The annual rip-off beggars belief and the exchequer
Theft levels from the public distribution system (PDS) are consistently rising and, according to the latest data for FY12, were a little over R48,000 crore, or roughly the same as the median loss estimated by the CAG for the A Raja telecom scam of 2008. Unlike the Raja scam that took place once, though, the PDS scam happens each year. And its value rises as the costs of wheat and rice go up — had the same level of loss taken place this year, its value would be R61,000 crore.
According to a forthcoming Icrier paper by Ashok Gulati and Shweta Saini, leakages from the PDS are not only huge, they are steadily rising, from 24% of all grain distributed by the Food Corporation of India (FCI) in 1999-2000 to a little under 47% (or 26 million tonnes) in 2011-12. The theft levels have been calculated by taking the foodgrains-distributed figure from the FCI and subtracting from this the figure of the foodgrains actually received by people — this figure is got from the government’s National Sample Survey (NSS) data, the latest of which is available for 2011-12.
The study is interesting since it comes at a time when the government is looking at replacing the existing physical transfers of foodgrains through the PDS system by cash transfers that are equivalent to the effective subsidy given by the PDS. So, by way of example, if the PDS rice that costs R20 per kg is to be sold at R2, a cash transfer of R18 per kg is to be given.
More alarming, the study finds that the highest incidence of theft from the PDS system — whether it takes place at the level of FCI or at the level of the states that run the PDS is not clear — takes place in states that have the largest number of poor. The five states of Uttar Pradesh, Bihar, Madhya Pradesh, Maharashtra and West Bengal, which account for 60% of India’s poor, also accounted for close to 50% of the grain leakage in the country in 2011-12.
The study also demolishes myths that some of the poorer states, like Chhattisgarh, which have used technology — GPS installed on PDS trucks and SMSes to customers — to fix their PDS systems have fared much better than others. While some earlier studies had shown there was no leakage (minus 1.5% in 2007-08) in the PDS for Chhattisgarh, this was based on the grain released by the Centre and that consumed in the state. But once you add, as economist Reetika Khera did, the grain ‘top-up’ done by the states — some other states like Tamil Nadu and Andhra Pradesh also add to the quantity released by the central government — and compare the total grain received by people using the NSS data, the loss levels are similar at around 38%, say Gulati-Saini. In Chhattisgarh, since PDS grain is given on a per-household basis, as FE reported (https://goo.gl/zrT0M8) earlier, households are being artificially split to get more grain — the state is now moving to a per capita grain subsidy instead of a per household grain subsidy, and hopes to save 25-30% on its subsidy outgo.
With theft levels the highest in the poor states, Gulati-Saini find the poor in states like Bihar and Uttar Pradesh actually end up buying 80-85% of their foodgrain requirements in the open market, making it clear just how ineffective the PDS system is. An earlier Icrier study by Saini and Marta Kozicka found that while the minimum support price for paddy was Rs 1,310 per quintal, FCI’s rice costs end up at somewhere between Rs 2,210 and Rs 2,396 per quintal. So, FCI’s inefficiency drove up the price of even the free-market foodgrains the poor bought, leaving them worse off compared with a situation in which there was no PDS.