Agriculture Reference
In-Depth Information
population.54 These groups are subdivided into (a) a “priority” group (BPL), comprising
46% of the rural and 28% of the urban population, to get 7 kg of food grains per person
at Re 1 per kg for millets, Rs 2 per kg for wheat and Rs 3 per kg for rice. (b) The second
group is “general” (APL), covering 44% of the rural and 22% of the urban population,
with an entitlement of 4 kg per person at 50% of the minimum support price.
There is significant controversy around such proposals. Himanshu and Sen (2011)
insist that a universal PDS is the only option consistent with RTF and, more conten-
tiously, that feasible alternatives that are more universal and less targeted are more
likely to be effective in benefiting the poor.55 Second, between 1993-1994 (a universal
PDS) and 2004-2005 (TPDS), the leakages grew enormously—that of rice from 19% to
40%, and that of wheat from 41% to 73%. Per capita per month, consumption of PDS
rice and wheat remained unchanged although PDS off-take doubled and subsidy rose
even more. There was, however, a slight improvement in access by the poorest 50% of
the population—from 28% to 30%. But this must be judged a colossal failure, given the
massive cost of leakages. A recent analysis (Svedberg, 2010) shows that the cost of trans-
ferring Re 1 to the poor is Rs 8.5. A considerable chunk of budgeted food subsidies (81%
in 2008-2009) goes to the Food Corporation of India (FCI) to cover its expenses for
procurement, transportation, distribution, and for carrying over huge stocks. The high
costs reflect inclusion errors, as well as corruption and leakages of grains at all stages in
the supply chain (Svedberg, 2010).
Cost and leakage are major issues in this debate. Himanshu and Sen (2011) are
emphatic that the more universal the food subsidy—as in Tamil Nadu, among a few
other states—the lower would be the leakage. Two issues are conflated in this propo-
sition: one is the huge diversion of PDS food grains to the market, and the second is
losses during storage in open go-downs . Whether a universal subsidy would reduce
leakages to the market has little to do with how universal the food subsidy is and more
to do with the wedge between the market price and PDS price. If procurements are
higher, market price is likely to rise relative to the PDS price, and the market diver-
sions would be larger. Our analysis corroborates this. As far as wastage is concerned,
with larger procurements and given storage facilities, wastage is also likely to be larger
under a universal scheme. Fourth, only a fraction of entitlements is bought by BPL
households, thus limiting real income subsidy to them. Only 30% of total TPDS pur-
chases of subsidized food grains (rice and wheat) are made by poor households with
AAY or BPL ration cards.56 Almost two-thirds of the poor (62.4%), however, do not
possess these cards, limiting their purchases to miniscule amounts. Add to this dif-
ficulty high transaction costs (long distances to FPS and waiting periods) and percep-
tions of poor quality and underweighing, to get a clearer picture of why the poor, on
average, tend to buy amounts considerably lower than their entitlements. As a result,
the food subsidy per person among BPL households is abysmally low in both rural
and urban areas (Svedberg, 2010). So even with existing budget outlays there is con-
siderable scope for better targeting the poor.57
One alternative is to think of integration of development, poverty, and food subsidies
as these interact. If, for example, a revamped PDS on a much smaller scale were to be
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