Who says you can't eat money?

A brief look into why PDS failed and what is the alternative

Abbreviations:

BPL- Below Poverty Line                                    DO- District office                                          

FPS - Fair Price Shops                                      JSY- Janani Suraksha Yojana                          

PDS- Public Distribution System                                

It was the right to minimal sustenance which lead to the one of the world’s largest subsidized food distribution scheme called the Public Distribution System (PDS). India’s PDS chain after covering 4.9 Lakh FPSs and about 15-16 crores houses later; has still has not been able to deliver its promise of feeding the hungry. The reason is simple.

The only difference in the skeleton of a Market Retail Chain and PDS is that in the latter, prices are largely controlled by a body rather than market forces of Demand and Supply. Now although price control and thus cheap availability of food were the very aims of the scheme, and these by themselves were indeed noble and logical solutions to malnutrition that plagued the country, they did not require the complicated and problematical system that was put in place to achieve them.

The steps involved in running the PDS or TPDS (Targeted PDS) from the top to bottom involve demand estimation by DOs and then submission to the State head office, payment release by DO to FCI office, procurement of grains by DO through third party transporter, storage in Godown centers, issuing of goods to 

FPSs, and finally sale to consumer.

Above is just a complicated replica of public retail system which already existed in market, with all major points of action being replaced by the govt. agencies. This gives rise to following problem:

1. The cost of reproduction of an already existing national retail model is huge and pinching esp. because there was no need to put it.
2. The process involves actual movement of goods towards targeted beneficiaries which is a waste since the goods are already in their reach (local markets). Availability was not the problem, lack of ability to purchase it was.
3.  Making a non-profit public system so convoluted was an open invitation to sporadic corruption. The leeching away of services and benefits at every step, in a system of multiple steps, resulted in failure of the scheme to reach its target.

All of the above drawbacks are either obliterated or minimized because of absence of scope of occurrence if in the PDS system, food transfer is replaced by Conditional Cash Transfer. An idea as plain as giving the cash to those who need it.

BPL counting already occurs during every census, it can be used to increase the purchasing power parity by giving cash to those who need it. Another similar methodology is Near Cash Conditional Coupons in which coupons are given which can be used to buy only specific goods from local market.

In papers by World Bank economists, leaks (mostly because of missing beneficiaries or bribes paid to become a recipient) in PDS schemes have been found to be about 4 times higher than those in cash transfer schemes. 

It has already been observed that a similar scheme in health sector gave impressive results. India's Janani Suraksha Yojana is a Conditional Cash Transfer program to increase births in health facilities. JSY payment was associated with a reduction of 3.7% prenatal deaths per 1000 pregnancies and 2.3% neonatal deaths. Now, improvements are being made to identify the target group most in need of aid.

With completion of ongoing Unique Identification drive, the whole procedure for Conditional Cash Transfer will become a very cheap, efficient and transparent. It would become easy to electronically transfer money to those who are targeted in the scheme and since there will be no movement of physical goods, it remove the problems of goods getting wasted, or perishing. Since the target beneficiaries will themselves buy the food they need, the problem of low grade goods reaching them will also end. Electronic transfers will also eliminate the any leeching by middlemen.

Infrastructure through which a policy is shaped is the fundamental deciding factor of its efficiency. Its not just about the idea but also about how its implemented. If India keeps investing her money in as short-sighted a way as it implemented PDS, its problems will not just remain unsolved, but would compound and raise new ones.