India’s Public Distribution System emerged as a war-time rationing measure during World War II and was largely based on import mechanisms. It was later in 1960 that Food Corporation of India (FCI) and Commission of Agricultural Costs and Prices (CACP) was set up to boost the domestic procurement and storage of food grains, thus paving a way to make India self-reliant. However, in 1997 PDS was relaunched as Targeted Public Distribution System (TPDS), transforming the universal provision into a scheme aiming to revamp the targeted poverty-ridden households by providing subsidized food grains through ration shops.
On July 5, 2013 the enactment of the National Food Security Act, 2013 (NFSA, 2013) marked a major paradigm shift as the distribution of food grains under TPDS was now identified as a “Right” rather than a mere welfare scheme. This legal revolution came in effect through the writ petition filed under the case PUCL vs Union of India, 2001, in which the Supreme Court recognized the “right to food” as a constitutionally protected legal entitlement by interpreting Article 21 and Article 74 together.
Before we dive into the key working mechanism of NFSA, 2013 it is imperative for us to analyze and understand the challenges and issues that the TPDS mechanism was facing prior to the implementation of the NFSA Act. The following conclusions are derived from the research conducted by PRS Legislative Research.
Working Structure of PDS
The TPDS mechanism was regulated by both the Centre and State governments.
The Centre was entailed with the responsibility of:
- procuring grains from the farmers at MSP (Minimum Support Price),
- selling grains to the states at subsidized rates. Allocation is executed via a formula estimate of state-wise poverty (derived as per NSSO Household Expenditure Data), and
- delivering it to the state depots.
Whereas, the State Governments were responsible for:
- identifying the eligible BPL households (As per the criteria derived by the Ministry of Rural Development), and
- transporting the grains from the state depots to all the ration shops.
- Ration Shops are the last point from where the beneficiaries get the grains at CIP (Central Issues Prices).
The beneficiaries under TPDS were divided in two categories – BPL (Below Poverty Line) and APL (Above Poverty Line). It should be noted that only the BPL category was identified and issued with ration cards. The APL category was eligible to apply for the ration card but the allocation to this category was based on the availability of food grains at the central stock and the average quantity brought by the state in the last three years.
As the core principle of TPDS mechanism is food subsidy for the underprivileged, it is equated into:
MSP + (Additional Cost of transportation and handling) – Central Issues Prices = Food Subsidy.
Food subsidy also includes buffer cost (Storage Cost) incurred by FCI. The Centre reimburses all the costs incurred by the State Governments and FCI.
Challenges and Issues in the TPDS mechanism (Prior to 2013)
- Identification of Beneficiaries
- The first major challenge surfaced was that the number of BPL families were being calculated using 1993-94 poverty estimates by the Planning Commission, despite the release of new poverty estimates of 2004-05 and 2011-12.
Data showed that from 1993-94 to 2011-12 there was a decline of 23.4 percent of the total rural and urban population identified as poor. This implied that despite a decrease in the eligible number of BPL households the food grain allocation remained the same as per the old estimate. It can be concluded that this discrepancy may have contributed towards increasing corruption and financial burden on the governmental front.
- Second, the TPDS mechanism was prone to large scale inclusion and exclusion error. As per the Tendulkar Committee (2009) it was estimated that around 61% of the eligible population was excluded from the BPL list, whereas 25% of non-BPL households were included. Apart from this, inaccuracy occurred to the prevalence of “Ghost Cards” i.e., cards being registered on the names of non-existent applicant either due to lack of data update or tampering in order to mobilise grains into the open market, thus hampering the sole purpose of the TPDS scheme.
- The first major challenge surfaced was that the number of BPL families were being calculated using 1993-94 poverty estimates by the Planning Commission, despite the release of new poverty estimates of 2004-05 and 2011-12.
- Leakage in the Delivery System and Allocation/Offtake error
- The TPDS system suffers from a large amount of food grain leakage. As per NSSO consumption data, a total allocation of 47.6 million tonnes was made in 2009-10 out of which only 42.4 million tonnes were lifted by the states. However, CACP noted that only 25.3 million tonnes were actually consumed, implying that around 40.4% of food grains were leaked from the TPDS network into the open market.
- Rising Food Subsidy leading to Financial Burden
Food subsidy is the difference between the procurement cost (MSP) and subsidized selling price (CIP) offered to the beneficiaries under TPDS; this cost is borne by the Central Government as it reimburses FCI and State Governments.
As per the data mentioned in the PRS report, the food subsidy increased from Rs 21,200 crore in 2002-03 to Rs 85,000 crore in 2012-13, causing a financial strain on the central government.
This increase in food subsidy is unstable and is likely to increase in future due to two major factors:
1.Dynamics of a stagnant CIP against an increasing MSP
The MSP increased due to an increase in the cost of production which was a result of the rising input costs, such as labour, energy, fertilizers and pesticides etc. This was followed by the rising cost of handling and distributing once the Centre procured the grains from the farmers. This post-procurement cost included the rising charges of the state governments for storage and interest, cost of gunny bags, inter-state transportation as procurement was highly concentrated to few states, etc. However, in contrast the CIP (Price at which it was sold to the beneficiaries) remained constant since 2002, which resulted in widening the food subsidy cost which is incurred by the central government. This widening gap in TPDS mechanism causes financial strain on the governmental budget.
The CACP data for rice and wheat for the years 2003-04 and 2012-13, shows that CIP has remained stagnant all through these years.
Derived BPL MSP
MSP – CIP
2. Procurement, Production and Population Growth
The food subsidy is likely to increase initially under the implementation of the new Act, mainly due to two reasons –
First, as part of population growth the procurement of the food grains will increase due to an increase in the number of beneficiaries. In 2012-13, about 70 million tonnes of food grains were procured under TPDS, which constituted around 36% of the total production. As per CACP estimate, for implementing NFSA 2013 the Centre will require to procure roughly around 61 million tonnes of food grain consistently every year to fulfil the legal entitlement of right to food under the Act.
Second, the food subsidy is likely to rise under NFSA 2013 as the average CIP under the new Act is lower than the previous level.
One should not be oblivion that maintaining consistency of such a huge procurement quantity on an annual basis can only be feasible if the domestic production is high. By any means if the production of the country gets affected (drought, floods etc.), we might have to rely on the import mechanism to support the provision guaranteed under law or even if we plan to boost our production domestically it will certainly alter the MSP which may rise with inflation in the input prices as mentioned above. Hence, in order to keep the food subsidy under control and sustain the financial sustainability of the TPDS mechanism it is imperative for the government to derive a method to revise the CIP upwards according to the changing MSP trends.
- Shortage of Government’s storage capacity
- FCI’s storage guidelines stated that food grains are normally stored in covered godowns, silos and in open space called – Covered and Plinth (CAP); these spaces were either owned by FCI or hired from state/centre warehousing corporations, state governments and private owners.
- As per PRS data, the storage gap increased from 5.9 million tonnes in 2007-08 to 33.2 million tonnes in 2011-12. As per CAG Audit, the owned storage capacity of FCI remained stagnant, ranging from 15.1 to 15.6 MT during a period of 2006-07 to 2011-12 and was not enough to accommodate the minimum buffer stock of 21.2 to 31.9 MT.
Apart from the shortage in the storage capacity, other issues stemmed, like
- 64% of storage spaces were concentrated in states with large procurement power (Punjab, Haryana, UP, Chhattisgarh, Andhra Pradesh)
- Low utilisation of existing capacity in various States/UTs
- As per 2003-10 data given by Chief Economic Advisor, Kaushik Basu, the Centre kept food reserves significantly higher than the stated buffer norms, which would not only lead to hoarding and rotting of food grains but will also affect the grain prices in the open market.
- Storing food grains in CAP (Open) for a long duration results in the deterioration of its quality.
- Lack of Centralised Technological Support, a mechanism left onto the state governments
Amongst the above-mentioned challenges, the old TPDS system granted state governments the flexibility to introduce state-specific reforms to effectively manage TPDS mechanism. Hence, many states resorted to different tech-reforms, e.g., use of GPS technology (Chhattisgarh, Tamil Nadu), digitisation of ration card (Gujarat, Madhya Pradesh, Karnataka, TN, etc.), use of web-portal as grievance redressal mechanism (Chhattisgarh).
This concludes that the Indian TPDS mechanism lacked a uniform tech support or redressal mechanism from the Central Government’s ends, which led to discrepancies and deficiencies across states.
These challenges broke the TPDS set up, hindering our ultimate goal to revamp the underprivileged sections of the society through the achievement of food security, as these obstacles made the mechanism less efficient and feasible. Now, let’s try to dive into the key reforms that took place under the new NFSA Act, 2013.
National Food Security Act, 2013
The underlying aim of introducing NFSA, 2013 was not only to guarantee legal entitlement and statutory backing for “Right to Food ” but all the provisions of the Act were incorporated in a way to address all the above-mentioned challenges and issues.
At the core NFSA, 2013 is operated by the TPDS mechanism, however with minor shifts in the division of the categories. During the ongoing litigation of PUCL vs Union of India, SC issued an interim order to reaffirm the implementation of Antyodaya Anna Yojana (AAY) as a legal entitlement. In the previous set up AAY category and the BPL families, both were offered with the same amount of food grains – 35 kg per household per month.
However, under the new Act two major categories are recognized – AAY (poorest of the BPL families) and PHH (Priority Households identified as per the criteria derived by the State Governments, unlike the erstwhile TPDS) each granted with a monthly entitlement of 35 kg per household and 5 kg per person, respectively. Further, the Act is estimated to provide coverage to 81.35 crore beneficiaries (75% rural and 25% of urban population).
As per the Annual Report (2020-2021) released by the Ministry of Consumer Affairs, Food and Public Distribution, NFSA, 2013 has achieved quite an achievement to work through the challenges faced by the former TPDS mechanism.
First, the Act de-linked from the former poverty-estimate mechanism and switched to the population estimate mechanism. The revised coverage was estimated as per the 2011 Census. Further, under the Act the subsided rates for the rice/wheat/coarse-grains were Rs 3/2/1 per kg for the initial three years (same as previous TPDS). After three years, these prices were ordered to be altered accordingly by the Central Government as per the requirement, however not exceeding the MSP.
Second, to modernise the functioning of the TPDS and to bring transparency and efficiency in its operations, Central along with all the State Governments implemented an End-to-End Computerization of TPDS Operations. This includes:
- Around 23.5 crore ration cards entailing the data of 80 crore beneficiaries is digitalized and available at the transparency portal of all the States/UT’s.
- Around 91% of Ration Cards (at least one member of the household) have been completely seeded with the Aadhar number.
- Online allocation of food grains to Fair Price Shops (FPS), implemented in all states/UTs except Chandigarh, Puducherry and Dadra and Nagar Haveli as these UTs are under the Direct Benefit Transfer (DBT) scheme, wherein entitled subsidy (in cash mode) is transferred directly into the bank account of the beneficiary enabling them to purchase food grains from the open market.
- The provision, computerization of supply chain management has been implemented in all States/UTs except Chandigarh, Puducherry and Lakshadweep. Whereas, it is under process in Arunachal Pradesh and Manipur.
- About 92%, i.e., 4.94 lakh of total 5.4 lakh FPSs are installed with electronic Point of Sale (ePOS) automation system, which ensures that subsidized food grains are delivered to the eligible beneficiary in a transparent manner via proper manner of biometric authentication.
- Online grievance redressal system and toll-free helplines (1967/1800-series) are available in all States/UTs.
- Further, all the transactions records along with the details regarding the allocation and distribution of the food grains up to district level are available on the central Annavitran Portal (Annavitran : Welcome) and respective ePOS portals of States/UTs. The National Food Security Portal (NFSA) monitors the ration cards management system, online allocation and supply chain management at national level.
- Third, to support and sustain the computerization of TPDS operations a Central sector scheme – Integrated Management of Public Distribution System (IM-PDS) is being implemented since 2018.
IM-PDS aims to achieve nation-wide portability of ration cards via a plan of “One Nation, One Ration Card (ONORC)”, thus empowering all the eligible TPDS beneficiaries to access and collect their entitled food grains from any FPS of their choice across the country. In the previous set up, beneficiaries were restricted to access their registered Ration Shop.
Up to December 2020, the ONORC scheme is seamlessly enabled in 32 States/UTs and has been further extended up to 31.03.2022.
- Fourth, in order to increase and modernise the storage capacity, the Central Government has approved an Action Plan for construction of 100 LMT silos across the country. Out of these 100 LMT, silos with capacity of 29 LMT are to be constructed by FCI, 2.5 LMT by Central Warehousing Corporations and 68.5 LMT by State Governments. Currently, a capacity of 8.25 LMT has been completed and put to use, 21.50 LMT are under implementation and 1 LMT is awarded to State Governments on Nomination basis. Moreover, new godowns of 1.88 lakh MT and 2,325 MT were completed in 2019-20 and 2020-21 by Private Enterprises and State Governments, respectively.
- Fifth, the Act guards the provision by establishing a vigilance committee at State, District, Block and FPS level, giving due representation to local authorities, SCs, STs, women and persons with disabilities. The vigilance committee shall supervise and monitor all the schemes under the Act, further the state is bound to send an annual report to the centre regarding the functioning of these committees.
- Sixth, all the tech support schemes are implemented in a centre-state collaboration, in the End-to-End Computerization costs are shared between the States/UTs on 50:50 basis, except for the north-eastern states where the allocation sums up to 90:10 basis. The expenditure incurred under the installation and maintenance of ePOS system would be shared between Centre and State Governments on 50:50 and 75:25 basis for General and Special Category States/UTs respectively.
Further, as per the recommendation given by the High Level Committee, the FCI initiated containerized movement of food grains on certain routes through Container Corporation of India (CONCOR) which was found to be economical in comparison to conventional Railway rakes. Up to December 2020, around 226 containerized rakes were moved which resulted in an approx. freight saving of Rs 329.90 lakhs.
- Lastly, unlike in the former TPDS mechanism, States/UTs were solely responsible to finance the Intra-state transportation of food grains. However, under NFSA the central government has allocated Rs 3,679.82 crore in the Financial Year 2020-21 to assist the expenditure of States/UTs on intra-state movements of food grains and FPS dealer’s margin.
Apart from this, NFSA, 2013 asserts the state governments to grant preference to public institutions/ bodies like panchayat, Self-Help Groups, Co-operatives while issuing FPS licence. Around 1.43 lakhs FPS are currently falling under the above-mentioned preference purview. Proper Training Programmes for TPDS/NFSA functionaries are also started.
Analysis and Contemporary Challenges
It can certainly be concluded that NFSA’s provision of revising the coverage estimate and providing a uniform tech-support across India were much-needed changes as they certainly help to eliminate the inclusion and exclusion errors, ghost withdrawal and bogus beneficiaries. Whereas, the establishment of central monitoring systems via nfsa and annavitran portal further ensures transparency and effective end-to-end delivery, thus improving upon the leakage issues.
The 2013 Act, also seems to be working towards minimizing the financial strain on the Central Government as experienced under the former TPDS mechanism by opting the approach of associating with CONCOR or reaching a cost-benefit collaboration between the states and centre. The Act has also made the TPDS system beneficiary-friendly by implementing ONORC scheme, Vigilance/Redressal Mechanism, enlarging the ambit of issuing license of FPSs with the focus to empower certain communities and groups.
NFSA, 2013 is a well-furnished progressive policy framework to achieve food security in India, however this foundation will only suffice when the provisions of the Act are effectively implemented. One must not be oblivious to the fact that the new mechanism still faces implementation and technological errors at the basic ground level which need to be addressed.
The dynamics of stagnant CIP against increasing MSP has been a major cause for widening the food subsidy cost incurred by the Government, although the 2013 Act ordered a timely renewal of prices the same has not been implemented as no revision to CIP prices has been made under the Union Budget 2021. Thus, the continuation of the same old CIP marks a question to the financial sustainability of the TPDS system under NFSA.
As per Lokniti- CSDS study (2019) – survey carried out on 12,000 + electors of which four-fifth interviewers possessed a ration card concluded that around 28% or over one in four households (India-wide) were deprived of their food grain rations for lack of Aadhaar, or due to other Aadhaar-related problems such as biometric authentication glitches or failure to link their ration card with Aadhaar. This percentage increased to 39 % among low-income households and 40% in the erstwhile BIMARU states. In 2020, LJP President, Chirag Paswan alleged the State Government of Bihar as it failed to send an updated list of the beneficiaries to the Centre, which excluded the details of 14.5 lakh families (Bihar) – about 60 lakh beneficiaries depriving them to avail the benefits of the TPDS. There have been a lot more cases/reports about beneficiaries’ fingerprints not getting confirmed by the e-PoS device at the ration shop, iris scanners not being there as backup, and a poor Internet connection. Amid these cited irregularities and misuse of OTP, the ePOS system has been suspended by the Delhi Government since 2018. However, in April this year, Delhi started the pilot project of ePOS and ONORC scheme in Seemapuri Circle.
With the implementation of ONORC as a promising scheme for the migrant labourers and their families as it grants them accessibility to any FPS of their choice across the country, experts have raised worries about keeping a track with the inter-and-intra mobilisation of migrants, as no accurate data can be derived at. Thus, studying, recording and updating migrant’s data across India would be a tedious task to carry out. This critical challenge needs to be tackled efficiently as the allocation of food grains to the state is done on a monthly basis any discrepancy will not only deprive the beneficiaries but may also lead to black marketing and hoarding.
Further as per a survey carried out to analyse the effects of post-NFSA in Odisha, Uttar Pradesh and Bihar concluded that most of the respondents were neither aware nor understood the ONORC scheme (57% in Bihar, 62% in Eastern UP, 72% in Odisha). The same survey also draws upon that many of the beneficiaries were unaware of the shift in categories. Thus, a greater information dissemination is needed to generate awareness regarding NFSA provisions in order to garner support to and from the underprivileged families.
Lastly, I would like to shed light upon the effect of the Essential Commodities Act, 2020 upon the TPDS mechanism under NFSA. The ECA, 2020 has been a cause of a major uproar across India as the Act is seen to stimulate hoarding behaviour from the giant private corporations leading to price-inflation, although government ensures that “nothing contained in this sub-section shall apply to any order relating to the PDS or the Targeted PDS, made by the Government under this Act or under any other law for the time being in force’, the Kisan Union (AIKSCC) views “the time being in force” very sinister in nature. Further, the farmers are also critical towards the dismantling of APMC system as it may have a ripple effect on the public procurement mechanism at MSP. However, the farm laws have many interpretative ambiguities which may or may not affect the NFSA mechanism directly. All this remains to be seen.
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