Dismantle PDS and issue entitlement stamps
Arun Firodia
Our food distribution system is cause for concern. It is learnt that last year we exported good quality wheat at a price lower than what we paid to our farmers, making a loss. This year we are importing inferior quality wheat at a price higher than what we pay to our farmers, again making a loss. It is also reported that seven lakh tonnes of sugar meant for the public distribution system (PDS) disappeared from government godowns in Maharashtra. The time has come to have a second look at the PDS.
Food subsidy shot up from Rs 2,450 crore in 1993 to Rs 25,800 crore in 2004-05. The subsidy arises because of the difference between minimum support price (MSP) and issue price, apart from the costs of wastage, pilferage, transport and inventory. It is estimated that cost of transferring a subsidy of Re 1 to the poor actually works out to Rs 7. A recent government study also shows that not even 25 per cent of the food reaches the poor most of it is sold in the black market.
How does PDS work? Government procures foodgrains (rice and wheat) from farmers at MSP, stores them in its godowns and then sells them at issue prices to the poor through fair price shops. The poor belonging to the Antyodaya group get rice at Rs 3 a kg, those belonging to below poverty line group get it at Rs 6 a kg, whereas those just above poverty line get it at Rs 9 a kg. This is a sure invitation for malpractice. A shopkeeper would show that he sold his entire stock to the Antyodaya group and claim maximum subsidy.
Verification of buyers leaves much to be desired. Most shopkeepers tell the poor that ration stock is exhausted and force them to buy from his normal stock, at full price. There are plenty of bogus cards.
In many states, jowar, bajra and ragi are staple foods of the poor, but these coarse cereals are not covered by PDS. Poor people in these states end up eating wheat and rice. There is no export market for these coarse cereals either. So, prices of these cereals keep falling. The worst part is that these crops are grown by the very poor marginal farmers on non-irrigated land. The very poor keep getting poorer as there are no takers for the foodgrains they grow not even the poor. There is an urgent need to replace the inefficient, expensive and corruption-ridden PDS.
The remedy is simple food stamps. These would be issued directly to the poor and be valid for all types of food: rice, wheat, jowar, bajra, cooking oil, dal, sugar. Each stamp would carry a subsidy amount of, say, Rs 5 per kg. Stamps
could be used to buy food at any grocery shop. The shopkeeper could redeem them at any bank. Food stamps would allow a poor person to buy what he wants and from where he wants. He only needs to pay the difference. The cost of administering PDS would be saved. Instead of spending Rs 25,800 crore on PDS, the government should issue food stamps of equal amount. That would enable nearly 30 crore poor people to buy food at subsidised rates.
Food stamps can be issued against the food for work programme. As per a government estimate, India needs to spend Rs 1,40,000 crore on countrywide road construction every year. A massive road construction programme could be started under National Rural Employment Guarantee Scheme (NREGS). Assuming labour content in road construction to be 40 per cent, construction workers would be paid Rs 56,000 crore as wages. If 50 per cent of these wages are paid in food stamps, 30 crore poor can overcome hunger.
The finance minister said he would find ways to raise money for NREGS. He is perhaps thinking of using foreign exchange reserves of $170 billion. Most of this money is invested in US treasury bonds and goes to finance infrastructure there. There is a crying need to invest it in infrastructure in India roads, watershed development, food storage, drinking water supply, sanitation, bioenergy farming and afforestation.
One might worry that scamsters will print fake stamps and swindle the government. To prevent this, stamps can be watermarked and serially numbered, using bar codes. This would make them computerreadable. In the event of a scam, the government can trace the shop from where these originated. It could issue an electronic ration card to everyone below poverty line, similar to the credit cards we all use. Any fraud would be easily detected as the required software is already well-developed. Electronic ration cards could be started first in cities for the urban poor and extended gradually to rural areas.
Once the idea of food stamps catches on, the government could consider issuing clothes stamps, seeds stamps and fertiliser stamps. Fertiliser stamps could help the government curb a subsidy outgo amounting to Rs 10,000 crore, which goes to fertiliser producers and not farmers. Why not issue education stamps that would enable the poor to send their children to good schools rather than poorly run government schools? Government could then discontinue education subsidy at least in urban areas and reservation for disadvantaged classes.
As we enter an era of rapid economic growth, the very poor need a helping hand through food stamps which will eliminate the most expensive middleman, government.
The writer is chairman, Kinetic Group.