Food price stability: Is PDS working?

With the scare of rising food prices and the volatility in food output being seen all around the globe, there is a renewed focus on the sustainability and efficacy of India’s biggest intervention in the food market. The Public Distribution System (PDS) seeks to ensure availability of essential commodities like wheat, rice, sugar, edible oils and kerosene to the consumers, through a network of outlets or Fair Price Shops (FPS). There is a network of about half a million PDS retail outlets in the country. PDS is operated under the joint responsibility of the Central and State Governments. 70% of the poor use the PDS in Andhra Pradesh, Karnataka, Kerala and Tamil Nadu. Between 50 to 60% of the poor use the PDS in Assam, Gujarat, Maharashtra and Orissa. Participation rates of the poor vary between 6 to 22% in Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh. Indeed, the majority of the poorest 20 per cent of households in the northern and eastern Indian states does not purchase any foodgrains from the PDS. In aggregate, only about 42% of subsidized grains issued by the Central Pool reach the target group, according to a Planning Commission study released in March 2008.

This study shows that though the offtake per household has shown improvement under Targeted Public Distribution System, only about 57% of the BPL households are covered by it. The amount of subsidies during 2007-08 for food, fertilizers and petroleum was Rs 64,929 crore. The food subsidies are largely designed to be targeted to people below the poverty line and the other two subsidies, fertilizer and petroleum, particularly LPG, are available to all users and consumers. In principle, food market interventions are supposed to enhance the efficiency of food markets as well as improve the equity of food market outcomes. The efficiency effect arises from price stabilization. The reduction in risk is beneficial to producers as well. Even with stabilization, the market outcome involves unacceptably low food consumption for the poor. The equity objective of food market intervention is to augment the food consumption of such target groups by offering subsidies. Both these goals could be achieved by procurement, storage and distribution.

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