Demand-driven destiny……….K.V. Thomas
The Food Security Acts success will depend on how the customer is able to enforce accountability on his neighbourhood fair price shop. Such shops, about 5.3 lakh of which currently exist, cater to customer groups as small as 500, are generally licenced by State Civil Supplies Departments, and are the last mile for delivering subsidised grain to the needy under the subsidy regime the Centre and states decide. That is where our problems lie.
The operation of the current PDS shop can only be magical. A more unviable commercial entity cannot be imagined. The margins allowed are so minuscule that no retailer can meet his costs. However, no civil supplies commissioner in the country has had any difficulty in finding vendors. In fact for every vacancy, there are more than a hundred applicants willing to even offer huge bribes to be the licencees of the state thanks to the possibility of arbitraging the cheap grain.
Diverting the subsidised grain is considered standard operating procedure even in states which do generally well. Some even argue that diversion of APL grain is pro bono since it helps deliver BPL grain in a somewhat Robin Hood approach. The response of many has been to deride the Fair Price Shop (FPS) owners as a generally corrupting influence, and put him under a rigorous inspection Raj. The standard response, therefore, has been to inspect, search, seize, prosecute, de-licence, imprison etc.
The proper operation of the FPS was discussed in the recent brainstorming the food ministry conducted with state food officials. In fact the session on innovation on PDS was overwhelmed by well-meaning innovators who had invented dungeon-grade torture tools to ensure good behaviour. States have invested in CCTVs to monitor them, fitted GPS on vehicles ferrying grain, delivered grain in bulk to villages under commodity inspection or audit, engaged bulk SMS and other audio-video communication to inform PDS consumers about stock arrivals, and of course arrested and incarcerated scores of errant dealers. These efforts are as infertile as they are sincere.
The root cause of pilferage of subsidised grain is the differential price of grain, and the monopoly of the licencee. The customer cannot decamp from his designated shop, and buy from another better vendor. If his vendor defaults or defrauds him his only recourse is to approach the state with a grievance, which officials will dispose of. He is completely disempowered in the process. Under the proposed new bill, the unserved customer has recourse to a food subsidy allowance in lieu of the grain he was promised. Questions remain on how fast redressal can be.
Therefore, the rational course of action would be to remove the factors that predispose the FPS dealer, in collusion with a hierarchy of inspectors, FCI officials and politicians to sell grains in the black market. FCI grain must move in the country only at MSP plus applicable freight charges. Retailers must buy at that rate. The subsidy must be delivered as cost reimbursed on a smart card the BPL customer is provided. The difference between the BPL rate and the economic cost must be credited to the FPS retailer from the card provided to all PDS customers.
This would weed out the root cause of large-scale corruption in PDS. Its strength lies in two additional benefits, which have huge managerial potential. Firstly, the chip-based card can allow rapid portability of the benefits. In an era of large-scale migration and rapid urbanisation, the poor will find it easier to transfer from one state or district to, say, a metro where the card can be registered afresh. The present method to obtain a fresh ration card is difficult without political clout.
Also, in urban areas people will vote with their cards and the FPS owner with better service credentials and performance will be automatically selected. More margins can be paid to FPS that disbursed more poor grain. Instead of officials sending SMS to customers the shopowner will now ask customers to collect their grain. Imagine FPS owners competing to get their poor users to come for their grain! That is reform.
The entire systems logistics will become demand-driven. Withdrawals by users in the PDS shops will be the basic metric which will finally determine procurement levels. Stock replenishment, storage, inventory management etc will follow that metric. The higher organisation will have to respond to the users demands.
This isnt rocket science. Every retail chain worth its name practices it day in and day out.
However, entrenched vested interests are unlikely to favour electronic mediation since it hits at the root of the corruption that serves them well. Instant counter-arguments: storage insufficiency in retail points and how to serve remote areas?
These are specious. Firstly, the storage required at the retail point is a function of effective demand and the retailer must be allowed the storage he needs to serve his enhanced customers. In remote areas where there is only one FPS dealer one has to continue without the competition element, but with accountability gains. A valid question: would not smart card-based competition render some FPSs unviable? But the purpose is not to serve the poor performer. It is to tilt the balance towards the customer and the better vendor. Shops not being preferred would move on to other merchandise.
A last possibility the smart card offers is to include more items in the subsidy net like edible oil or coarse grains and give choices to the PDS customer. As incomes rise, the customer may need other ingredients than grains.
Back of the envelope calculations show that a smart card-based system can be implemented across the PDS system at around Rs 7000 crore. This is minuscule compared to the diversionary losses in the subsidy, currently estimated by the Planning Commission at Rs 20,000 crore per annum.
The real roadblock,however, would be the present element of discretion, the possibility of creative accounting, and the grease these add to the systems wheels.
The writer is Minister of State for Agriculture and Food. The views expressed here are personal