthebenefitsofthethreelargestfoodsafetynets programmes, namely the TPDS - targetingthefoodinsecurepoorpopulation;the Mid-Day-Meal Scheme - a school feedingprogrammetargetingchildrenintheagegroupofsixto14years;andtheIntegrated Child Development Services - a supplementaryfeedingprogrammetargetingpregnant and lactating women and children belowtheageofsix.TheNFSA(2013)givesupto50%oftheurbanand75%oftheruralpopulationthelegallyenforceablerighttostatefoodbenefitsundertheTPDS.TheTPDSisbyfarthelargestofthethreefood-basedsafetynetsundertheNFSA(2013)

1 ReviewofFoodgrainsProcurementPolicy,”PressInformationBureau,MinistryofConsumerAffairs,FoodandPublic Distribution, dated December 17, 2012

2 NationalFoodSecurityAct2013,http://dfpd.nic.in/fcamin/FSBILL/Rajpatra.pdf,accessedon17February20143 http://pdscvc.nic.in/report%20on%20computersisation%20of%20PDS.htm,dated23February20094 http://dfpd.nic.in/fcamin/sites/default/files/userfiles/DetailedGuidelines.pdfdated14September2011

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and serves over 800 million people across India5.

ThepastfewyearshaveseenanumberoftrendsintheenablingenvironmentfortheTPDS.Anexpansioninruralinfrastructurehas brought electricity and data connectivity tomorethan90%ofIndia’svillages6. The UniqueIdentificationAuthorityofIndia(UIDAI) has biometrically enrolled more than 56 crore (560 million) Indians and is on track to enrol the entire country’s population and give each person a unique Aadhaar ID number7. The increasing scale ofhardwareandsoftwareimplementationsintheTPDShashelpedtorefineequipmentspecificationandhasreducedequipmentcostsinadditiontocreatingacadreofvendors and suppliers (in government and in the private sector) with valuable implementation experience in the sector. TheGovernmentofIndiahasadoptedanumberofmeasurestostrengthentheTPDS including a revised Citizen’s Charter in 2007 and the PDS (Control) Order in 2001.ToguideimplementationoftheNFSA(2013)andtheTPDSreformsenlistedtherein, the PDS Control order is currently beingmodified.Inaddition,Rs.884crore(USD 147 million) have been allocated on cost sharing basis in the 12th Five Year PlanforComponent1oftheschemefortheendtoendcomputerisationoftheTPDS(coveringdigitisationofbeneficiarydatabases,computerisationofsupplychainmanagement,settingupoftransparencyportals and grievance redressal mechanisms).

Inlightofthefactorsmentionedabove,there is not only an urgent imperative forthelargescalemodernisationoftheTPDSbutalsoagreatopportunitytoaffectsignificantchangebyleveragingrecentadvancesintechnologyandinfrastructure.AsystematicstudyofdifferentTPDSefforts

all throughout the country is required to identifybestpracticesinsystemdesignand implementation that can be used by governmentsastheyconsidereffortstostrengthen the TPDS in their respective states.

1.2 WFP’S ASSOCIATION WITH TPDS

The United Nations World Food Programme (WFP) has been in India since 1963. Over the years, in keeping with India’s changing needs, WFP has transitioned its operations inIndiafromthedirectprovisionoffoodaidto a more partnership and advisory oriented role.Today,WFPfocusesitseffortsonleveraging its experience in India as well as its global expertise to help the government solvetheirmostpressingfoodsecurityandnutrition issues. WFP’s goal in India is to supportthegovernment’sfoodbasedsafetynets by suggesting ways to improve their effectivenessinordertoaddressexistinglevelsofmalnutritionandfoodinsecurityinthe country.

Over the past several years, WFP has been actively working on strengthening theTPDSthroughin-depthanalysisofTPDSvis-à-visfoodsecurityacrossthecountry, undertaking pilot projects as well as diagnostic studies and workshops. In 2007, WFP carried out a diagnostic andsolutiondesignexercisetoidentifymeasures that could be taken to increase TPDSeffectiveness.In2008,thelessonsfromthiseffortwereusedtodesignapilotproject implemented by WFP in collaboration withtheGovernmentofOdishainRayagadadistrictofthestate.

The TPDS project in Rayagada was designed withtheobjectiveoftestingthesuitabilityofanumberofpotentialTPDSsolutionsthat were being proposed at the time. The

5 Estimateof800millionpeopleisbasedoncurrentpopulationfigures,i.e.67%ofanestimatedtotalpopulationof1.2billionpeople.

6 NationalElectricityPlan(page4)http://www.cea.nic.in/reports/powersystems/nep2012/generation_12.pdf;Percentageofvillageselectrifiedasof31December2012is94.1%(Source:MinistryofPower,Indiahttp://www.indiastat.com/table/power/26/villageelectrification19502012/449720/652501/data.aspx);NumberofvillageswithoutmobileconnectivityasonOctober31,2011isabout37,000outoftotal6.3lakh(630,000)villages,indicating94.2%coverage(Source:LokSabhaStarredQuestionNo.23,datedon23.11.2011;MinistryofStatistics and Programme Implementation); Plan to cover 2.5 lakh (250,000) village Panchayats: http://pib.nic.in/newsite/erelease.aspx?relid=86524

7 UID: Presentation made to National Advisory Council by Chairman, UIDAI on 26th February 2013, NPR: http://pib.nic.in/newsite/erelease.aspx?relid=81127

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projectfocusedontacklingtheissuesofup-frontbeneficiaryidentificationandregularongoing authentication in a challenging operating environment characterised by significantinfrastructurechallenges(poordata and road connectivity as well as a lackofelectricityandsuitablevenues)inaddition to weather and security related issues. In a pre-Aadhaar world, the RayagadaprojectwasoneofthefirstTPDSprojects to enrol multimodal biometrics includingtenfingerprints,iris(forasegmentofthepopulation)andindividualfacialphotographsforbeneficiariesacrossthedistrict.Fingerprintswereusedforbiometricde-duplicationandforauthenticationofbeneficiariesduringtransactionsatanumberofFPSusingasmartcardbasedPointofSale(PoS)system.

AnumberofkeysolutionelementsthatweretestedaspartoftheRayagadaprojectinclude:

• Digitisationofbeneficiarylistsfromrationcardregistersandexistingbeneficiarysurveys(amixofEnglishandOriyalanguage data sources)

• Biometricenrolmentoftheentirepopulationofthedistrict(10fingerprintsandfacialphotosforapproximately10lakh (1 million) people, with iris also scannedforasubsetofthepopulation)

• SmartCardsolutionwithchipcontainingbiometricsforauthentication(real-timetransferofdata)

• PlasticbarcodedcardswithbiometricsonthePoSdeviceforbiometricauthentication(realtimetransferofdata)

• Barcodedcouponscollectedandscannedto upload transactions on Management InformationSystem(MIS)(withoutPoS)

• AutomatedallocationbasedonMISdataonpreviousmonth’soff-take

The Rayagada project has provided WFP with invaluable insight and operational experience in implementing a variety ofTPDSsolutions.Duringtheproject,WFPidentifiedanumberofchallengesassociatedwithbeneficiarylistdigitisationand biometric enrolment as well as best practices to overcome them. The biometric basedde-duplicationprocessconductedfor

the entire biometrically enrolled population ofthedistrictidentifiedandremovedabout10 percent duplicates. Barcoded coupon and smart card based transaction systems were thoroughly evaluated and the associated costs,timelines,complexitiesandbenefitswerecompared.Theneedforincentivestoimprove FPS viability, constant training and supportforallstakeholdersandthevalueofawelldesigneduser-friendlyMISwasclearly observed. The project highlighted the importanceofclosecollaborationbetweenthedifferentimplementationpartners,includingdifferentlevelsofgovernment.Italsounderlinedtheneedforawellthoughtout plan to manage a relatively seamless transition to the new system and that the existenceofstrongexceptionhandlingand grievance redressal mechanisms is criticalforanytechnologicalprojecttobesuccessful.

The project was implemented in 370 FPS including rural blocks with barcoded coupons. Today, 33 FPS in three urban localbodiesandsixrurallocationsofRayagada are operating PoS machines that biometricallyauthenticatebeneficiariesusing their TPDS smart cards and send transaction reports online to a web based MIS. The project was appreciated by the GovernmentofOdishaforstate-widereplication.

In keeping with its goal to support and empower governments in making their TPDS effortssustainable,WFPtransitionedfullresponsibilityfortheday-to-dayoperationsoftheRayagadaprojecttotheGovernmentofOdishainDecember2013.

This project has provided WFP with immense learning and a unique opportunity to share the experiences and build on the successestoguidethescale-upofTPDScomputerisation.

1.3 CONTEXT OF THE PROJECT

InApril2012,WFPfurtherconsolidateditscommitment to strengthen the TPDS by signingaMemorandumofUnderstanding(MoU)withTheDepartmentofFoodand Public Distribution (DFPD), Ministry ofConsumerAffairs,FoodandPublicDistribution.Aspartofthispartnership,

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WFPandtheDepartmentofFoodandPublicDistribution co-organised a ‘National Cross Learning Workshop’ in May 2012 to give differentstatesanopportunitytosharebestpracticesintheTPDSandinfoodfortificationacrossthecountry.

WFPproposedastudytoidentifythebestpractices in the TPDS throughout the country in order to create a comprehensive TPDS Best Practice Solution8 that could besharedwithdifferentstatesthatwerelooking to implement TPDS solutions. This effortwasenvisagedasameansofbringingmore clarity to the requirements and benefitsofdifferentpotentialTPDSsolutionsinanattempttoacceleratethepaceofTPDSreforms.

AteamfromWFPandTheBostonConsulting Group (BCG) conducted the

abovementionedstudyfromNovember2012–February2013.Aspartofthiseffort,the team studied TPDS pilot projects in eight states (including detailed site visits to six pilots).AvarietyofkeyTPDSstakeholdersincluding central and state governments, beneficiaries,FPSoperators,solutionproviders, academics and NGOs were consulted throughout the solution design process.

This document outlines the recommended TPDSBestPracticeSolutionresultingfromthe process outlined above and provides anoverviewofthesolutionfeaturesandimplementation plans. WFP hopes that stategovernmentswillfindthisdocumentusefulinidentifyingthemostsuitablesetofsolutionstostrengthentheirTPDS.WFPwould be happy to discuss ways in which theycansupportinTPDSreformefforts.

8 WFP’sTPDSBestPracticeSolutionisalsoreferredtoastheTPDS3SModel,with3SrepresentingSecure,Strengthen, Save.

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A systematic approach was used to studytheissuesfacedbytheTPDSandtoevaluatethesuitabilityofthevarioussolutions currently being proposed, in order to create a TPDS Best Practice Solution.

2.1 IDENTIFICATION OF KEY ISSUES FACED BY THE TPDS

ThekeyissuesfacedbytheTPDSwereidentifiedtoserveasthebasisforthesolution design exercise:

• Impropertargetingandidentificationofbeneficiariesincludingcategorisation

• Static/slowchangingnatureofbeneficiarylists

• Leakageinsupplychainoperationsduetopoortrackingofstock

• LeakageatFPSduetomisreportingofsales

• PoorviabilityofFPS• LackoftransparencyonTPDSoperationstoofficialsandbeneficiariesalike

• Insufficientmeansofgrievanceredressalleadingtobeneficiarydisempowerment

2.2 DEFINITION OF OvERALL SYSTEm DESIGN OBJECTIvES

Thefollowingobjectivesweredefinedtoguide the TPDS solution design process:

• Proper targeting of subsidy – Ensure thatdeservingbeneficiariesgetrationsaccording to their proper entitlement

• Leakage reduction–ReducepilferageanddiversionoffoodgrainsthroughouttheTPDSvaluechain;deployaportionofsavings to improving nutrition

• Improved stakeholder convenience – Reduce system complexity and increase easeofoperations;createsolutionbuy-inandsupportfromconsumersaswellasother internal stakeholders

2.3 BENCHmARKING OF EXISTING TPDS PILOT PROJECTS TO IDENTIFY DIFFERENT SOLUTION OPTIONS

InconsultationwiththeDepartmentofFood and Public Distribution, eight state

TPDS pilot projects covering a broad varietyofdifferenttechnologicalsolutions,implementation models and operating conditionswereidentifiedforadetailedstudy. The study team visited Andhra Pradesh, Chandigarh, Chhattisgarh, Gujarat, Karnataka and Odisha and interacted with abroadcrosssectionofstakeholdersacross the entire TPDS value chain in each state.SpecificelementsoftheTPDSinHaryana and Tamil Nadu were also studied indetail.AcomprehensivesetofprocessesandsolutionoptionsforeachsegmentoftheTPDSvaluechainwasassembledforanalysisonthebasisofthebenchmarkingexercise.

2.4 SELECTION OF THE mOST SUITABLE SOLUTION OPTIONS FOR EACH PROCESS IN THE TPDS vALUE CHAIN TO CREATE THE BEST PRACTICE SOLUTION

TheTPDSvaluechainwasdividedintofourmainsegmentsforthepurposeofsolutiondesign:

• Beneficiaryidentificationandenrolment

• Supplychainoperations

• FPStransactions

• Grievanceredressal

ForeveryprocessundereachofthefourTPDSvaluechainsegments,allthetechnologyoptionsidentifiedduringthebenchmarking exercise were evaluated againstspecificsuccessmetricsfortheprocess. The most suitable solution option (i.e. the one that best achieved the success metricsfortheprocess)wasselectedasthebestpracticeoptionfortheprocess.Thebestpracticeoptionsforeachprocessin the TPDS value chain were combined (accountingfordependenciesacrossprocesses and value chain segments) to create the TPDS Best Practice Solution. In evaluatingthedifferentsolutionoptions,thenewopportunitiespresentedbyanumberofrecent enabling trends were kept in mind. Thefastadvancingcoverageofthecountry’spopulationbyAadhaarandtheavailabilityof

2. Solution Design Approach

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electricity and mobile coverage in more than 90%ofthecountry’svillageshaveopenedupthepotentialforFPSautomationandforrobustbeneficiaryauthenticationatthetimeoftransaction–somethingthathadnotpreviouslybeenfeasible.

2.5 EARLY AND FREQUENT ENGAGEmENT OF TPDS STAKEHOLDERS, EXPERTS AND vENDORS

To ensure that the Best Practice Solution was practical and implementable, perspectives were continuously taken fromavarietyofTPDSstakeholdersincludingtheDepartmentofFoodandPublic Distribution at central level, state Food Departments with experience in TPDS pilot implementation, FPS owners and beneficiaries.Additionally,topicexpertswerealsoconsultedfromabroadrangeofbackgrounds including the Central Vigilance Committee chaired by Justice Wadhwa, theNationalInformaticsCentre(NIC),UIDAI, National Population Register (NPR), the Food and Agriculture Organisation andmanyexpertsfromcivilsocietyandacademic institutions. Lastly, TPDS solution providers were also consulted to understand challengesfacedinpriorimplementationsandforcostingestimatesfordifferentsolution components.

2.6 ANALYSIS OF POTENTIAL FUTURE CHANGES IN THE TPDS OPERATING ENvIRONmENT

TheoperatingenvironmentoftheTPDSis constantly evolving. To ensure that the

solutionisflexibleandremainsaviablealternativefortheforeseeablefuture,potential policy changes and government studiesthatcouldhaveasignificantimpacton TPDS were studied and the solution was evaluatedforitsflexibilitytothesechanges.

The solution is compatible with the NFSA (2013); its provisions need some adjustmentsintheprocessesdefinedforbeneficiaryidentificationanditscategorisation into priority and general groups.

TheongoingdebateonuseofDirectBenefitTransfer(DBT)inTPDShasimmensepotential. The proposed solution is easily adaptable and changes can be incorporated to pilot various DBT options.

2.7 NATIONAL LEvEL ‘SOLUTIONS WORKSHOP’ TO SOLICIT FEEDBACK FROm KEY TPDS STAKEHOLDERS

TheDepartmentofFoodandPublicDistribution and WFP co-organised a TPDS solutions workshop on 6 February, 2013togetfeedbackfromkeyTPDSstakeholders. The workshop was attended byrepresentativesofanumberofstategovernmentsaswellasthosefromNPR,UIDAI,NIC,academiaandthenon-profitsector. Participants discussed key learnings fromthestateTPDSpilotbenchmarkingeffortandbrainstormeduponanumberofkeyTPDSissues.FeedbackfromtheSolutions Workshop was incorporated into the TPDS Best Practice Solution described in this document.

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3. Recommended Best Practice Solution

The TPDS Best Practice Solution was designed to achieve the three main objectivespreviouslylaidoutfortheTPDS:

• Propertargetingofsubsidy

• Leakagereduction

• Improvedstakeholderconvenience

As shown in Figure 1, the recommended TPDS Best Practice Solution has nine key features:

• De-duplicatedbeneficiarylistcreatedbyleveraginguniquenessofbeneficiaryAadhaar numbers

• Provisionstokeeprationcarddatabaseupdated and accurate

• Automatedallocationoffoodgrainsbasedonpreviousoff-takebytrackingfoodgrainsstocklevels

• DoorstepdeliveryoffoodgrainstoFPSwithautomatedSMSnotificationsatdispatch

• PoSenabledonlinetransactionatFPSafterbiometricauthenticationofbeneficiaryusingAadhaar

• AbilityforbeneficiarytopurchaserationfromanyFPS(portability)

• ImprovedFPSviabilitytoincentivisebetterFPSperformance

• Easilyaccessibleandeffectivegrievanceredressal

• MISforoperationsmanagement,systemimplementation and transparency

Thesolutionisdesignedtobeasflexibleaspossibletoadjusttospecificstaterequirements and conditions prevailing indifferentstates.Werecommend

Recommended TPDS solution has nine key features

Beneficiary identification and

enrolment

Supply chain operations FPS transactions Grievance

redressal

1. De-duplicated beneficiary list created by leveraging uniqueness ofbeneficiaryAadhaar numbers

2. Provisions to keep ration card database updated and accurate

3. Automated allocation of foodgrain based onpreviousoff-take by tracking foodgrainstocklevels

4. Doorstep delivery offoodgrainsto FPS with automated SMS notifications at dispatch

5. PoS enabled online transaction atFPSafterbiometric authenticationofbeneficiaryusingAadhaar

6.Abilityforbeneficiarytopurchase ration fromanyFPS (Portability)

7. Improved FPS viability to incentivise better FPSperformance

8. Easily accessible & effective grievance redressal

9. MISforoperationsmanagement,systemimplementation&transparency

Figure 1: Overview Of Features In Recommended TPDS Best Practice Solution

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implementing all the above mentioned featurestoensureaholisticapproachtostrengthenallaspectsoftheTPDS.However, the solution is designed to be as modular as possible in order to allow forimplementationinaphasedmannerifoperating constraints so require.

3.1 DE-DUPLICATED BENEFICIARY LIST CREATED BY LEvERAGING UNIQUENESS OF BENEFICIARY AADHAAR NUmBERS

Anaccuratebeneficiarylistpopulatedonlybyunique,realandcorrectlyclassifiedbeneficiariesisthefoundationofawellfunctioningTPDS.TheNFSA(2013)necessitates creating an updated digitised beneficiarylist,finalisedusinganobjectivecriteriaandleveragingtheAadhaarplatformforbettertargeting.Astatecanchoosetoaddress this issue depending on its appetite forcomplexityandthegiventimelinekeepinginmindthewindowof365daysprovidedbytheAct.Thedifferentoptionsforstatesare:

• Option A: Replace existing ration cards andallowleftoutbeneficiariestoapplyfornewcardsiftheyareonthebeneficiarylist (but did not have a ration card)

In July 2013, the Government of India issued guidelines on the population in each state to be covered under TPDS as per NFSA (2013). This provides state governments an opportunity to reduce bogus (duplicate and fake) ration cards as well as shadow ownership. This can be achieved by giving new cards after de-duplication and authentication to beneficiaries who previously held ration cards. States can reduce exclusion errors by allowing eligible beneficiaries who previously did not have cards to apply. Further, inclusion errors can be minimised by cancelling the cards of ineligible beneficiaries so that the resultant final beneficiary list is within the coverage mentioned for that particular state as per NFSA (2013). This might not be the best way but offers an advantage of speedier implementation of the Act.

• Option B: Completely overhaul the system by using a new survey as the basisofbeneficiaryclassification

Reduce bogus (duplicate and fake) ration cards, shadow ownership, inclusion and exclusion errors by using a comprehensive, updated survey with revised classifications as the basis of issuing new ration cards after de-duplication and beneficiary authentication. The states can either use the Socio-Economic Caste Census data or define a set of inclusion and exclusion criteria.

ThefirststepforeitheroftheseoptionsisthedigitisationofbeneficiaryliststoputbeneficiarydatainastandardisedsearchabledatabaseformatalongthelinesofsuggestionsmadebyNIC.Thesourcedataforthedigitisedbeneficiarylistwilldependonwhichoneoftheabovementioned options is chosen by the state.

The next step is to remove duplicate and fakecardsfromthelist.Forthispurpose,biometric de-duplication provides the bestresultsintermsofaccuracyandreliability. Biometric based de-duplication issuperiortoanumberofothermethodssuch as de-duplication based on text (e.g. father’sname,addressetc.),ElectorPhotoIdentity Card (EPIC), electricity connection numbers and property ownership records that have been tried out by states with varyingdegreesofsuccess.Thereliabilityoftheseothermethodsishighlydependenton data quality which is sometimes poor andtheirapplicabilityisoftenlimitedbythefactthattheydonotcovertheentiretarget population in many areas e.g. EPIC numbers only cover the adult population oftheareathatiseligibletovote.Ontheother hand, biometric based de-duplication relies on biometrics which are available with nearlyallbeneficiaries(rarecasesmaynothavefingerprints,whichmaybecoveredthrough exceptions), leverage the inherent uniquenessoffingerprints(10fingerprintscreate a nearly unique combination) andaredifficulttomanipulateorfalsifyin comparison with other ID sources as thereisnomanualinput.Itisthereforerecommendedthatfingerprintbasedbiometricsbeusedforde-duplication.Othermethods may be used as an initial screen ifdesiredasatemporarymeasureinareaswhere biometric enrolment is currently low, but de-duplication using biometrics should

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then be done as soon as higher biometric enrolment rates are achieved.

Biometric based de-duplication however, necessitatestheneedforbiometricrecordsofallbeneficiariestobeavailable– something that UIDAI and NPR are currentlyintheprocessofundertakingacross the nation. Some pilot projects have undertaken biometric enrolment independently (Rayagada in Odisha and in Chandigarh) in a pre-Aadhaar world, but in lightoftheincreasingcoverageofAadhaar(56 crore/560 million people have already been registered); it is recommended that statesleveragethisexistingplatform.ThebenefitsofusingtheAadhaarplatformforbiometrics include not only standardised, highqualitydataandthefactthatde-duplication is carried out all across the nation,butalsothesignificantsavingofcostforstatesasAadhaarisfundedbytheGovernmentofIndia.Thefactthatstates do not have to enrol biometrics separately and do de-duplication on their ownalsosavesasignificantamountoftimeandreducesthecomplexityforthestateimplementationsignificantly.AnotherbenefitofusingAadhaaroverotherproprietarybiometric enrolments is that the Aadhaar platformprovidesthepossibilitytodoquick online, real-time authentication that canbeveryusefulforenablingbeneficiaryauthentication at the FPS.

TofacilitatetheuseofAadhaarforde-duplication, the unique ID (Aadhaar) numberissuedforeachbeneficiaryhastobe mapped onto the digitised ration card database. This process is called ‘seeding’. ‘Seeding’ofdigitisedTPDSbeneficiarylists with the Aadhaar numbers removes duplicate entries as one individual can only haveoneAadhaarnumber.AfterAadhaarenrolment and seeding is completed in an area (this will be a phased process to givebeneficiariesenoughtimetoenrolthemselvesinAadhaarandforseedingtotakeplace),anyentriesinthebeneficiarylistthatremainunseededcanbesafelyassumed to be either duplicate entries or fakeandghostentries.Thisprocesshas

yieldedsignificantsavingsintheAadhaarbased TPDS pilot in East Godavari district throughasignificantreductioninthenumberofrationcardsafterseeding.

Based on experience with biometric enrolment in Rayagada, Odisha and the Aadhaar based pilot in East Godavari, the best way to achieve FPS automation is to switch to the new system once biometricenrolmenthascrossed80%ofthebeneficiarypopulationinastateorunionterritory.Agraceperiodofthreetofourmonthsshouldbeprovidedfortheremainingbeneficiariestogetbiometricallyenrolledandseeded,afterwhichtheirmanual entitlements should be stopped. Doingsoprovidesanincentiveforpeopleto get enrolled. Without this, enrolment may not reach 100% completion within a reasonabletimeframe.Adequateexceptionmanagement measures should be in place toensurethatnorightfulbeneficiaryisdeprivedoftheirallotmentbutalimitedgraceperiodisessentialforthetransitiontothe new system.

Onceduplicates,fakes,ghostsandboguscardshavebeenidentifiedandremovedfromthebeneficiarydatabase,itisrecommended that the state governments distributenewrationcardstobeneficiariesto replace old ration cards. To reduce shadowownershipofcards,itisadvisabletodistributerationcardsonlyafterbiometricauthenticationofthebeneficiaryatthepointofdisbursal.TheAadhaarplatformprovidesthe ability to do biometric authentications in real time against data that resides on the UIDAI servers. Additionally, the old ration cards should be collected during distribution ofnewrationcardsandtransactionsshouldbediscontinuedonoldrationcardsafterasufficientgraceperiodtoensurethatrightfulbeneficiariesarenotdeprivedoftheirrights.

Significantsuccesshasbeendemonstratedinremovalofboguscardsbybiometricde-duplication in the East Godavari (Andhra Pradesh) and Rayagada (Odisha) pilots9. East Godavari carried out an Aadhaar based biometricde-duplicationofthedigitised

9 Databasedonfieldvisitsanddiscussionwithpilotimplementationofficials

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ration card list and was able to eliminate 7.4%oftherationcardswhichwerebogus.ThishasresultedinsavingsofaroundRs.45,000 (USD 750) per FPS10 (more details are provided in Section 5 on Financial Feasibility). In the Rayagada pilot, 10.9% oftotalrationcardswhichwerebogushavebeen eliminated based on a biometric de-duplication carried out across the district.

3.2 PROvISIONS TO KEEP RATION CARD DATABASE ACCURATE AND UPDATED

In order to ensure that the ration card database remains accurate and updated with the latest details, it is recommended thateasilyaccessiblefacilitiesbeprovidedtobeneficiariestoallowformodificationstorationcardsthatareautomaticallyreflected

intherationcarddatabase.Therangeofmodificationsallowedcanvaryaccordingto the state’s requirements. Some potential changes include:

• Allowingpreviouslyleftoutbeneficiariesto request ration cards

• Updateofrationcardstoaccountforbirths, deaths, marriages etc.

• Allowingformigrantstorequestnewration cards

• Changeofaddressetc.

Thebenefitsofhavinganestablishedfacilitytocontinuouslyupdaterationcarddatabasesaremanifold.Doingso,allowsregular updates to ration card details, whileprovidingsignificantconveniencetobeneficiaries.Italsoprovidesanavenue

Figure 2: Schematic of Recommended Solution – De-duplicated Beneficiary List Created by Leveraging Uniqueness of Beneficiary Aadhaar Numbers with Provision to Update Ration Card Database

10 'Public Distribution System – The Aadhaar Way', report on the TPDS pilot project implementation in East Godavari district, Andhra Pradesh

1

+

+

2 3

4

5

Createbaselistofalltargetedbeneficiarieswiththeirclassification Aadhaarenrolmentofbeneficiaries Removalofduplicate&boguscards

Use Aadhaar based deduplication to create a digitized list of unique beneficiaries for printing of new ration cards

Option A: Replace cards + new beneficiaries

Option B: Overhaul system

Replace cards

Data entry person digitizes existing

ration cards

Existing ration card holders

New applicants

All beneficiaries

Multiple enrolment

Single enrolment

No enrolment

Duplicate cards removed

Bogus cards removed

Valid seeded cards

Printing&distributionof valid ration cards

BeneficiarysubmitsIDproof,addressproofandKYR+1form

Food dept seeds UID/EID databaseonbaselistoftargetedbeneficiaries(duringorpost

Aadhaar enrolment)UIDAI/NPR operator captures

beneficiarybiometric (10fingerprints,iris&photo)orusetheSECCinfoforcategorisation

UIDAIgeneratesUIDafterbiometric de-duplication

Aadhaar operator enters details & generates EID2

NPR provides biometrics to

UIDAI

Databaseof UID3of

beneficiaries

Valid beneficiaries

Beneficiarycollectsprintedration card

Aadhaar verification

Beneficiarysubmitsnewformswithrelevant

documents

New household survey conducted

including all beneficiarieswith

correct classification

Household survey digitized

Foodofficialrecordsdataaftertextualde-dupe&notesclassificationfrom

existing BPL list

All new records collated centrally

Manage RC4databasetoreflectchangesofbeneficiarystatus(birth/death/marriage/migration)andtheirclassification

1. Know Your Resident 2. Enrolment ID 3. Unique ID 4. Ration card Source: WFP/BCG Analysis

Baselistofalltargeted

beneficiaries&their

classification

Baselistofalltargeted

beneficiaries&their

classification

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toensurethatthebeneficiarylistsremainup-to-date, especially in locations where the previous BPL surveys were carried out more than a decade ago and have remained the same ever since.

Asisalreadythecaseinanumberofstates,ablocklevelofficewhichmanagesupdateofrationcardsandbeneficiarylistsisrecommended.ThisofficecanalsobeusedforothermanagementtasksfortheTPDSinthe block, potentially doubling up as a walk-in grievance redressal centre as well. Other options to consider are using Panchayat (localgovernment)officesorCommonServiceCentresforthispurpose.Thesuitabilityofaparticularoptionforthiswilldependonthespecificsituationinthestate.Figure2providesaschematicoverviewofbest practice solution recommendations covered under sections 3.1 and 3.2.

3.3 AUTOmATED ALLOCATION OF FOOD GRAIN BASED ON PREvIOUS OFF-TAKE BY TRACKING FOOD GRAIN STOCK LEvELS

Field visits, interviews with TPDS stakeholdersandanalysisofrecordsshowsthattheactualoff-takeoffoodgrainsfromFPSissignificantlylowerthanthestandardallocationtotheFPS,i.e.allbeneficiariesdonotpurchasetheirshareofrationeachmonth, especially in the APL category. This isapparentfromthefactthatafewstateshavebeenabletosignificantlyreducetheir APL allotments without apparent inconveniencetobeneficiaries.Currentmanualandpaperbasedproceduresforfoodgrainallocationandreconciliationofsalesreportsleavesignificantscopeformanipulationandmisreportingoftransactions at FPS as well as closing balancestocksattheendofthemonth.This results in zero closing balances in a largenumberofshopsandclosetothefullallocationbeingsenttotheFPSeachmonth. The additional grain (over and abovetheactualoff-take)isavailablefordiversionatasignificantprofit.

To tackle this issue, it is recommended the Food Department ensures that allotment to each FPS is made automatically on the

basisofverifiabletransactionsattheFPSthatresultinaccuratefoodgrainstockstatus reports that are available centrally (thisisdonethroughtheuseofPoSdevices at FPS which operate in online mode and update each transaction on the Food Department servers. More details are provided under point 3.5 ofthissection).Thebenefitsofdoingthis are substantial, which has been demonstrated in pilot projects such as the Chhattisgarh Centralised Online Real-Time Electronic Public Distribution System (COREPDS) pilot11. Allocation basedonoff-take,haveresultedinsignificantoperationalimprovementsduetoautomationandcentralmanagementofthe supply chain.

Under the traditional system, allotments are done on a monthly basis based on thepreviousmonth’soff-take.However,under the portability paradigm proposed aspartofthebestpracticesolution(moredetails provided under section 3.6), allotment will no longer necessarily be onamonthlybasis.Asbeneficiariescanchoose which FPS they want to buy their rationsfrom,allotmentwillnowneedto be done on a dynamic basis. Every timethestocklevelsinanFPSfallbelowapre-definedthresholdvalue,itwillautomatically trigger an allotment based onthepreviousoff-takeandamessagewill be sent to the FPS owner to submit paymentfortheallottedfoodgrainamount.Oncepaymentismade,thefoodgrain can be dispatched to the FPS.

Tosimplifythepaymentprocedureforthe FPS owner, it is advised that the state government establish tie-ups with local banks. The bank should be linked to the Food Department’s account at the back end, allowing the FPS owner to directly submit the requisite payment without having to travel to the central FoodDepartmentoffices.ThiswouldsavetheFPSownersasignificantamountoftimeandeffortandwouldacceleratetheprocessofpaymentwhileallowingforeasiertrackingofpaymentstatusthanthe current manual paper based methods.

11 COREPDS:http://cg.nic.in/pdsonline/corepds/EnglishVersion/frmNavigationPageEnglish.aspx

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3.4 DOORSTEP DELIvERY OF FOOD GRAINS TO FPS WITH AUTOmATED SmS NOTIFICATIONS AT DISPATCH

Effectivemonitoringandcontroloverthe vast TPDS supply chain is a tough task to carry out manually. This leads to opportunitiesforpilferage,latedeliveryoffoodgrainstoFPSwhichcausesinconvenience to consumers and an overall lackoftransparencyinthesystem’soperationsforallstakeholdersincludingfoodofficials.Toaddresstheseissuesinthe TPDS supply chain, it is recommended to have end-to-end computerisation which allowsforreal-timestocktrackingoffoodgrain at all points, thus checking leakage, aiding in better control over operations whileprovidinginformationtotherelevantstakeholdersaboutstatusofgraindelivery.

For reducing leakage during the delivery, it is recommended to install electronic weighbridges linked to computers at the statewarehouses.Thisallowsforaccurateweighingoffoodgrainsfordelivery,withtheattachedcomputerensuringallinformationgets logged onto the system without human intervention. However, it is advisable to keep the inbound weighing at FPS optional, with theFPSownertakingfullresponsibilityforanyfuturemismatchonceheorsheacceptsthedelivery.Therationaleforthisisthattheprocessofweighingcanbecumbersomeand tough to manage with a small weighing machine at the FPS, thus the FPS owner shouldhavefreedomtoacceptthedeliveryifhe/shehasconfidencethatthequantitydelivered is as stated. Additionally, it is recommended that vigilance committees be involvedintheverificationofgraindeliveryto FPS to ensure checks. Any mismatch in grainquantitydispatchedfromwarehouseandfinalsaleswouldautomaticallyreflectin the sales report. A PoS device at the FPSwillallowtrackingofsalesattheFPS(more details are provided under point 3.5 ofthissection),whilealsoallowingforthebiometricbasedverificationofgraindeliveryby the state government authorities, FPS owner, Panchayati Raj Institutions, vigilance committees etc.

For ensuring better control over delivery schedulesofgrainsandtoprovide

significanttimeandcostsavingtoFPSowners, it is recommended that the state dodoorstepdeliveryoffoodgrainstotheFPS, i.e. managing all grain transportation operations internally via the Food Department or Civil Supplies Corporation. Theproblemsoferraticdeliveryscheduling-currentlyfacedwhentransportationfromstate warehouses to FPS is under the control ofFPSowner-willbeaddressed.Thiswillgive the government more control over whenfoodgrainsaretransportedtotheFPS, thereby ensuring grain availability at the FPS at all times. Additionally, doorstep deliveryalsogivestheFPSownerafinancialincentiveintermsofcostsavedfornothaving to arrange transportation. The state government should ensure that proper contracts are negotiated and that the transporters are operating properly.

For ensuring proper operations on the partoftheFPSownerandtransporter,itisrecommendedthatSMSnotificationsbeautomatically issued and communicated to allbeneficiariesandvigilancecommitteemembersatthepointoftruckdispatchfromwarehousewithdetailsofgrainquantities,departure date and time as well as vehicle numbers.Beneficiariesshouldbeabletooptinfornotifications,thusbeingabletonotonly check grain delivery, but also to have bettervisibilityofstockavailabilityattheFPS.ForimprovingconvenienceoftheFPSowner, it is recommended that automatic SMSnotificationsbeissuedtothemwhenstock levels reach re-order point, which is automatically tracked via the PoS device based on transaction data. The SMS should containinformationontheamountofmoneyto be deposited to dispatch subsequent deliveryfromthewarehouse.AfterFPSowner deposits money to the bank, an automatic trigger goes to the warehouse to dispatchtherequisitequantityofgraintothe FPS.

GlobalPositioningSystem(GPS)trackingoffoodtrucksisoftenproposedasameansofstrengtheningsupplychainoperationsbypreventingdiversionofvehiclesduringgrain deliveries to the FPS. This involves installationofadedicatedGPSdeviceonthe transportation vehicle which provides real-timeinformationonthelocationof

17

thetruck,whichcanbetrackedfromacentral location. To automate the tracking process,dedicatedroutescanbedefinedforthetruckandtheGPStrackerissuesanotificationifthereisanydeviationfromthedefinedroute.

However,therearesignificantissueswithGPS tracking as it is prone to manipulation withoutprovidinganeffectivecheckonpilferage:

• GPStrackingdevicescanbeeasilyremovedfromtrucksowingtoexternalinstallation. To manipulate the system, the removed device can be attached onto a proxy vehicle to mirror the truck route.

• Pilferagecanoccurfromtruckswhicharestandstill en route to the FPS – tracking viaGPSisnoteffectivehereasthelocation and route will be shown to be correct.

• Ifthereismismatchindeliveredquantity at the FPS (assuming that the correctrouteisfollowedaccordingtoGPSdata)resolutionoftheissuestill

requiresmanualinterventionbyofficials.Thus, value added by GPS tracking is minimised.

Additionally,thereissignificantincreaseinoperationalcomplexityifGPStrackinghasto be implemented and managed:

• Installationofdevicesisexpensiveaseach vehicle needs a dedicated device. Additionally,thefleetoftruckschangesfrequentlyduetonewcontracts,availabilityofvehicles,breakdownsetc.whichsignificantlyincreasescostofdevice installation.

• CentraltrackingfacilityandITsystemsneed to be developed, tested and maintained which adds operational complexity.

For the reasons mentioned above, the recommended TPDS Best Practice Solution does not include GPS tracking as a solution option. Figure 3 provides a schematic overviewoftherecommendationscoveredunder sections 3.3 and 3.4.

Automate allocation based on previous off-take and maintain electronic records of grain stock throughout supply chain

Before grain dispatch from warehouse

Grain dispatch & delivery Grain receipt at FPS

Automatic trigger

when stock levels reach pre-defined

re-order point at

FPS

Automated calculation ofallocation

quantity

1.Informationontruckdispatchtime,truckdetails&grainquantities 2.ChoicelefttoFPSownerwhomusttakeresponsibilityforamountoffoodgrainsaftersigningelectronicverificationofdeliverySource: WFP/BCG Analysis

Dispatch approval afterpaymentis

received

ReadyforFPS

transact-ionDoorstep delivery

Electronic weighing and recordingofoutbound

grains

Countingofbags (with optional

weighing)2

Allocation & dispatch require-ments to FPS- generated & communicated electronically SMSnotificationofdispatchto

vigilancecommittees,beneficiaries& FPS1

Electronicverificationofdeliveryon PoS by FPS owner and vigilance

committee membersAutomatedtriggerfordispatchafterpaymentbyFPSownerat

bankinformationflow

grainflow

Food Department

Warehouse FPS

Figure 3: Schematic Of Recommended Solution – Automated Allocation Of Food Grain Based On Previous Off-Take By Tracking Food Grain Stock Levels, Doorstep Delivery Of Food Grains To FPS With Automated SMS Notifications At Dispatch

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Real-time, online end-to-end computerisationofthesupplychainhasbeendemonstratedsuccessfullyintheChhattisgarh COREPDS pilot12 where allocationforthesubsequentmonthisdoneonline automatically once the stock at the FPSreachesbelowapre-definedlevel.Thetransactions are recorded via the PoS device attheFPS.Aftertheonlinetriggerreachesthewarehouse,thewarehouseofficialissuesa payment ‘challan’13 which the FPS owner can conveniently pay at the nearest bank. Following online payment, doorstep delivery is triggered to the FPS along with SMS notificationstotheregisteredbeneficiaries.TheonlineanddynamicnatureofsupplychainallowsCOREPDStosuccessfullyfacilitateon-demand,reliableandtimelydeliveryoffoodgrainstotheFPSfacilitatingportability.

3.5 POS ENABLED ONLINE TRANSACTION AT FPS AFTER BIOmETRIC AUTHENTICATION OF BENEFICIARY USING AADHAAR

TheprimarychallengefacedbytheTPDSinoperationsattheFPSisthesignificantpotentialformisreportingofsales.Underthe current paper based system, it is possibletoreportsaleofhigherquantitythan actually sold as well as to report sales that did not even occur. To make operations at the FPS more transparent and more difficulttomisreport,itisrecommendedthataPoSdevicebeutilisedforFPStransactions with internet enabled biometric authentication (Aadhaar based). The PoS device should be connected to an electronic weighing machine. It is advised that as anadditionalfeature,thePoSbevoiceenabled in the local language to improve convenienceofbeneficiarieswithpoorliteracy levels.

A PoS device connected to the weighing machine addresses both the issues, ensuringtransactionloggingwhileverifyingcorrectweightofsaletobeneficiaries.Onlinebiometricauthenticationallowsforauthenticationofthebeneficiary,therebyreducingthescopefortheFPSownerto

manipulatesalesrecords.Over90%ofIndia’s villages now have data connectivity (largely through mobile connectivity) and other mechanisms such as landlines, Very Small Aperture Terminal (VSAT), Worldwide InteroperabilityforMicrowaveAccess(WiMAX) etc. can be used to supplement connectivity in the remaining areas. Aadhaar enabled pilots in tribal areas in East Godavari district and in mountainous regions ofTripurahavedemonstratedthatonlineAadhaar authentication is possible even in remote areas in less than one minute in most cases. A robust contingency plan with comprehensive exception management is recommended to ensure that issues with connectivity or authentication (e.g. manual labourerssometimesfaceissuesduetotheimpactoftheirworkontheirfingerprints)donotdepriverightfulbeneficiariesoftheirfoodgrains.

An online based transaction system also allowsforflexibilityinchangingentitlementquantitiesandcommodities(e.g.ifthefoodbasketisexpandedtoprovidebetternutrition) and only requires updates to be done to the central system. Additionally, ifallocationtodifferentrationcardclassificationschangesinthefuture,rationcards will not have to be reprinted and instead changes can be made to the central systemitself.Aadhaarbasedauthenticationallowsforportabilityformigrantpopulationwithout additional setup, as biometric data is stored centrally.

TheonlinePoSdevicefacilitateseasytrackingofstocklevelsattheFPS,whichcan be leveraged to improve supply chain operationsbyclosingtheinformationloopthatfeedstheallotmenttriggeringmechanism, as detailed in section 3.3.

AvarietyofsolutionshavebeenpilotedforstrengtheningFPStransactionsacrossdifferentstates,includingbarcodedcouponsand smart cards. These solutions have certain merits, but an online Aadhaar based biometric solution using a PoS device was foundtobethemostsuitableoptionacrossabroadrangeofcriteria.

12 Databasedonfieldvisitsanddiscussionwithpilotimplementationofficials13 Challanisacommonlyusedtermforanofficialformordocument,suchasareceipt,invoiceorsummon

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Figure4providesaschematicoftherecommended TPDS Best Practice Solution fortransactionsattheFPS.

Other solution options that were analysed forFPStransactionsincludebarcodedcoupon and smart card based options. There aretwopotentialvariantsofthebarcodedcoupon based system:

• Couponsthatareissuedtothebeneficiaryinoneblockthatlast12-24months (this option was tested out in rural FPS at Rayagada, Odisha).

• Couponsthatareissuedonamonthlybasis (like the system currently being rolled out in Gujarat which uses computer and internet enabled village centrestoissuecouponsafterbiometricauthenticationofthebeneficiary).

Under both these solution options, beneficiariescollectuniquebarcodedcoupons,whicharethenusedfortransactions at the FPS. These coupons then

needtobescannedinorderfortheactualoff-taketobetrackedinthesystem.

Couponbasedsystemsfaceanumberofissues:

• Couponscangetlost,stolenormutilated. Since scanning the coupon is the only way in which the transaction canbeverified,thelossordestructionofthecouponpreventstheinformationloopfrombeingcompleted.Thisisasignificantdrawbackforcouponsthat areissuedinbulkforextendedperiods oftime.

• Couponprintingisasignificantrecurring expense. This expense is evenlargerincaseofcouponsthataredesigned to be non-replicable.

• Thecostandcomplexityofdistributingcoupons on a monthly basis can be prohibitive, especially in areas which do nothavethevillagelevelinfrastructureto distribute coupons.

Beneficiaries

Beneficiaries

Beneficiaries

Ration cardFair Price

Shop

Ration card number

Verificationofselectedbeneficiary

Retrievalofentitlementdetails

Paymentforfoodgrain

Note: OTP = One Time Pin Source: WFP/BCG Analysis

Printed receipts

Ration

Food department servers

UIDAI server

Food department servers

Food department servers

Family details are retrieved by enter-ing ration card number on POS device

POS enabled biometric authentication ofbeneficiary

POSretrievesfamilymemberandentitlementdetailsfromtheserver

FPS operator weighs commodity on weighing machine (linked to POS)

POS uploads the transaction details on the server real-time

Transaction details printed on receipts andprovidedtobeneficiary

Conduct online transactions via PoS with real-time Aadhaar based biometric authentication of beneficiary at FPS

Process flow of the proposed solution for automating FPS transaction

Figure 4: Schematic Of Recommended Solution – PoS Enabled Online Transaction At FPS After Biometric Authentication Of Beneficiary Using Aadhaar

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• Thecostandcomplexityofcollectingand scanning coupons quickly enough to enable the next month’s allotment to be doneonthebasisofthepreviousmonth’soff-takeissignificant.Tryingtorunasystem that allows portability (more detailsareprovidedunderpoint3.6ofthis section) based on barcoded coupons would be very challenging.

• Finally,oncecouponsareissued,changesin entitlements cannot be made as the couponcannotbemodifiedafterprinting.Thisisparticularlyanissueinthecaseofcoupons that are issued in bulk.

Figure5providesasummaryofthecomparison between the two barcoded coupon options and the recommended TPDS Best Practice Solution

Smart card based solutions are the other optionthatisoftenproposedforFPS

transactions.Allbeneficiariesareprovidedwith a smart card with a memory chip that canbeusedtostorebeneficiarydetails,transaction data as well as (in some cases) biometricinformation.SmartcardsrequirePoS devices at the FPS in the same way as the recommended best practice solution.

Oneofthemainbenefitsofsmartcardsistheirabilitytostoremultipletypesofdata.This makes the smart card highly suitable forofflinetransactions.EvenlimitedFPSportabilitycanbeenabledinofflinemodeusing smart cards. This is not possible under the recommended TPDS Best Practice Solution. However, as previously stated connectivity is increasingly available even intheremotestvillages(morethan90%ofIndia’s villages have mobile connectivity and fortheremainingacombinationoflandline,VSAT and WiMAX can be used). Using a redundancy based approach in which each

Figure 5: Comparison Of Barcoded Coupon System With Proposed Solution

Recommended solution reduces leakage and increases customer convenience more effectively than barcoded coupon systems

Coupon book issuance after one-time authentication1

Thesystemefficiencytorejectineligiblebeneficiaries/faketransactionsislow.Anybodywiththepossessionofcouponsand ration card can transact at FPS, which may not belong to them

Biometricauthenticationrequiredforprinting. However anybody can make transactions on it once it has been issued–mainpurposeofbeneficiaryidentificationduringsalesnotaddressed

Online biometric authentication is requiredformakingatransactionatFPS–therefore,onlytheeligiblebeneficiariescanmakethetransactionat FPS

Only ration card needs to be carried. Coupongetsissuedmonthlyafterbiometricverification

Only ration card number is required forinitiatingthebiometrictransactionat FPS

Thesystemisnotcapableofincorporating entitlement changes dynamically – reprinting and redistributionofcouponsrequired

Poor transaction logging – cannot determine actual quantity sold by FPS which may lead to misreporting, leakage and under-weighing

Theoveralltimetakenforthetransaction at FPS is low - FPS owner weighs the commodities and collects the coupon

Tough to track real-time stock levels at FPS(difficulttocreatedailyMIS)

Entitlementdetailsareretrievedfromservers on a monthly basis. System can dynamically update any changes in entitlement

Entitlementdetailsareretrievedfromservers on a monthly basis. System can dynamically update any changes in entitlement

Theoveralltimetakenforthetransaction at FPS is low - FPS owner weighs the commodities and collects the coupon

Difficulttocarryoutreal-timestockchecksandauditsatFPS(difficulttocreate daily MIS)

Difficultforilliterateandblindpeopletofullyunderstandthetransactiondetails.

Infrastructureneededatblocklevelformonthlydistributionofcoupons.

Timetakenforacompletedtransactionat FPS will be slightly higher – online biometric authentication and weighing linked to PoS

Real-timetrackingoftransactionsandstock can be done through MIS due to online logs

Locallanguagevoiceinterfaceguidesbeneficiaries(illiterateandblindpeople)through transaction procedure

NoadditionalinfrastructureneededapartfromPoSatFPS

Poor transaction logging – cannot determine actual quantity sold by FPS which may lead to misreporting, leakage and under-weighing

Proper transaction logging and due to weighing machine linked to PoS, reduced avenuesofmisreportingandunder-weighing

Difficultforilliterateandblindpeopletofullyunderstandthetransactiondetails.

Distributionofnewcouponsmayrequiremultiplevisitsforbeneficiariesandsignificantcosttostate

1. System similar to that used in WFP implemented pilot in Rayagada, Odisha 2. System similar to that used in Gujarat TPDS

Additionaleffortsrequiredbybeneficiarytokeepthecouponssafefor12 – 24 months

Coupon issuance on a monthly basis after biometric verification2

Recommended TPDS solution

× ×

×

×

×

×

×

×

×

×

×

×

×

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FPS has at least two possible connectivity mechanisms can ensure minimal downtime. Moreover, the recommended solution incorporates a robust contingency plan to allowfortransactionstocontinueevenifconnectivityweretofail.Thisensuresnodenialofservicetorightfulbeneficiariesunder any condition.

While smart cards do have their merits, in a comparative analysis against smart card based solutions the recommended online Aadhaar enabled PoS based solution proved to be more suitable. In locations in which connectivityisavailable,smartcardsoffernoclearadditionalbenefitincomparisonwith the recommended TPDS Best Practice Solutionbutdohaveanumberofspecific

issues.Someoftheissuesthathavebeenobserved with smart card based solutions (in Rayagada, Odisha) include:

• SmartcardscostRs.50-100(USD0.83–1.66)(costofphysicalcardandcostofpersonalisation)andhavealimitedlife(twotofiveyearsdependingonusage).Thishassignificantupfrontandrecurringcostimplicationsforthesystem.

• Thepaceofrolloutofthesystemisdependentonhowfastsmartcardscanbe personalised and distributed. This canslowdownimplementationoftheFPS transaction system compared with an Aadhaar based system in which the ratedeterminingstepistheseedingof

Figure 6: Comparison Of Smart Card Based System With Proposed Solution

Recommended solution has significant advantages on a majority of key parameters over smart card based system

Smart card based system

Data stored locally on the smart card (biometrics, transactions)

Susceptible to synchronisation errors with data •stored on servers versus data stored on card

Low transaction timemanual entry for ration card number (or • through scanner)Biometric verification (typically takes few • seconds)

Biometric data stored securely on serversAll data is stored in central location - •synchronisation related errors greatly reduced

Biometric data updating process is simplerBeneficiaryprovideshisbiometricatUIDAI/•NPR ongoing camps (at taluka level) which gets automatically seeded to ration card number

The amount of data that can be stored on smart card is low– number of beneficiaries, transaction logs limited in number

The chip of the smart card has a life of 3-5 years, after which a new smart card has to be given – high recurring cost

Only those members who have their biometric data stored on chip can transact at FPS (limited data on chip)

Entitlement details often stored locally on the chip; therefore, unable to update and changes in entitlements dynamically – requires multiple visits of beneficiary to food office

As transaction is happening online, no data stored locally. Therefore, any amount of data can be stored on servers

Anybody in the family (as per ration card) with an Aadhaar number can transact at FPS

Entitlement details retrieved from the server for every transaction; therefore, able to update any changes in entitlements dynamically

Portability tough to implement in offline mode as real-time information is required for transaction logging (Can be resolved with exception management process)

Tough to operate in offline mode as biometric verification generally takes place online (Can be resolved with exception management process

Biometric authentication requires no external token. Paper ration cards a backup – significantly longer life and lower cost

Portability can be implemented in offline mode also because biometric data, entitlement data and monthly transaction history can be stored on smart card

Easier to switch between online mode and offline mode as some data can be stored on the chip if the data connectivity is not good

very low transaction timeNo need to enter the ration card no. manually on •the PoS

Biometric data updating process is complexThebeneficiarygoestoenrolmentcampsfor•providingbiometricdata(UIDAI/NPRcamps,ifAadhaar based)The updated biometric data then needs to be •storedonthechipofsmartcard,requiringbeneficiarytotraveltofoodoffice

Recommended TPDS solution

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thebeneficiarydatabasebutthereisnophysical token required to be handed overtothebeneficiary.

• Likeallotherphysicaltokens,smartcards can get lost, stolen or damaged. ExperiencefromRayagada,Odishashowsthat card damage and loss can be a significantissuefromanoperational,costand consumer convenience standpoint. Additionally,ifconnectivitytosupportonlineapplicationisgood,theuseofsmart card is redundant.

3.6 ABILITY FOR BENEFICIARY TO PURCHASE RATION FROm ANY FPS (PORTABILITY)

AnumberofproblemsintheTPDSstemfromthesignificantpowerimbalancebetweentheFPSownerandthebeneficiary.Underthecurrentsystem,thebeneficiaryisattachedtoasingleFPSregardlessofitsperformanceorservicequality.FPSownersoftenusethislackoffreedomofbeneficiariestotheiradvantageresultinginahostofissuesincludingpoorqualityofservice,underweighingofgrains,misbehaviourandpoortreatmentofbeneficiaries,claimsofnostockavailabilityandtheFPSbeingopenforonlyafewdaysin the month. There are no disincentives in placefortheseissuesthatFPSownersneedto think about. Additionally, FPS owners arenotfinanciallyincentivisedforgoodperformance,astheirprofitislimitedbythenumberofrationcardsattachedtotheFPSregardlessofhowwelltheymanagetheiroperations.

To counter this issue, statewide FPS portability is recommended, under which beneficiariescanpurchasefoodgrainsfromanyFPSoftheirchoice.Thebenefitsofportabilityaresignificant.Thepowerbalanceshiftstowardsthebeneficiariesthroughfree-marketdynamicsenabledbytheprovisionofchoice.Beneficiariescantake their business to an FPS that ensures proper service quality, thereby weeding outpoorlyperformingFPSovertime.Also,beneficiaryconvenienceisincreasedastheycan now easily purchase ration at desired locations, which can sometimes be an issue becauseofaddresschangesandrelocations.In the long term, portability could be made

available at a pan-India level leveraging theAadhaarplatformwhichstoresdatacentrally. This would help serve the needs ofthemigrantworkforcewhopresentlyhavenomeansofgettingrationiftheyrelocate temporarily. States and union territories should pursue portability dependingonthematurityoftheirITsystems and capability to ensure dynamic availabilityoffoodgrainsacrossthetargetlocations.

Creating competition among FPS owners hasbeendemonstratedtoyieldsignificantimprovements in the TPDS, as is evidenced by the COREPDS pilot in Raipur, Chhattisgarh.

Facilitating portability places a number ofdemandsontheTPDS.Asystemthatenables portability needs to be able to:

• UniquelyidentifyandauthenticatebeneficiariesatanyFPS

• Determinebeneficiary’sentitlementandfamilydetailsatanyFPS

• Trackbeneficiary’spreviouspurchasehistory in real time

• ReplenishfoodgrainattheFPSdynamically based on stock levels

The recommended Best Practice Solution addresses all these requirements by having an online biometric based system foridentification(Aadhaar),onlinestorageandretrievalofbeneficiarydetailsandtransaction history. It is also enabled through an end-to-end computerised supplychainwithrealtimetrackingofgrains and doorstep delivery.

Portability is recommended in both urbanandruralsettings.Thereareafewconstraintsforportabilityinruralsettingsdue to FPS which are spread across a larger area (as compared to urban settings whichhavealargenumberofFPSinasmallarea),butthebenefitsintermsofconsumer choice and the incentive and disincentivesforFPSperformanceduetocompetitionarestillsignificant.Inruralareas, given the longer distance over whichfoodgrainsneedtobetransported,longer lead times may need to be built into the supply chain by triggering

23

replenishment at FPS at higher stock levels than in urban areas where replenishment can occur at much shorter notice.

ToensurethattheoptionforFPSportabilityremains viable and practical in rural settings where distances between shops are usually larger, a mobile FPS can be operated to supplement existing FPS. This would be in theformofastateruntrucksellingTPDScommodities that visits villages on a weekly basis.

Significantsuccessaroundportabilityhas been seen in the COREPDS pilot at Chhattisgarh14; implemented in around 170FPSinRaipurcity.AlargenumberofbeneficiariespurchasefoodgrainsfromFPSother than the one which they are assigned to - a phenomenon which is widespread in the urban FPS clusters but also seen in rural FPS.FPSwithgoodperformanceandservicehaveseenthenumberofrationcardspurchasingfromthemincreasesubstantially,evenuptofourtimesthenumberofcardsoriginally assigned to the FPS. Additionally, poorlyperformingFPShavebeenweededoutofthesystem;about20FPShavecancelled their licenses due to very low sales, attributed to poor service quality at the FPS.

3.7 ImPROvED FPS vIABILITY TO INCENTIvISE BETTER FPS PERFORmANCE

TheTPDShasseensignificantchangesover the past decade. However, the commissionstructureforFPSinmanystateshasremainedthesameforanumberofyears.Thisisamajorcauseforconcernfortheimplementationofanymeasurestostrengthen the TPDS. Any TPDS solution will needthesupportandcollaborationofFPSownersinordertobesuccessful,especiallysolutions that will close loopholes that cancurrentlybeexploitedtodivertfood

grains. Implementing a TPDS solution will require learning (through training) on part oftheFPSownertooperateanewsystem.AlsotheresponsibilityformaintenanceofanyPoSdevicesandforensuringpropertransaction logging rests with the FPS owner. Given that the FPS owner serves as a focalpointinthevaluechain,itisimportanttoaddresstheissueofFPSviability.

AnalysisrevealspoorfinancialconditionsofFPSoperationsthroughoutlargepartsofthecountry15:

• Rs.1.5lakh(USD2,500)16 subsidy17 flowsthroughatypicalFPSfromwhichthecommissionfortheFPSownerisRs.3,200 (USD 53)18–merelyaround2%ofthe subsidy amount

• Only40%ofFPScanearnrevenuemorethan costs19

• Only23%ofFPSareabletogeneratemore revenue than investments20

• Evenifcostsoftransport,labourandrentfortheFPSwerefullysubsidised,itwouldstillnotresultinmorethan70%ofFPSbeingprofitable.

Giventhesefacts,itshouldbenosurprisethatmanyFPSownersindulgeinpilferagetoensurethattheireffortsgivereturns.

It is recommended that viability be improvedtoincentiviseFPStoperformhonestly and with better service quality. Thus, FPS owners should be provided with incentives to improve the viability oftheiroperations.Inadditiontohighercommissions (something that has been tried out in states like Chhattisgarh and Gujarat), measureslikesubsidisationofFPSrentanddoorstep delivery have also been tried. In additiontofinancialincentives,measuresto streamline processes to save time and paperworkforFPSownersshouldalsobeconsidered in consultation with FPS owners.

14 Databasedonfieldvisitsanddiscussionwithpilotimplementationofficials15 BasedonatypicalFPShaving472rationcards,takenasanaverageacrossallstates(Source:MinistryofConsumerAffairs,FoodandPublicDistribution,Govt.ofIndia(13357))

16 Basedonaveragefiguresacrossmultiplestatesforentitlementsofwheat,riceandsugartoAPL,BPLandAAYbeneficiaries;doesnotaccountforKerosenesales.

17 Basedoneconomiccostofsupplyinggrainminuspriceobtainedfromsales18 Basedontypicalcommissionstructureacrossstatesandrevenuesfromsaleofgunnybags19 PlanningCommissionreportonPerformanceEvaluationofTargetedPublicDistributionSystem,March200520 Criterionused:profitmustexceed12%interestoninvestment

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Improvements in FPS viability are essential togetsupportforreformsfromoneofthekey stakeholders in TPDS (the FPS owner) and attempts to bring FPS owners into the foldbyprovidingthemwithanattractivereturnforgoodserviceandperformanceisimperative.

3.8 EASILY ACCESSIBLE AND EFFECTIvE GRIEvANCE REDRESSAL

The recommended TPDS Best Practice Solutionprovidesforastronggrievanceredressal mechanism. This is in line with the National Food Security Act which requires a grievance redressal mechanism asintegralpartofTPDSoperations.TheActprovidesforatwotiergrievanceredressalmechanismcomprisingofDistrictGrievanceRedressalOfficersandStateFoodCommissions.

Aneffectivegrievanceredressalsystemhastwo main components:

• Loggingandtrackingofcomplaintswithproper details

• Properandtimelyresolutionofthecomplaint

It is recommended that multiple channels bemadeavailableforloggingandtrackingofcomplaintsfortheconvenienceofstakeholders:

• Physicalletters

• Website

• Toll-freehelpline

• Publicmeetings

The system should give each complainant auniqueidentificationnumberthatiscommunicated to the stakeholder (via SMS, e-mailortoll-freehelpline).Whileloggingthe complaint, all necessary details should becaptured.Confidentialityandanonymityofthecomplainantshouldbeensuredwherever appropriate and possible.

An important responsibility rests on an assigned grievance redressal manager, whoactsasfacilitatorforforwardingvalidcomplaints to the relevant authorities and ensuresthatactionistakeniftheauthoritydoes not respond adequately within the stipulatedtimeforresolution.Thegrievanceredressal manager should be senior enough

to be able to execute his or her duties withoutpressurefromgovernmentofficials.A senior retired government employee with asupportstaffwouldbeanidealcandidate.Followupandresolutionofcomplaintsshould be tracked through the MIS.

To ensure that the system runs smoothly, participationofvigilancecommitteesisrecommended.Theseshouldbeformedatall levels (state, district, block and FPS) andshouldregularlyreviewthefunctioningoftheTPDS.Socialauditsshouldalsobecarried out periodically to have institutional checks on system operations, as well as to sensitiseandmobilisebeneficiaries.

Figure7providesaschematicoverviewofthe grievance redressal system outline.

3.9 mIS FOR OPERATIONS mANAGEmENT, SYSTEm ImPLEmENTATION AND TRANSPARENCY

AneffectiveMISfulfilsthreemajorcriteria:

• Captureallappropriatedatainanaccurate and timely manner

• Convertthecaptureddataintoanalysis and present usable reports to the relevant stakeholders as well as determine trends in data over time topresentanalysisforlong-termimprovementofTPDS

• Ensurethattherelevantauthoritiesfollowupwiththerequiredaction,whichcanbefacilitatedbyprovidingincentivesand disincentives to stakeholders.

ThemainfeatureofsuchanMISisthatrelevant reports should be accessible to all stakeholders–foodofficials,TPDSagencies,FPSownersandevenbeneficiaries.Accesstoinformationshouldbebasedonwhatinformationisrelevantforwhichstakeholder.

The MIS should be used to enable and monitorinspectionsbyprovidingofficialswiththereportsthattheyneedforphysicalverificationandalsobytrackingthecompletionandresultsofdifferentinspectionsasperdefinedprotocols.

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Figure 7: Schematic Of Recommended Solution – Easily Accessible And Effective Grievance Redressal

Figure 8: Schematic Of Recommended Solution – Structure And Salient Features Of The mIS

Use real-time mIS reports for decision making and transparencyRelevantreportsshouldbeaccessibletostakeholders-Foodofficials,operators,FPS,beneficiaries

Use mIS to enable and monitor inspections by providing reports for physical verification and by tracking completion as per defined protocols

Capture Data

Capture appropriate data in an accurate and timely manner – automated real-time data with adequate contingency backups

Present analysis & reports to relevant authority in easy-to-

use manner – alertsforimportantstepsandtrackingofissues

Ensure relevant authorities follow up with adequate

response – incentivise goodperformanceandhave

disincentivesforpoorperformance

monitor & analyse Follow up with action

mIS for operations managementUse by operators to ensure smooth day-to-day operationsofTPDS.Frequency:real-time/daily

Routine monitoring reportsPushedtorelevantauthorityonfixedtimeintervalsto ensure required action

Ad hoc reportsPulled by relevant authority to get detailed backgroundinformation

Analytics for system improvementUsedbyseniorofficialstoimplementchangesinTPDSandcheckdefaultingagents.Frequency:monthly/ quarterly

Provide speedy and effective grievance redressal with easy access for beneficiaries via multiple channels

Tracking number given to complainant

Statusofgrievance communicated to complainant

Complainant enters tracking number details

Checkstatusofgrievance

Grievance portal

Complaint number generated

DetailsofgrievanceloggedTo lodge grievance

To track agrievance

Complainant chooses medium

Complainant

Grievance redressal manager

Resolutionlogged

Routed to authority Relevant authority1

Resolutionofgrievance

1

2

Grievance redressal mechanisms to be aligned to recommendations of National Food Security Act

1. Complaint routed to the correct authority – for e.g. Food Inspector, Warehouse manager, UIDAI etc.

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As shown in Figures 8 and 9, the design oftheMISshouldincludethefollowingcategoriesofreports/analysis:

• Reportsforoperationsmanagement(toensuresmoothdaytodayfunctioningofoperations)

• Analyticsforsystemimprovement(toimprove system over time)

These categories should each have two typesofreports:

• Routinemonitoringreports(pushedtothe relevant authority with all necessary informationtoensureaction)

• Adhocreports(reportsthatcanbegeneratedbytheauthoritiesifrequired to get additional background information).

The MIS should also track the actions taken by the authorities based on the data and reports.

It is recommended that stakeholders who actively participate in the process to bring

about system improvement be provided incentivestorecognisetheireffortsandrewardgoodperformance.Similarly,poorlyperformingstakeholdersshouldbebrought to attention and corrective actions shouldbetakeninatransparentandfairmanner.Lastly,relevantinformationandreports should be made available to the beneficiariesandvigilancecommitteesviaapublic transparency portal.

3.10 SUmmARY OF THE RECOmmENDED TPDS BEST PRACTICE SOLUTION

The recommended Solution combines the mostsuitableoptionsforeveryprocessineachofthefourTPDSvaluechainsegments. Figure 10 provides a high level summaryoftheTPDSBestPracticeSolutionthatcombinestheninefeaturesdescribedinsections 3.1 to 3.9.

As illustrated in Figure 11, the recommended TPDS Best Practice Solution targetsallthekeysuccessfactorsidentifiedforasuccessfulTPDSsystem.

Source: WFP/BCG Analysis

Figure 9: Recommended MIS Design And Flexibility Of Access

MIS provides flexibility for stakeholders to get a variety of reports at chosen level of granularity

Routine monitoring reports Ad hoc reports

Increasing access to

data due to aggregation

Beneficiaries, vigilance committees & external stakeholders

Transparency reports on key performance metrics for state

Availability of user generated reports on public transparency portal

Performance reports for:Entire state, by districts•

District details•State-level details•

Food Inspector details•Area-wise details•

DetailsforeachFPS•Warehouse details•

Transaction details•Beneficiarydetails•

Performance report for:District, by area under Food Inspectors•

Performance report for:Local area, by warehouse and FPS•

Performance report for FPSInformationaboutFPStransactions•

Pulled by relevant authority to get detailedbackgroundinformation

Pushedtorelevantauthorityonfixedtime intervals to ensure required action

Ultimate aim of mIS is to improve TPDS performance over time by facilitating data-driven decisions

District officer

FPS Owner

State Food Secretary

Food Inspector

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3.11 ROBUST CONTINGENCY PLAN

GiventhesignificantdiversityinoperatingconditionsforTPDSwhilealsorealisingthat all situations cannot be predicted in advance, it is recommended that a detailed contingencyplanbepreparedforensuringthecontinuoussmoothoperationofthesystem. The guiding principle should be thatgenuinebeneficiariesshouldnotbedenied service and that technology should beimplementedtosimplifyprocessesratherthanserveasahindrancetotheprovisionofservicetobeneficiaries.

ConsideringthetechnologicalnatureoftheTPDS Best Practice Solution, it is inevitable that issues may arise around machine operations, breakdowns and technical glitches.Itisessentialtohavealistofsolutionsforallmajorcontingencies,withadefaultbasecaseforallremainingones.Theguidingprincipleofdesigningcontingencyplansshouldbetofirstaimatresolvingissuesatthepointofproblemitself,byvirtueoftrainingtooperatorsandFPSowners and providing detailed yet simple operationmanuals.Iftheissuecannotbe

resolved, then backup measures should be used to ensure that there is no denial ofservicetobeneficiaries.Thismayresultin manual operations or cost to the state to repair equipment, resulting in avenues forsysteminefficiencies(suchasleakageetc.),buttheadvantageofimplementingtechnologicalsolutionsfaroutweighstheshorttermproblemswithoperationsofdevices.

Contingency planning should cover two categories:

1. System related contingencies (issues with machine operations or machine breakdown,softwareorhardwareissues,electricityordataconnectivityfailuresetc.):

• Implementation phase: Detailed surveys on electricity and data connectivityforallFPSshouldbeundertakentodeterminefeasibilityforoperations.Incaseofsignificantgapfromdesiredavailabilityandreliabilitylevels, backup measures should be taken, such as installing solar powered generatorsforelectricitybackupand

Real-timeMISforoperationsmanagementandsystemimprovement

Beneficiary handed over ration card and ration allotment activated

Figure 10: Schematic Of Recommended Solution – End-to-end Design

Beneficiary identification and enrolment

Existing rationcard list

SeedingBase list

Remove duplicate and bogus cards

UIDdatabase

UIDdatabase

Beneficiary goes FPS of their own choice

(Portability)

Beneficiary logs complaint

Complaint forwarded to relevant authority

Food department

Statusofcomplainttrackedandreminderssentincaseof

delay in resolution

Resolved byrelevant authority

Communicated tobeneficiary

Complaint

Online biometric authentication at FPS to open

beneficiary account

Weigh grain Log transaction

MIS database

Print receipt and hand over foodgrain

De-dupedRation card database

Printing ofvalid ration

cards

State warehouse

FCI

State warehouse

Offtakeautomatically drives

grain allotment

Doorstep delivery of foodgrains to FPS

FPS

FPS

FPS

FPS

FPS

FPS

UIDdatabase

Biometric verification

New applicants

Supply chain operations

FPS transactions Grievance redressal

Recommended TPDS solution combines best practice solutions for each value chain segment

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installing WiMAX towers or dedicated broadbandlinefordataconnectivity.

• Operations phase: To counter the diverserangeofpotentialoperatingissues, a detailed contingency plan is required. For situations where data connectivity is temporarily unavailable, devices and computers should store thedatainofflinemode,followedbyabatchuploadofdatawhenconnectivityresumes.Incaseofunavailabilityofelectricity,powerbackupforcomputersandrechargeablebatteriesfordevicesisrecommended.Incaseofdevicebreakdown, quick corrective action is needed to repair or replace the device, while temporarily using manual modeofoperationsforconvenienceofbeneficiaries.

2. Process related contingencies (e.g. poorfingerprints,multiplepersonswithsamenameinhousehold,insufficientstocklevelsatwarehouse,lackof

sufficienttransportationtoFPS,PoSoperations etc.):

• Duringbeneficiarydigitisationandenrolment, contingency measures mustbeinplacetoaccountforavarietyofscenariosthattakeplace,toensurethatbeneficiariesarenotcausedinconvenienceandeliminationofbeneficiariesfromthelistsisdoneonlyafterproperverification.

• Forsupplychainoperations,itiscriticalthat orders be dispatched on time and notificationsreachthebeneficiaries,withproperverificationofthedeliveryattheFPS. In case automated or electronic systems are not working, a manual procedure must be put in place to ensure that operations are not hampered and foodgrainavailabilityismaintainedatthe FPSasfaraspossible.

• AttheFPS,itshouldbetheprimaryaimtoensurethatthebeneficiariesgettheirintendedfoodgrains,regardlessofthe

Figure 11: Overview Of Solution Efficacy In Addressing Critical TPDS Success Factors

Best practice TPDS solution targets all critical success factors

Improve stakeholder convenience

Critical success factorsfor

the TPDS

Reduce inclusion/ exclusion errors

Eliminate bogus & duplicate cards

Reduce shadow ownership

Biometric authentication •forrationcard handover2

Track system metrics and use for decision making

ElectronicloggingofalltransactionsontoMIS–usedformonitoringoperations,analyticsforsystemimprovements•

Reduce operational complexity by automating work processes and reporting for stakeholders

ITsystemsallowstakeholderstoaccessrelevantreportswhileautomatingprocessesandtargetedalertsforissues•

Create transparency & empower beneficiaries

Publicportalwithallrelevantreportsanddata;institutionalisedgrievanceredressalwithuseofvigilancecommittees•

1.ByseedingAadhaarnumbers2.ByverifyingfingerprintsagainstAadhaarbiometricdata

Biometric de-duplication• 1

Publicdistributionof •cards ensuring scrutiny

Solution allows •beneficiariestoapplyfornew ration cards

Ifstatehasre-•classificationdrive,allerrors can be removed

Automated allocation •offoodgrainsbasedonsalesrecordsfromPoS

Improve stakeholder convenienceSMSforgraindispatch•

Doorstep delivery•

Simplifiedpayment•methodsforFPS

Track grain stock effectively

Electronic weighing at •warehouse

Verificationofdeliveryby•vigilance committees

Allocate on basis of actual off-take

Accurately identify beneficiary for transaction

Biometric authentication •requiredfortransaction2

minimise opportunity to misreport sale

Electronic records on •PoS linked to weighing machine

Provide appropriate incentives for service

PortabilityofFPS•

Increased FPS viability•

Robust exception •management

Provide medium for complaints

Ensure responsive systems for corrective action

Transparency portal •Social audits and •vigilance committeesInternaltrackingof•issue – timeliness incentivised

Dedicated grievance •redressal cellAbility to lodge and •track complaint via multiple channelsAuthority responsible •forassignmentofcomplaints

TPDScomponents

Beneficiary identification and

enrolmentSupply chainoperations

FPS transactions Grievance redressal

29

situation. Hence, contingency measures mustbebuiltinforFPSoperationswhichaccountforanyadversesituationswhileensuring that all data is ultimately logged ontotheMISwhichformsthebasisforsubsequent month’s allocation to the FPS.

Alloccurrencesofcontingencyscenariosshould be logged onto the MIS, which can be tracked and analysed to prevent misuseofthecontingencyscenariosandtake corrective action. Recurring problems observed can also be addressed with permanent operational solutions, such as installingadditionalbackupinfrastructure.

Additionally,incentivesforallstakeholdersshould be designed in such a way as to reducethepotentialgainfromindulgingin malpractices or bypassing standard proceduresandprotocolsforoperations.Linking all payments through a central systemwithvisibilityandauthenticationofdata is a key method to achieve this, apart fromothers.

Detailed contingency plans have been developedforallaspectsofthesolutiondesign under system related contingencies and process related contingencies, which can be made available on request.

3.12 FLEXIBILITY TO POTENTIAL ECOSYSTEm CHANGES

The proposed Solution is highly adaptable toarangeofpotentialchangesintheecosystem, as is described below. The flexibilityofthesolutionstemsfromhavingmodularity among components – there is no process that is locked down with regards toinformationorchange.Sinceallsystemsaremanagedcentrally,themodificationneeds to happen only at one location and notrequiringacompleteoverhaulforeverychange. Lastly, since the entire system is recommended to be operational online, the changes can be synchronised in real-time withoutsignificantamountofeffortsonpartofthestakeholders.

TheNFSA(2013)hassignificantimpacton the TPDS e.g. change in percentage ofpopulationcovered,changesinclassificationandper-personallotment offoodgrains.Theproposedsolutioncaneasily adapt to these and other potential changesinthefuture.Theonlinesystembased on Aadhaar enrolment can scale up tocoverallbeneficiaries.Classificationismappedonlineandcanbeeasilymodifiedcentrally.Informationisstoredfor

Figure 12: Overview Of Solution Flexibility Towards Potential Future Changes In TPDS

Best practice solution is flexible to adapt to potential changes in TPDS ecosystem

Ecosystem changes

National Food Security Act (NFSA)

Transferofcashtodirectlytotheaccount,basedonactualtransactionandoff-take

Scalable to include all persons enrolled in Aadhaar/NPR easily

Onlineretrievalofentitlementduringtransaction allows changes in back-end

Easily incorporated as each person will have unique ID (Aadhaar #)

Flexibletoincorporatechangesinfoodbasketmodifyingallotmentinback-end

Increaseinthenumberofbeneficiariescovered under TPDSChangesinbeneficiaryclassification

Per-personallotmentoffoodgrains

Increasedfocusonthenutritionalvalueoffood

TransfertoFPS• owner – based on actualoff-takefromFPS

TransfertoBeneficiary• – based on actualpurchaseofration

Transfermoneybasedonelectronicrecordofactualoff-takemappedtoeachFPS&beneficiaryafterbiometricauthenticationofbeneficiaryatFPS

Impact on TPDS Proposed solution addresses these issues

Direct Benefit Transfer (DBT) in TPDS

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individuals (Aadhaar number); hence per person allotment can be implemented while the dynamic supply chain can also supportdiversifyingofthefoodgrainsunder TPDS wherever required.

DirectBenefitTransfer(DBT),ifconsideredwouldinvolveelectronictransferofsubsidyintotheaccountofeithertheFPSownerorbeneficiarybasedontheactualoff-take and transaction history. This technical modificationcanbeeasilyaddedontotheTPDS Best Practice Solution as transaction

historyforeachFPSandbeneficiary/ration card is already recorded by the electronic PoS device and uploaded tocentralsystemsafterbiometricauthentication.

In conclusion, the proposed TPDS Best Practice Solution can address all major issuesfacingtheTPDScurrently,butrequiresafocusedeffortovertimefromthe state governments and all stakeholders to ensure proper implementation to yield benefits.

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4. Implementation Plan

A detailed implementation plan has been developedfortherecommendedBestPractice Solution. The implementation plan provides indicative project timelines, rolesandresponsibilitiesfordifferentstakeholders,detailsofITsystems,MISdesignaswellasimplementationofbestpractices.Abriefoverviewofthesemajorcomponentsisdescribedbelow.Specificelementsoftheimplementationplanwillvaryfromonelocationtoanotherandsomecustomisationforthespecificenvironmentandgoalsofthestatewillberequired.

4.1 ImPLEmENTATION TImELINES

The recommended prototype would take approximately 24 months to be implemented. This includes end-to-end strengtheningoftheTPDS,assumingthe starting point to be a district with no

modernisationefforts.Ifthechosendistricthas already implemented certain activities, the time taken will be adjusted accordingly. Implementationofthesolutionhasbeendivided into two phases:

1. Planning Phase

Priortolaunching,asetofactivitiesneeds to be carried out to ensure properpreparationandtomodifytherecommended solution to best suit local conditions and implementation goals. These activities are expected to typically take approximately six months. The activities include selecting implementation partners, vendors, setting up project management teams andconductingfieldsurveys.Thesewillallow the authorities and stakeholders to haveasignificantlybetterunderstanding

Figure 13: Estimated Timelines For Implementation Of Recommended Solution Across One District

1.SeedingcanbeorganicorinorganicdependingonthestateofAadhaarenrolmentcoverageofthedistrict 2.ITsystemshereincludesinstallationofITsystemsatwarehousesandfooddepartment 3. Training provided to all the stakeholders 4.80%AadhaarenrolmentisarequirementforimplementationofproposedsolutioninadistrictSource: WFP/BCG Analysis

Time taken for implementation will depend on current status of TPDS and implementation priorities of each state

End-to-end implementation of the recommended TPDS solution in one district expected to take 24 months

Activity Months 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Implementation partner and vendor selection

Setting up project management team • Devisedetailedplansandfinalisebusinessrequirements

Field survey and analysis• Infrastructureneedsandimpactonsolutiontobedeployed

Beneficiary identification and enrolment• Procurement&installationofhardware,softwaredevelopment• Digitisationofexistingcards,Aadhaarenrolment• Seeding,mappingofUID,de-duplication&distributionofcards

Supply chain operations• Procurement&installationofhardware;softwaredevelopment• Trainingofofficials,operators,FPSownersandstakeholders

FPS transactions• Procurement&installationofPoSdevicewithfieldtrials• Develop,installandtestITsystems• ProvidetrainingtoFPSowners

Grievance redressal system• Definechartersandsetupcommitteesforredressal• Installsystemsforlogging,trackingandresolutionofcomplaints• Runawarenesscampaignstoinformbeneficiaries

Startofimplementation

Roll-out completed in entire district

Planning Phase

(6 months)

Implem entation Phase

(18 months)

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ofthegroundconditionsandrequirementsforimplementation.

2. Implementation Phase

Having established tie-ups with partners and vendors and understanding thelocationspecificrequirements,implementationoftheTPDSBestPractice Solution can commence. It is recommended that all activities are carried out simultaneously, so as to reduce overall time taken while also facilitatingfieldtrialsattheoverallsystemlevel.Theactivitiesforeachvaluechain component as listed in Figure 13 includeprocurementandinstallationofhardware and devices, development and testingofsoftware,trainingofofficials,operators and FPS owners.

4.2 BUILDING PARTNERSHIPS AND INTERNAL CAPABILITIES

Alargenumberofactivitiesneedtobecarried out in order to implement the TPDS Best Practice Solution. It is recommended thatacleardemarcationofresponsibilities

be done and partnerships and relationships with vendors be established prior to commencing,asitiscriticalforthesmoothimplementationofthesolution.

Detailed yet precise agreements need to be signed with system vendors to ensure timely rolloutofactivitiesatthedesiredqualitylevelandcost.However,sufficientflexibilityshould be provided in the contracting proceduretoallowformodificationsinthesolutiondesignifrequired,asmorespecificinformationbecomesavailableduringtheimplementation process.

Additionally, agreements need to be established with UIDAI to enable access to their data and biometric authentication platform.ThestateFoodDepartmentswillalso need to build internal capabilities and significanttrainingwillberequiredforallofficials,operatorsandstakeholders.

Figure14providesanoverviewoftherecommended organisational roles and responsibilitiesofdifferentTPDSstakeholdersduring the implementation phase.

Figure 14: Recommended Organisational Roles And Responsibilities For Implementation Of The TPDS Best Practice Solution

A strong partnership between key stakeholders will be essential for the success of the demonstration project

State Government

State Project Management Unit

SystemIntegrator

Hardware – Procure, install and maintain devices

Software – develop, deploy and maintain IT systems, MIS

Training – provide adequate training to all stakeholdersforusingsystem

UIDAI/NPR – ensure enrolment completion, provide de-duplication

AUA/ASA – develop and maintain systemfordatabaseconnection and verification

Awareness campaigns – create awareness around enrolment, distribution, grievance redressal

Take training to operate the systems

Coordinate installation ofdevicesandsoftware/ITsystemsat warehouse

Use the supply chainsystemforalldeliveries to FPS

Taketrainingforusingnew systems

Use the new PoS basedsystemforalltransactions

Beneficiaries – ensure enrolment in UID/NPR

District administration/ Gram Panchayat –facilitatesystemimplementation

Vigilance Committees – Assist in system rollout and check on operations

External Agents

Warehouses FPS Owner Consumers & local authorities

Leadimplementationofsolutionvia•dedicatedteamandsupportstaffServeasfocalpointforallproject•activities

SupportFoodDepartmentforpre-project•activities with technical assistanceProvide on-going project management •supportwithdedicatedresourcesforstate

Overallownershipofproject•Oversightofprojectmanagementand•implementation tracking through the Steering Committee

WFP support

Note:CIDR=CentralInformationDataRepository;AUA=Authenticaitonuseragency;ASA=AuthenticationServiceAgency Source: WFP/BCG Analysis

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5. Financial Feasibility

Inordertoensurethesustainabilityoftheimplementedsolution,financialviabilityisveryimportant.AnoverviewofthecostsandpotentialsavingsfromtheTPDSBestPractice Solution is provided below:

5.1 ESTImATION OF COSTS

Thecostsforimplementationwereestimatedusingdatafromavarietyofsources.Theprocessincludedbenchmarking against existing TPDS pilots invariousstates,feedbackoncostsfromrelevant TPDS stakeholders and vendors, accompanied by secondary research leveraging reports, research and prior project management experience.

TotalcostsofimplementationareestimatedforasampledistrictbasedontheaverageoperatingenvironmentofatypicaldistrictinIndia(mediansizeof15lakh (1,500,000)21 people having 3 lakh (300,000)22 ration cards covering 630 FPS23 and three warehouses24, with a district Food Departmentofficeoverseeingoperations).

ThecostfortheproposedSolutionwasstructured under two categories:

• One-time setup cost – initial costs requiredforinstallationofsystemandsettingupforlaunch.Thesecostsareonetimeinvestmentandwillformthebackboneofalloperations.Themajorexpenditures here include hardware and infrastructure,ITsystems,contractswith vendors & external agents, training ofstakeholdersandoverallprojectmanagementapartfromotherexpenses.

• Recurring operating cost – annual operatingcostsrequiredforafullyfunctionalend-to-endTPDSsolutionforthe sample district. These costs will be borne annually by the state. The major expenditures here include maintenance ofdevices,transportation(doorstepdelivery), utility costs, contracts with vendor or external agencies and overall on-going operations team among other expenses.

As was the case with implementation timelines, cost estimates will require customisation to the district's requirements and will vary according to prevalent conditions,geography,numberofbeneficiariesandFPSetc.

Additionally,thecostsindicatedhereareforapilotprojectinonedistrictofthestate.Ifand when the solution is scaled up across multiple districts, one-time setup cost per district would decrease by approximately 10%25owingtothefactthatcertainsoftware,ITsystemsandinfrastructurecanbere-usedforalargenumberofdistricts.Also, it is recommended that the states leverageexistingNICplatformsforsoftwareand IT systems (e.g. Common Application Software)toensurestandardisationandreduce development costs where possible.

Thetotalone-timesetupcostforadistrictis estimated to be Rs. 3.6 – 4.4 crore (USD 600,000 – 730,000) covering all value chain components, while the recurring operating cost are estimated to be Rs. 3.6 - 5.2 crore (USD 600,000 – 867,000) per district per

21 Medianpopulationofadistrict,2011Census22 4.9 members per household (2011 Census) resulting in 3.06 lakh (306,000) households; 98% household possess rationcards(SourcefornumberofrationcardsinIndiaasof31March,2012:MinistryofConsumerAffairs,FoodandPublicDistribution,Govt.ofIndia(13357);numberofhouseholdstakenfrom2011Census)

23 472rationcardstypicallyattachedtoanFPS(averagedatafrommultiplestates)thusmappingonto630FPSfor3lakh(300,000)rationcardsinthedistrict(Source:MinistryofConsumerAffairs,FoodandPublicDistribution,Govt.ofIndia(13357))

24 AveragenumberofFPScoveredperwarehouseis220,takenasaveragefrommultiplestates(AndhraPradesh,Chhattisgarh, Gujarat, Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Odisha, Punjab, Rajasthan, TamilNadu,UttarPradesh&WestBengal)Source:MinistryofConsumerAffairs,FoodandPublicDistribution,Govt.ofIndia.(13301)

25 Approx.Rs.50lakh(USD83,000)ofcostscanbere-usedintheformofIThardwareandgrievanceredressalsetup,additional10%duetolesserimplementationtimeandimprovedratesofcontractswithvendors

34

annum26. Approximately Rs 2 – 3.5 crore (USD330,000–580,000)perannumofthe recurring operating costs are direct and indirect incentives to improve FPS viability whichisessentialforthesustainabilityofthesolution.TheseincentivesareintheformofPoSbasedtransactionlinkedincentivesofRs5perrationcardtransactedthrough the PoS per month (Rs 1.6 crore/ USD 267,000 per annum) and doorstep delivery (Rs 0.4 – 1.9 crore/USD 67,000 –317,000perannum).Thedistributionofthese costs is given in Figure 15.

Forthetotalone-timesetupcostforatypical district, it is estimated that:

• Rs.0.3crore(USD50,000)willberequiredfordigitisationandenrolment

• Rs.0.5–1.0crore(USD83,000–167,000)requiredforsupplychainoperations(dependinguponcostofweighbridges)

• Rs.2.1crore(USD350,000)requiredforFPSoperations(largelytopurchase PoS devices)

• Rs.0.1crore(USD16,700)requiredto set up the grievance redressal system

• Rs.0.3–0.6crore(USD50,000–100,000)requiredfortheITsystem(dependinguponchoiceofstatetoleverageexistingNICplatform)

• Rs.0.2crore(USD33,000)requiredformonitoringandevaluationoftheimplementation

Fortherecurringoperatingcostsforatypical district, it is estimated that:

• Rs.0.2–0.3crore(USD33,000–50,000)requiredforsupplychainoperations

• Rs.1crore(USD167,000)requiredforFPS operations

26 Forestimationoftherecurringcost,itisassumedthatonlyonetransactionpercardwillbeconsideredforincentives;irrespectiveofmultipletransactionstoavoidmisuse.

Figure 15: Overall Cost Requirements For The TPDS Best Practice Solution

The solution has a one-time cost of Rs. 3.6 – 4.4 crore & annual cost of Rs. 3.8 – 5.4 crore for an average district1

1.Averagedistrictimpliesapopulationof15lakhs(medianpopulationofdistrict–Census2011),3lakhrationcards(5membersperfamily–Census2011),629FPS(472rationcardsperFPS–MinistryofConsumerAffairs,Food&PublicDistribution–MoCAFPD),3districtwarehouses(averageof220FPSperwarehouse–MoCAFPD);55%APL, 35% BPL, 10% AAY cards (MoCAFPD) 2.Up-frontcostsincludehardware&devices,trainingofpersonnel,digitisationofrationcards,de-duplication,distributionofnewrationcards,developmentofITsystems,setting up grievance redressal cell, awareness campaigns 3.Variationaccordingtocostofweighbridges(Rs.10–25lakhperunit) 4.VariationduetooptionofusingNICplatformwhichwillreducecosts 5.Operatingcostsincludesalariesofadditionalpersonnel,maintenanceofdevices,transportation(doorstepdelivery),Aadhaarauthentication,utilities,SMSnotifications,re-trainingofpersonnel,overallprojectmanagementcosts 6.Accountsforvariationinfreightrates(rangetakenfromRs.8–35perquintal) 7.Rs.5perrationcardpermonthgivenasincentivetoFPSfordrivingadoptionofsolution 8.Approx.Rs.40–70lakhofcostscanbere-usedintheformofIThardwareandgrievanceredressalsetup Note:costsgivenareindicativebasedonpriorexperienceandinterviewswithexperts–detailedupfrontstudywillberequiredfordistricttodetermineactualcostestimatesbased on local conditions

Digitisation andenrolment

Supply chain operations

FPStransactions

Grievanceredressal

0.3

Operatingcost5

(Rs Crore/ annum)

Rs. 3.6 –5.2 crore

0

+

+

+

+

+

=

=

+

0.5 – 1.03

0.2 – 0.33

0.3 – 0.64 IT Systems

IT Systems

Doorstep delivery 0.4 – 1.96 1.67FPS

incentives

0.15

monitoring & evaluation 0.3

2.1

1.0

0.1

0.25

One-time setup cost2

(Rs Crore)

Rs. 3.6 – 4.4 crore

Setup cost reduces by 10%8 with larger implementations due to re-usable systems for IT and grievance redressal

35

• Rs.0.25crore(USD42,000)requiredforoperating the grievance redressal system

• Rs.0.4–1.9crore(USD67,000–317,000)requiredfordoorstepdelivery,dependinguponthefreightratesinthedistrict

• Rs.1.6crore(USD267,000)requiredforFPSincentives,givenatRs.5pertransaction conducted via the PoS to driveadoptionofthesolution

• Rs.0.15crore(USD25,000)requiredforrunning the IT systems annually

The proposed Solution has the potential tobringaboutsignificantbenefitsforthestategovernment,bothfinancial(duetosavingofgrains)andnon-financial(duetoimprovingexperienceofallstakeholders).

Detailed costing estimates are available foreachcomponent,whichcanbemadeavailable on request.

5.2 CALCULATION OF FINANCIAL SAvINGS

The recommended solution can realise substantialsavingofmoneyfortheFoodDepartment, due to:

1. Better targeting of beneficiaries – reductioninnumberofduplicateandghostcards(byprocessofbiometricandtextual de-duplication and biometrically authoriseddistributionofcards)resultsingrain saved which would have otherwise been allocated to bogus cards. In a typical district, it has been observed that 7.4–10.9%ofexistingrationcardsarebogus,eliminationofwhichoverabaseofapproximately3lakh(300,000)rationcards will amount to grains not being sold through the TPDS, thus saved by the government. This translates into an estimated Rs. 7.3 – 10.7 crore (USD 1.2 - 1.7 million) per district per year27.

Figure 16: Projected Period For Break-Even Of Investment And Annual Savings For District

Projected period for break-even is 4 – 7 months after launch Proposed TPDS Solution yields Rs. 3 – 9 Crore in net savings in the first year in one district

1.Includestheone-timecostofimplementingend-to-endproposedsolution(excludesthecostofsoftwaredevelopment) 2.Annualexpensesincurredinthefirstyearofoperationoftheproposedsolution 3.Savingsinavoidanceofleakageoffoodgrainsforthefirstyearofoperationoftheproposedsolution(doesnotincludesavingsduetoavoidanceofleakageinkerosene)4.Savingsduetoavoidanceofleakageofkeroseneandtimevalueofmoneyisignoredfornetsavingscalculations 5.Break-evenperiodistimerequiredbythenetcashflowtooff-setprojectcost(investment) Note: Starting time (month 0) taken as point where end-to-end solution has been rolled out across the district

Break-even can be achieved in as little as 4 – 7 months

Saving @ Rs. 16 crore/ annum (base case)

Useforincreasing nutritional value ofTPDSfoodbasket and FPS viability

Initialupfront investment1

Total savings to the government3

Net savings to the government4

Digitisation & EnrolmentSupply chain

IT systems

FPS incentives

FPS transactions

Doorstep delivery

Grievance redressalMonitoring & evaluation

Annual operational expenses2

Saving @ Rs. 13 crore/ annum (conservative case)Upfrontcost=Rs.4.4crore(conservative)OperatingcosttakenasRs.3.6croreforbasecase,Rs.5.2croreforconservativecase

-50 1 2 3 4 5 6 7 8

Month

-4.4-3.3

-2.3-3.1

-2.4

-1.2-1.7

-1.1-0.4

0.30.9

3.1

1086420

-2-4 -3.6

-3.6

16.0 8.8

-60-80

4.1

2.00.9

-0.1

-3.7

0

(Rs. Crore) (Rs. Crore)Break-even achieved

Rs 9 crore net savings possible in 1st year alone

Savings remain robust across a broad range of TPDS operating conditions

27 7.4%-10.9%ofcardstakenasduplicatesandghostcards(basedondatafromEastGodavariandRayagada,OdishaTPDSpilots);eliminationofallboguscardsassumedpostbiometricde-duplicationresultingingrainsavingfrom22,000-33,000rationcardseachmonthforeachdistrict.

36

2. Proper logging of sales at FPS with biometric authentication – there is significantmismatchfoundintheactualoff-takefromFPSandthereportedoff-take, which occurs due to paper based records which can be manipulated easily. Having all transactions via PoS device with biometric authentication ofbeneficiarieswilldrasticallyreducesuchmalpracticesfromthesystem.Ina typical district, it has been observed thatactualoff-takeforAPLquotaofgrains is generally much lower than reported,byafactorof21%-34%forthe allocated quantity. Proper transaction loggingeliminatesscopeofmisreporting,thus saving equivalent grain amount forthegovernment.Thistranslatesintoan estimated Rs. 5.7 – 5.9 crore (USD 950,000 – 983,000) per district per year28.

Hence,atotalofRs.13.2-16.4crore(USD2.2 - 2.7 million) can be saved per district per year by implementing the solution. Accountingfortheadditionalrecurringcostsmentionedabove,anetannualsavingofRs8.1 – 12.9 crore (USD 1.3 – 2.1 million)29 is possible in a typical district.

The calculations here are based on averagevaluesobtainedfromfieldvisitsandresearchofexistingTPDSissuesandpilots. The calculations will vary according to local operating conditions and state specificconstraints,butservethepurposeofprovidingadetailedestimatereflectingtypical operating conditions.

5.3 BREAK-EvEN ANALYSIS AND PAYBACK ON INvESTmENT

Based on the cost estimated and savings calculations, the investment by the Food Department will generate enough savings tobecomefinanciallyviablewithinaperiod

offourtosevenmonthsofcommencementoffullscaleend-to-endoperationsofmodernisation. At the higher end, the savingsprojectedattheendoffirstyearofoperations could be as high as Rs. 9 crore (USD1.5million)foratypicaldistrict.

It is recommended that the above savings beinvestedinincreasingmarginsforFPS owners (an essential implementation requirement) as well as in improving the nutritionalcontentoftheTDPSfoodbasket.

Note that the current analysis does not include savings realised due to kerosene sales, inclusion and exclusion errors as wellasunder-weighingofgrainsatFPS.Factoring these would increase the quantum ofsavings.

At the national scale, the proposed TPDS solution could be implemented throughout thecountryforaone-timeinvestmentofRs 2,500 – 3,000 crore (USD 417 – 500 million).Thepotentialsavings(netofoperatingcostsaswellasofincentivesthatwouldimprovetheincomeofatypicalFPSby Rs 3,000 – 5,000 (USD 50 – 83) per month)fromanationwideimplementationofthissolutionareintherangeofRs.6,500– 10,000 crore (USD 1 - 1.6 billion) per annum. This is equivalent to nearly 8% - 12%ofthecountry’sfoodsubsidyfor2013-14 and represents a 4 – 7 month payback period.Someofthesesavingscouldbere-investedtoaugmentthenutritionalvalueoftheTPDSbasketofgoods.

AnalysisfromtheEastGodavaripilot30 shows that approximately Rs. 45,000 (USD750)canbesavedpermonthfromeachFPSduetoeliminationofboguscards and Aadhaar based online biometric authentication at the FPS via the PoS device. This saving will accrue to the

28 Mismatchinoff-takeofAPLquotaofriceandwheatissignificant(21%forwheat,34%forwheatasobservedfromfieldvisitsandinterviewswithstakeholders).EliminatingmisreportingforAPLoff-takewillsavethismismatchinoff-takeandsalesreporteachmonthineachdistrict.

29 Thesefiguresarepre-NFSA(2013)implementationandlikelytochangedependingonwhetherthestateallotmenthasincreasedordecreasedascomparedtothecurrentsituation.Thesefactorswillbecomeclearerwhenstatespecificcalculationsareundertakentocustomisethemodel.

30 ‘Public Distribution System – The Aadhaar Way’, report on the TPDS pilot project implementation in East Godavari district, Andhra Pradesh

37

respective State Government and also the GovernmentofIndiadependingonhowthesubsidy burden is shared.

It is well understood that these estimates may vary due to local operating requirements. Hence a thorough analysis

wasdonetocheckforfinancialfeasibilityinconditionswhichmaybehighlyunfavourableand tough. The analyses show that even inlocationswithhalftheboguscardsandhalftheissuesintransactionreportingtheproposed solution still yields large quantum ofsavingsfortheFoodDepartment.

38

6. Conclusion

Addressing TPDS issues by implementing the TPDS Best Practice Solution will yield anumberofsignificantbenefitsforstategovernments:

1. Satisfied and empowered beneficiaries

Theoverallexperiencesofbeneficiarieswillimprovesignificantlyasmanyfeaturesaredesignedforensuringproper and quality service to them. Therightamountoffoodgrainswillbeavailableattherighttimeforalltargetedbeneficiariesbyvirtueofproperidentificationandensuringimprovedoperationsofthesupplychain. By providing the right incentives totheFPSoperators,qualityofserviceforbeneficiariesshouldincreaseaswell. Additionally, a proper recourse mechanismforaddressinggrievancesofall stakeholders will resolve any other issueswithsystemperformance.

WFP also recommends investing a portionofthesavingsfromsolutionimplementation to augment the nutritionalcontentofTPDSrationsasawayofimprovingthenutritionalstatusofbeneficiaries.

2. Better aligned FPS operators

FPSservesasthefocalpointofTPDSoperations, hence it is important to provide adequate incentives to improve operating conditions and drive adoption ofreforms.Towardsthisend,increasedcommissions will result in improved viabilityfortheFPS,whilegoodbusinesspractices are incentivised by portability as beneficiarieswillprefertopurchasefromFPSwithhigherqualityandreliabilityofservice.

InstallationofelectronicPoSdevicesreduces the ability to misreport sales andindulgeinpilferagethusyieldingsignificantsavingsforthestate

government. However, above mentioned incentivesareapre-requisiteforthesame; else system may be opposed by FPS owners.

3. Easier and more effective system management for government officials

ThetaskofmanagementofthevastTPDSisquitecomplexforofficialsand government operators. Providing relevantinformationinatimelyandusablemanneristheprimaryaimofthesolution. By implementing recommended systems and developing a robust MIS, reliable and real-time data will be made available to all stakeholders. This can be leveragedforoperationalimprovementsand ensuring transparency. The reduced complexityforallstakeholderswillthusimproveoverallsatisfactionandreducecomplaints.

The recommended TPDS Best Practice Solution combines the best practices observedinavarietyofpilotsacrossthenation combined with rigorous research and analysis. It is designed to address all existing critical issues around TPDS includingtheissueofFPSviability(essentialforthelongtermsustainabilityofthesolution), while also being adaptable to a widevarietyofoperatingconditionsandpotentialfuturechanges.Statesneedtomodifyrecommendationsaccordingtotheirrequirements and operating conditions prior to implementation and also develop detailed system modules, operational guidelines and contingency plans.

Having designed the detailed solution design, WFP will be happy to discuss a partnership with state governments to customisethesolutionfortheirneedswhilehelping establish partnerships with vendors and other implementation partners. WFP will also consider partnering with interested states to roll out the recommended solution in pilot districts.

2 Poorvi Marg, Vasant Vihar,New Delhi 110 057Tel.: +91 11 46554000Website:www.wfp.orgE-mail:wfp.newdelhi@wfp.org