Tuesday, March 29, 2016

52. A Bill that asks too much of the poor , The Hindu, 5 September, 2012. With Jean Drèze.

 A Bill that asks too much of the poor 
The Hindu, 
5 September, 2012
With Jean Drèze.

A Bill that asks too much of the poor


Instead of rigid targeting, the government must build on the success of the public distribution system which is quietly becoming a significant means of social support

In earlier writings, we have drawn attention to the quiet revival of the public distribution system (PDS) in many States during the last few years. Market prices of PDS commodities — mainly rice and wheat — have sharply increased, giving people a much greater stake in the system. In response to this, or for other reasons, many States have initiated bold PDS reforms. The combination of increased public pressure and greater political commitment to the PDS has led to significant results, including more regular distribution and reduced leakages.


Many States have also moved towards a more inclusive PDS. Restricting the PDS to “below poverty line” (BPL) households has proved very problematic: there is no reliable way of identifying BPL households, exclusion errors are massive, and targeting is also very divisive. There is, therefore, growing pressure for a different approach, where the PDS covers a large majority of the population. Tamil Nadu has gone all the way to a universal PDS: every household there is entitled to 20 kg of rice every month, that too free of cost. Other States that have made significant moves towards a universal or near-universal PDS (at least in rural areas) include Andhra Pradesh, Chhattisgarh, Himachal Pradesh, Kerala, Orissa, and Rajasthan. This approach has helped to not only avoid exclusion errors but also ensure that the PDS works: a more inclusive PDS is under much greater pressure to function.

In some States such as Orissa and Rajasthan, these changes are very recent. In others, notably Chhattisgarh and, of course, Tamil Nadu, they were initiated several years ago. The National Sample Survey (NSS) data for 2009-10 provide a useful opportunity to look for early signs of the results.

One interesting development is a major increase in PDS purchases: between 2004-5 (the previous “thick round” of the NSS) and 2009-10, household purchases of wheat and rice from the PDS increased by 50 per cent in quantity terms. The proportion of households purchasing at least some rice or wheat from the PDS increased from 27 per cent in 2004-5 to 45 per cent in 2009-10. This quantitative expansion is one important aspect of the recent revival of the PDS in large parts of India.

Further, in value terms, PDS entitlements are now quite substantial in many States. The implicit income subsidy from the PDS can be calculated as the difference between PDS price and market price, multiplied by quantity purchased, and summed over wheat and rice. There are different ways of estimating this, since there is more than one way of identifying the relevant market price. Using the median market price, State-wise, as a benchmark, the average implicit subsidy (for rural households that purchased at least some grain from the PDS) was around Rs 250 per month in 2009-10. Over the year, this is equivalent to the earnings of a whole month’s work under the Mahatma Gandhi National Rural Employment Guarantee Act — without having to work. In absolute terms, it is not much, but for people who are constantly struggling to make ends meet, it does help. The implicit subsidy would be larger, of course, if the PDS worked well across the country.


Based on these implicit subsidy calculations, it is possible to estimate the impact of PDS on rural poverty — by adding the implicit subsidy to the explicit NSS estimate of Monthly Per Capita Expenditure (MPCE) for each sample household. To illustrate, consider the following exercise. Suppose we define the “Tendulkar poverty gap” as the sum, over all rural households below the national Tendulkar poverty line, of the difference between that line and a household’s actual MPCE. How far does the PDS reduce the Tendulkar poverty gap? In other words, how much smaller is the poverty gap (in rural areas) when the implicit PDS subsidy is added to the standard components of MPCE?

Using NSS data for 2009-10, it turns out that the PDS (more precisely, the foodgrain component of the PDS) reduces the Tendulkar poverty gap by around 18 per cent at the national level. This is a moderate achievement, but what is more interesting than the national average is the contrast between States. In Tamil Nadu, the PDS reduces the Tendulkar poverty gap by more than 50 per cent. Other States where the PDS has a large impact on rural poverty include Chhattisgarh and Andhra Pradesh (about 40 per cent), and also Himachal Pradesh and Kerala (around 35 per cent). By contrast, the poverty impact is below 15 per cent in Bihar, Jharkhand, Madhya Pradesh, Punjab, Rajasthan, Uttar Pradesh and West Bengal. As it happens, all the States in the high-impact list have a relatively inclusive PDS, whereas all those in the low-impact list were still clinging to BPL targeting at that time (Rajasthan did expand the coverage of the PDS after 2009-10, with impressive results). In short, a more inclusive approach seems to give better results not only in terms of the general functioning of the PDS, but also in terms of its impact on poverty.

These figures are illustrative, since (as mentioned earlier) there are various ways of going about these calculations. All of them, however, point to the same basic conclusion: the PDS is now having a substantial impact on rural poverty in States where it is broad-based.

So far, we have looked at PDS as an implicit income transfer. Aside from “transfer benefits,” the PDS is likely to have important “stabilisation benefits”, insofar as it brings some security in people’s lives. It is a little bit like having an additional source of income, and a stable one too; this can be very important for those who depend on a single and meagre source of income (such as casual labour) for their survival. The PDS may also have a positive impact on food consumption patterns (e.g. by enabling households to spend more on nutritious food items), although this is somewhat speculative. More likely, the PDS will start having a significant impact on nutrition when commodities other than rice and wheat (e.g. pulses, oil, and millets), with a higher nutrition value, are included in it. This has already happened in some States such as Tamil Nadu (where a wide range of food commodities are included in the PDS), Andhra Pradesh and Himachal Pradesh. The provision of nutritious foods that are badly lacking in the diets of poor households is an important future possibility for the PDS.

These findings have an important bearing on the National Food Security Bill. The Bill is a great opportunity to complete the transition towards a functional and inclusive PDS across the country, and put an end to food insecurity. In its present form, however, the Bill is likely to undermine instead of facilitating this transition. This is because it seeks to impose a rigid targeting formula, based on a complicated division of the population into three groups (priority, general and excluded), without any clarity on how each group is to be identified. Given the failure of numerous expert committees and advisory groups to come up with any reliable targeting method, the idea of a universal PDS (at least in rural areas) looks more sensible than ever.

Various proposals have also been made for an intermediate approach, whereby all households would have common minimum entitlements except possibly those who meet reasonable and well-specified “exclusion criteria”. However, the government is turning these proposals into a reductionist version of the Bill, which would amount to little more than a reshuffling of existing PDS allocations, without any justiciable entitlements being created for anyone. Further, under the abominable formula proposed by the Food Ministry, whereby — roughly speaking — 33 per cent of the population would be excluded from PDS across the board (in every State, in rural as well as urban areas), the reshuffling would favour the richer States at the expense of the poorer States. Punjab and Haryana would be the biggest gainers, while Orissa stays in place — this makes no sense, and defeats the purpose of the Bill.

These and other flaws of the Bill (including a gradual trimming of many entitlements) derive partly from misplaced fears about the foodgrain requirements. Meanwhile, procurement has crossed 70 million tonnes per year, distribution is not keeping up, and excess stocks are growing. Never in history has so much undernutrition co-existed with so much hoarding of food. The government is desperately trying to export the surplus stocks, or simply allowing them to pile up unprotected. Reviving and revamping the Food Security Bill sounds like a better idea.

(The authors are development economists affiliated with Allahabad University and the Indian Institute of Technology (Delhi), respectively.)

Keywords: Public Distribution System, PDS reforms, BPL households, Food Security Bill