Align PDS and stocking with offtake

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Updated: July 24, 2015 1:35:42 AM

If we are serious about providing foodgrains to the people, we must offer better quality grains

The PDS consumption is high for kerosene, a relatively rare commodity and one where there should be incentive to ‘cheat’ given the difference in value between market and PDS kerosene could reach Rs 40 a litre. The PDS consumption is high for kerosene, a relatively rare commodity and one where there should be incentive to ‘cheat’ given the difference in value between market and PDS kerosene could reach Rs 40 a litre.

The NSS study on PDS and consumption for 2011-12 is quite interesting in terms of interpretation. It assumes importance given the fact that the Food Security Bill created a stir over what was nothing more than a restatement of the PDS as well as the present discussion on the cash transfers in lieu of foodgrains. As the study covers above 100,000 households spread across all geographies in the country—in both the rural and urban segments—it is fairly representative of what happens in the consumption segment.

The first takeaway is that only 14% of the rural households and 33% of urban households do not have a PDS-related card. The states clocking in relatively higher levels of ‘no cards’ in rural areas were Jharkhand (42%), Odisha (30%), Assam, UP and MP (19% each).  Jharkhand and Odisha had the highest numbers in urban areas too with 75% and 66% followed by Bihar (48%) and Karnataka (46%).

When viewed at the aggregate level, this does come as a significant achievement from the point of view of the government where cards have been provided to most households in rural areas – (this includes Antyodaya, BPL and others). The proportion of ‘no card’ is higher for urban areas due to the transient nature of the population as well as some choosing not to apply for such cards, especially when they are out of the system and have other forms of identification. In fact, given the Indian penchant for reinventing the wheel one could argue that the Aadhaar is just a duplication of systems that are already in place.

Second, the survey also talks of what part of the consumption of the households come from the PDS. This has been done for both the rural and urban areas and the results are quite revealing.

The first thought can be that there could be high level of leakages. However, the PDS consumption is high for kerosene, a relatively rare commodity and one where there should be incentive to ‘cheat’ given the difference in value between market and PDS kerosene could reach Rs 40 a litre).  Therefore, the leakage theory will hold only in some cases. More likely, the households prefer to consume from the open market because of the quality factor.

Even though rice and wheat are available at low rates in the PDS with the issue prices remaining unchanged (range from Rs 2-7 depending on state and category of card holder), a fairly average quality is also not something that the people would desire. The survey also shows that even within the lowest 5% bracket of population in terms of consumption expenditure, the share of PDS for rice for instance is just 40%.

Gr9

Hence, while the Food Security Act talks of providing 25 kgs of grain to a family, households may not prefer to take the full amount and to that extent all the calculations that have been made by economists to show how the coffers of the government would be affected . The message is that if we are serious about providing foodgrains to the population, we may have to offer better quality of food, as people are conscious of the same.

The kerosene number is heartening especially in the rural areas as it shows that the system works quite well. The lower number of urban consumers, of 58%, could be attributed to two reasons. The first is that in towns and cities, households have access to alternatives like LPG and piped gas, which are more economical and convenient to use. Second, there also tends to be diversion from the fair price shops to the petrol stations for adulterating petrol and diesel, which could be making less available at these outlets.

As far as sugar is concerned, the quantity provided is relatively low, varying from 0.5-1.5 kg/a family which is insufficient (different states have different criteria). Hence, recourse to the market would be higher.

Third, in terms of penetration of the PDS the survey also talks of the proportion of households which reported accessing the PDS system. Here, the numbers are high in both rural and urban areas.

The accompanying table indicates that there is a higher proportion of households accessing rice and wheat from the PDS, but ultimately relying less on the system for consumption. The access to kerosene in rural areas is again encouraging as three quarters of the population have access to the fair price shops for the same.

The interesting part of this story is that for rice, all the four south Indian states of AP, Karnataka, Kerala
and Tamil Nadu have higher reporting which could be attributed to the efforts taken by the respective state governments. For wheat Maharashtra, MP and Gujarat scored better with higher reporting of accessing PDS.

Last, the survey also looks at the rural population and examines the contribution of home stock consumption for various commodities. For cereals, the share of home stock consumption is 29.4% and for pulses it was 10.3%. These numbers indicate that a substantial set of households are actually cultivating these crops, and by virtue of such high consumption would also be selling less in the market, leading to lower marketable surplus. In case of milk, it is as high as 57%.

Intuitively, it can be seen that when the marketable surplus comes down for cereals like rice and wheat, the government should also rethink the PDS allocations given that households are consuming more from the open market. By having higher procurement and stocking the same, there would be less left for the private market resulting in pressure on prices.

Based on this data the conclusions that may be drawn are that , first, the PDS system is fairly comprehensive in terms of access and distribution of cards, and second, more households access the PDS for kerosene than grains.

Third, the market still dominates their consumption pattern with the PDS addressing less than third of the requirement. Fourth, we need to align the PDS and stocking system with the actual offtake as given low level of marketable surplus the government may be hoarding rice and wheat leading to pressures in the market.

The author is chief economist, CARE Ratings. Views are personal

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