Coupening the Public Distribution System

The Public Distribution System (PDS) operating through the fair price shops are the single most crucial outlet to address the poverty and hunger in the country. Unfortunately money hungry corruption rats have not spared this vital instrument to help the poor people in the country. From top level politicians to the bottom level fair price shop sales personnel, swindling the food resources meant for the extremely poor people is order of the day. So much so these corrupt rats have bulged in their physique and wealth beyond the known sources of their income. There is no way so far these rotten rats could be controlled. The Government announces its genuine intention to rein in these rats publicly. So the sweet word goes. But nothing happens after the announcement. The recent news about the UPA II’s reform agenda to clean up the PDS is welcome. Let us wait and watch how this is going to work.

T. Nandakumar writes in The Economic Times on 27 April 2010


The government seems to be considering a new system to replace the present system of targeted public distribution system (TPDS) with food coupons or direct cash transfer. The ills that plague the present TPDS are well-known and well-documented.

The two national surveys, one by Programme Evaluation Organisation of the Planning Commission and the other by ORG-Marg, both at the instance of the Union government, have identified the major problem areas in the present system. These can be summarised as follows:

Exclusion errors: Families who deserve to be in the BPL list are excluded,

Inclusion errors: Families who are not eligible are included,

Ghost cards: Ration cards in the name of fictitious/non-existent families,

Leakage at fair price shop: Simply stated, the quantum of food grain leaked/stolen by transporters/shopkeepers, and

Unacceptable quality: Complaints of quality sometimes due to the replacement of procured stocks by lower quality at various levels.

Does the proposed system of food coupons address these deficiencies? The system of food coupons cannot address the issues of exclusion and inclusion errors since these emerge from the process of identification. Who would not like to be included in the BPL list, especially when many goodies flow from the welfare state, be it subsidised health care or an Indira Awas?

The chances, therefore, are that the errors in identification will remain. Add to this the arguments for increasing the scope (read: size) of the BPL list (Tendulkar committee, Saxena committee et al). Ghost cards, however, could be minimised if the payment systems are designed properly.

The food coupons can effectively break the hegemony of the present set of fair-price shopkeepers, who, over a period, have developed vested interests and have also managed to gain substantial political clout. In fact, most of the ills of the present system can be attributed to the patronage in allocating fair price shops.

To be fair to these shopkeepers, the commission they get is so low that they are compelled to resort to malpractices, which over a period of time has become a habit driven mostly by greed. The resistance faced by the government of Chhattisgarh in moving to a new system of shops is ample testimony to this.

The first step in the food coupon system, therefore, has to be the closure of all existing fair price shops - they can continue to be normal grocery shops if they wish - in the area and giving a choice to the coupon holders to buy their food grain from any 'designated' grocery shop in the region. I use the word designated because the payment mechanism for the proposed coupons will need financial oversight.

If there are too many choices, managing the accounts could be problematic. Ideally, the coupon holder in a ward/area could be given an option to purchase her food grain from a set of identified grocery shops - not less than three and not more than five - every month. The coupons shall carry a fixed value - the value will have to change at least every year to take care of inflation - and the shopkeeper permitted to encash these coupons from designated bank branch(es) in the locality. The coupons should also have a validity period to allow the shopkeepers to deliver food grain every month. The success of the scheme will depend on a caveat that there will not be any scrutiny of the items purchased by the family as long as the coupon has been used in the designated shop and during the month for which it is authorised.

Most importantly, the coupon gives a choice to the family to choose the grain it prefers. This should take care of most of the quality complaints. Even if the coupon has been used to buy other things such as pulses, edible oils, sugar etc, it is worth the effort. All the coupons for a year should be given to the family at one go. This will facilitate verification where required every year as well.

Given the propensity of the male members of the family to misuse the coupons and exchange them for money - even if this happens, the government should not bother - the cards and the coupons should be in the name of the female member of the family. There is likely to be an argument that food-deficit regions will be adversely affected by this system. The success of the coupon system will depend on providing choices to coupon holders at the point of purchase.

Therefore, adequate availability of food grain is a sine-qua-non for the success of this initiative. It would, therefore, be prudent to start this initiative in big towns and in food-surplus states. However, states with universal two-rupee rice schemes may not be too keen to accept this scheme. It would be necessary to incentivise the states that agree to implement this scheme.

Is there a possibility of spurious coupons getting into the system? Yes, there is. The traceability of the coupons has, therefore, to be built into the system. What will then happen to FCI and procurement? In the new system, the government can fix MSP without looking at procurement targets. The market will determine the actual prices. FCI can continue its MSP operations and also keep the buffer and strategic reserves for the government. FCI, hopefully, will become a lean and efficient organisation. The excess stocks, if any, can be offloaded into the market at suitable intervals to keep a lid on prices.

While food coupons is a good idea, one must understand that this does not remove all the ills in the system: but is better than the present system by all means. However, direct cash transfers to the beneficiary (women) will be a much better option. This could even attempt to reduce the inclusion errors since bank payments can be tracked easily. With so many ATMs available in cities, this could be the best available option at this point in time at least for the cities. The success of the scheme will depend on its design and, more importantly, its phasing.

Juggling Poverty

Poverty is the darling of politicians, NGOs, and researchers. Whether we are getting rid of poverty or not those who are mourning over poverty are increasing. For most of the poverty mourners poverty is the bread and butter. Garibi hatao was the slogan in 1980 so also in 2009.

Gurcharan Das writes in The Times of India (14 November 2009)

If only we would pause and look beyond the horizon of day to day events, we would see a trend of great significance. More people on the earth have risen out of poverty in the past 25 years than at any other time in human history, and this has happened primarily because of sustained high economic growth in India and China. Unlike China, which has embraced growth enthusiastically, India has a vast industry of 'poverty-wallahs', who incessantly raise doubts if our growth is pro-poor.

These 'growth sceptics' tend to make our reformers defensive, which slows reforms and the nation loses the potential for even higher growth. Earlier they argued that post-reform growth was 'jobless' until recent data has proved them wrong. Nowadays, they usually say, "growth but..." While the type of growth does matter, the truth is that growth in itself is virtuous, and we should celebrate that India is experiencing this miracle.

Now, two experts on poverty have come up with new research, which shows that India's high economic growth since 1991 is, indeed, pro-poor and has decisively reduced poverty. Gaurav Datt and Martin Ravallion, both respected economists, employed a new series of consumption-based poverty measures from 1950 to 2006 and 47 rounds of National Sample Surveys, to show that slightly more than one person in two lived below the poverty line in India during the 1950s and '60s. By 1990 this had fallen to one person in three. By 2005, it fell again, and only one in five persons now lives below the poverty line.

In their paper Has India's Economic Growth Become More Pro-Poor in the Wake of Economic Reforms? the authors conclude that "the post-reform process of urban economic growth has brought significant gains to the rural poor as well as the urban poor". The poor in urban and rural areas are now linked through trade, migration, and transfers, which explains why rising standards in India's towns are helping to reduce poverty in the villages. Even though agricultural growth has been relatively weak since 1991, overall high growth has positively affected the lives of the rural masses.

This is an outcome that the reformers had dreamt of. They believed that the reforms would create a more efficient and productive economy, which would raise the overall growth rate and transform both urban and rural society. This had happened during the great transformations that occurred in the West during the nineteenth century and in East Asia in the second half of the twentieth century. It is now happening in India.

An earlier study by the two economists had examined the period prior to 1991 when our economy grew slowly. India's per capita GDP grew at an annual rate of barely 1 per cent in the 1960s and 1970s; it picked up to 3 per cent in the 1980s; and accelerated to 4-5 per cent after 1991. In the pre-1991 period, modest urban growth brought little or no benefit to the rural poor. (Rural poverty decreased only through rural growth, such as the green revolution.) High growth after 1991 seems to be different - it has pro-poor backward linkages to the rural economy. Hence, the effort to create a more productive economy through the reforms is benefiting the poor, and we have the permission now to dream of becoming a middle class country. The dampener, alas, is that inequality after 1991 is also increasing.

This happy news on growth, however, must be seen in the context of lost opportunities. If only India had reformed agriculture and had functioning schools and health centres, the poor would have gained even more from high growth. In another study comparing India, China and Brazil, Martin Ravallion shows that China (with higher growth) and Brazil (with lower growth) have done a much better job at poverty reduction. India's failure in education and health is not a function of money alone, as the prime minister suggested this week when he vowed to raise spending on education to 6 per cent. When one in four teachers is absent and one in four is not teaching, we need accountability in delivering services to the poor. Thus, administrative reforms are just as important to the lives of the poor as economic reforms.

Slum Dogs and Millionaires

The battle between the rich and poor occupied the world history since the beginning of the human civilization. As the time passes this conflict gets into every medium. The current fashion is to portray the poor romantically and win global awards. Slumdog Millionaire, the film which won Oscars is the recent controversy.
P. Sainath writes in The Hindu, 18.3.2009,

It has been the night of the long knives for our burgeoning billionaire population. Its band has just been decimated, falling by more than half from 53 to 24. The latest Croesus Count, also known as the Forbes Billionaires list, makes that much clear. We also fell by two notches to the sixth rank in the list of nations with the most billionaires. Our earlier No. 4 slot being slyly usurped by the Chinese who clock in with 29. More mortifying, we are a rung below the Brits w ho’ve grabbed Perch 5, with 25.
The net asset worth of India’s brightest and best has also shrunk by over a third from the time of the last Forbes scroll. By 2007, that worth had reached $335 billion. That is, 53 individuals in a population of one billion held wealth equal to almost a third of their nation’s GDP at the time. This year, that worth plunged to $107 billion. (A moment’s respectful silence in memory of the dear, departed billions seems in order.) But there is some comfort in that our team is still worth more than twice what its Chinese rivals are. And we even now have eight billionaires more than all the Nordic nations put together — though they boast the highest living standards in the world.
“Four Indians were among the world’s top ten richest in 2008, worth a combined $160 billion,” points out Forbes. Today, alas, “that same foursome is worth just $54 billion.” But the 29 Indian tycoons reduced to the penury of mere millionairehood should not lose heart. Forbes offers us these words of reassurance. “The winds of wealth can change quickly … They may yet again blow favourably in the direction of these tycoons.” So what if the big balances fly at half mast briefly? There could be gales ahead.
Alongside this grim tragedy runs a slightly longer-term saga. India has fallen to 132 in the new rankings of the United Nations Human Development Index (HDI) for 179 nations. Each year since 1990, the U.N. Development Programme has brought us this index, as a part of its Human Development Report. The HDI “looks beyond GDP to a broader definition of well-being.” It seeks to capture “three dimensions of human development: a long and healthy life (measured by life expectancy at birth). Being educated (measured by adult literacy and enrolment in primary, secondary and tertiary education). And third: GDP per capita measured in U.S. dollars at Purchasing Power Parity (PPP).”
Worst in a decade
In the Index of 2007-08, India ranked a dismal 128. Now we’re at 132. That is our worst ever grade on the Index this decade. It means, among other things, that little Bhutan, never once in the Forbes hall of fame, has trumped us in the new HDI rankings. The tiny Himalayan nation clocks in at 131. That is, a notch above its “second-fastest-growing-economy-in the-world” neighbour. Bhutan once languished amongst the bottom 15 nations in the U.N.’s HDI. It has never been among the world’s fastest growing economies.
At rank 132, India also lags behind war-ravaged Congo, Botswana, and Bolivia. (The last often called Latin America’s poorest nation). The Occupied Territories of Palestine (torn by conflict for 60 years) are also ahead of us. Another neighbour — Sri Lanka — has been devastated by war for over two decades and has slipped a few notches. It still logs in at 104 — 28 rungs above India. Vietnam suffered casualties in millions in the war waged against it by the United States. Decades after, its agriculture is yet to recover from the planned destruction, lethal bombing, and the conscious use of deadly poisons. But Vietnam clocks in at 114. And China at 94 despite falling several places.
The bad news about the bad news is that these figures reflect the good news days. They relate to the year 2006. (The Sensex was booming. It breached the 10,000 and even 14,000-mark for the first time ever. The Indian economy also grew at 9.6 per cent in 2006-07 and 9.4 per cent in 2005-06.) Those were the glory days our 132nd rank is rooted in. The same period when we churned out 53 dollar billionaires. So the updated HDI numbers do not begin to capture the economic downturn. The picture will be even less pretty when those factors kick in.
They do capture, though, the revised purchasing power parity (PPP) estimates that clocked in by late 2007. These columns foretold this problem at the time (The Hindu, Dec. 24, 2007). It was clear that if the Index was using the older PPP data, then “even our awful HDI performance could get worse” once those were revised. (India’s GDP per capita (PPP) fell from $3,452 to $2,489 with the new data.)
And yet, we’d be even lower down than rank 132 but for our showing on the GDP-per capita front. Even now, our rank on that front is six notches higher than our HDI rank. It makes us look better than we are. For instance, in making out the current rankings, U.N. researchers point out that the GDP per capita data for 2006 “caused India to rise one place.” But “new data (for 2006) on life expectancy caused India to fall one place.” India then also fell two more places as two more nations — Montenegro and Serbia — joined the list. Both fared better than we did. We fell a further two places “as a result of revised PPP estimates.” That’s how we ended up four slots below our last rank.
What does it mean to rank much better on GDP per capita than in the HDI, as we do? It means you have been less successful in converting income into human development. Our GDP per capita rank is six rungs above our HDI rank. Vietnam’s HDI rank of 114 is 15 rungs above its GDP per capita rank. Unlike us, Vietnam has — despite awful historic handicaps — converted its wealth into human development far better.
Cuba logs in at 48, thus breaking into the top 50 nations in the HDI. (While India firms up its place in the bottom 50.) That’s seven places above wealthy Saudi Arabia, whose per capita GDP is three times higher than Cuba’s. In that ranking, Saudi Arabia is No. 35, towering above Cuba’s 88. But when it comes to human development, Saudi Arabia lags seven rungs below Cuba. Apart from suffering lower income, Cuba has lived under crippling sanctions for decades. Sanctions that have imposed huge constraints and high prices on all essentials. Yet, life expectancy at birth in Cuba is now 77.9 years. That’s almost the same as the U.S. (78). And about 14 years better than India’s 64.1. Meanwhile, the U.S. has logged its worst rank ever, falling to 15 from 12. Between 1995 and 2000, the U.S. was always in the top 5, even staying at rank 2 for a couple of years. Like with India, its decline in HDI has come in the very years seen as its best, the Golden Age of the Free Market. The Nirvana point of neo-liberalism. A year into the economic reforms, India in 1992 ranked 121 among 160 nations then covered by the Index. Today, India is at 132 among 179 nations. Straight comparisons across that time are hard as the Index has changed in numbers and methodology. But the trend is clearly not joyous.
Steady decline
The HDI figures since 2002 signal a steady decline in the nation’s conversion of wealth into human development — even as the numbers of its billionaires and millionaires doubled and trebled. Now the billionaires have shrunk in number, but not the slumdogs. There are at least 836 million Indians living on less than Rs. 20 a day, as the government’s own report told us in 2007. Over 200 million of those get by on less than Rs.12 daily. And those are pre-downturn numbers, too. Maybe, we need a new Forbes 500 list — naming the world’s 500 poorest citizens. Who could beat us on that one?
Unless and until both rich and poor reform themselves the divide will continue to haunt the imagination of the scholars. Both of them indulge in an unending blame game. The equal world is not possible without a genuine effort.