Agriculture Reference
In-Depth Information
Besides these quantitative assessments, some case studies also documented the dif-
ficulties of access to the PDS. Even when the poor possessed the ration cards, they faced
problems with respect to the low quality of grain, cheating on weights by the PDS dealer,
and irregular hours of operation of the PDS shops.
The timing, availability, and quantity of grain supplies at the PDS shops were not pre-
dictable, and often it took repeated trips to complete the purchase. Customers were not
permitted to split their entitlement into multiple purchases. This discouraged the poor,
who did not always have the cash when supplies were available.
On paper, the program was run with various safeguards including government
inspectors and monitoring teams from the community. The aggregate evidence
showed that these measures failed.5 The studies also showed that legitimate commis-
sions earned by PDS dealers were too low to offset costs. Illegal diversions and limit-
ing store hours were ways by which the dealers compensated for the costs of legal
operations.6
The major policy response to the problems of PDS was the introduction of target-
ing (described in the earlier section). But could a targeted program successfully reform
the PDS? First, there are the difficulties of targeting. Most of India's workforce is either
self-employed as farmers, traders, vendors, and craftsmen or are wage workers in the
informal sector of trade and manufacturing. Such employment is characterized by the
absence of formal contracts, salary records, and tax payments. Means testing as it is
practiced in developed countries is impossible. Identification of poverty status depends
on proxy indicators of land ownership, habitation, type of housing, and social charac-
teristics. It cannot be expected that these would perfectly correlate with poverty status
defined by the official poverty line. Second, even if adequate targeting mechanisms
would be devised, it does not address the issues of illegal diversions and the unviability
of PDS retail outlets.
More recent data from 2004-05 confirm these apprehensions and show that only
about 40% of the poor (by the official definition) were correctly classified as either BPL
or POP. Most of the poor do not receive the subsidies meant for them. Even among the
poor that are correctly classified, only about 60% reported using the PDS in the ref-
erence period of a month. The difficulties of access mentioned earlier continue to be
relevant.
Figure 12.1 displays a decomposition of food subsidy expenditures (in 2004-05)
into various constituent elements. Only about 30% are accounted by income trans-
fer to households whether poor or nonpoor. The remainder of expenditures are
absorbed by the costs of illegal diversion (43%) and the excess costs of state agen-
cies (28%). Illegal diversions happen as agents in the government marketing chain
sell the subsidized grain in the open market and profit from the difference between
the market price and the subsidy price. Jha and Ramaswami (2012) show that, in
2004-05, 55% of the subsidized grain was illegally diverted. Excess costs occur
when the price of procuring and distributing grain is higher for the state agencies
than for the private sector.
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