Me Gmp Group Project - Geneva

8/6/2019 Me Gmp Group Project - Geneva

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MANAGERIAL ECONOMICSMANAGERIAL ECONOMICS

Managerial Economics Group Project

Team - GENEVA

Amit Rungta

Somdeep Deb

Neeraj Mohan Rajendra Vijay

Deepak Khandelwal


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PUBLIC DISTRIBUTION SYSTEM in INDIA


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MANAGERIAL ECONOMICS

What is Public Distribution System?

PDS means distribution of essential commodities to a large numberof people through a network of FPS on a recurring basis.The major commodities are as follows :

Wheat Rice Sugar Kerosene

PDS evolved as a major instrument of the Governmentseconomic policy for ensuring availability of food grains tothe public at affordable prices as well as for enhancing the food securityfor the poor.

PDS is operated under the joint responsibility of the Central and the

State Governments.


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Public Distribution System Brief History:

The Oldest PDS System: Maurya Empire,Mughal Empire.

The British Rationing System: Introduced in 1939 in Bombay for stabilizing food prices The PDS was expanded to many cities & towns to address thescarcity caused by the World War II & the Bengal Famine

Independent Indian PDS:The PDS evolved as a system of management of food scarcity andfor distribution of food grains at affordable prices

Each 5 year plan usually brings about some changes in the PDS


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Public Distribution System Objectives & Major stakeholders:

The Public Distribution System (PDS) was institutionalized in the countryin the 60s to achieve multiple objectives including ensuring stability ofprices, rationing of essential commodities in case of deficit in supplies,

ensuring availability of basic commodities to the poor and needy and tocheck the practice of hoarding and black marketing.

Major Stakeholders: Central Government: State Government Food Corporation ofIndia: Fair Price Shops


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Universal Public Distribution System: Does not distinguish between different income groups of the society. Original PDS launched in 1960 was universal. Backed by Nobel laureateAmartya Sen & EconomistJayati Ghosh.

Advantages: Economies of scale Reduction in transaction cost & administrative hassles. Rich & politically influential have stake so the process is without any politicalhindrances. States like Kerala, TN, AP defined BPL in such an inclusive way that majority of thepopulation is covered.

Defence of

Universal PDS

Success Story Tamil Nadu:The success of the scheme in Tamil Nadu relies heavily on groundwork. The mammoth taskof minimizing diversion and reaching 317,000 tones of rice to more than 1.97 croreCardholders who draw rations from about 31,439 outlets in 32 districts (including the newlyformed Ariyalur and Tiruppur) involves technological interventions, drawing up innovativefool-proof delivery mechanisms, old-fashioned policing, surprise checks and constantreviews, and fixing responsibility at each level.


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Issues with Universal PDS & emergence of Targeted PDS:

Hence, TDPS was launched across all states -

Dedicated to people below Poverty line.Transitory allocation also available for people

above Poverty Line at a higher price.

Increase in inter regional disparities & effect on fiscal deficit (10% in 1996)

Major issue with Universal PDS pre 1997:

How to define Disadvantaged section ofsociety?

No standard norm available to identify BPLfamilies across states.


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Targeted Public Distribution System:

AAY launchedin December,2000 for 1

crore poorestof poorfamilies (BPL)

First expansion: 2003-2004

by adding

another 0.5crore BPLhouseholds .

AAY wasfurther

expanded in2004-2005 byadding another0.5 crore BPL

families.

AAY wasfurther

expanded in2005-2006 tocover another0.5 crore BPLhouseholds(i.e. 38% of

BPL)

As on30.04.2009, 242.75 lakh AAYfamilies havebeen covered

under thisscheme.

The scheme was initially announced in the year 1997 but could not be implemented in NCTDelhi immediately, mainly for two reasons namely, for want of actual identification of theBPL families and the desire of the Govt. of NCT Delhi to make the scheme more broadbased. Hence it was finally launched in 2000 in the form of ANTYODAYA ANNA YOJANA(AAY)


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Targeted Public Distribution System Leakage & Diversion:

For every Rs. 4 spent on PDS, only Rs. 1 reaches the poor

57% of the PDS food grain does not reach the intended people

The major reasons for leakage and diversion in PDS are:

Inclusion Error. Ghost Cards. The non-viability of FPSs.

As per FAO 400 million poor and hungry people inIndia. India is food surplus nation, still there ismalnutrition and hunger.


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Recommendations:

Case Study (Brazil):Bolsa familia program started in 2001 aimed at education. Expandedin 2003 to include food and fuel. Now cover 2.6 million families. Govt.transfers cash to family subject to condition like school attendance,nutritional monitoring, prenatal and post natal tests. Poverty leveldropped by 15% from 2003-09. MDG 2000 sought to halve povertyby 2015.Cost of cash transfer 0.4% of GDP ( India spends 2% of GDP on

subsidies)

Viability of FPSs

Integration withUIDAI

Involvement of PRI Monitoring of

delivery

Greater control ofresources by

women

Photo Identificationmandatory

Concept of foodcoupon/ food stamp an alternate theory


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Recommendations (Economists point of view):Madhura Swaminathan: In a country like India where the target group is very large, and

where it is clearly important to focus on ensuring that the malnourished are reached, A Universalscheme is better than a narrowly targeted scheme. Targeted schemes are more difficult toadminister than universal schemes, and the administrative costs involved are proportionatelyhigher than for a universal scheme. Ref: http://www.hinduonnet.com/2004/08/03/stories/2004080300331000.htm

Kaushik Basu (Chief economic advisor in the Union finance ministry: We usually like tokeep procurement to less than a third of production. The total production last year was 218 mt. Soit is double, provided we do not lose grain to leakages. Under the current system, operatingthrough the PDS, we end up losing a lot of the targeted grain to illegal sales on the openmarket..... So, the short answer is, yes, it is feasible, provided we are willing to fix the leakages inthe delivery mechanism we use to reach the poor. Ref: http://www.business-standard.com/india/news/qa-kaushik-basu-chief-economic-

advisor/414099/Bharat Ramaswami : Food subsidy (7.3% of tax revenue) is expensive not just because of

transfers to the non-poor but also because of fraud (because of illegal diversions of grain to themarket) and excess distribution costs of the PDS (relative to the private sector). The future of foodsubsidy programs is unlikely to lie in a centralized PDS. A regionally differentiated safety net offood subsidies (but financed primarily by central government funds) is likely to offer moreopportunities for designing and delivering subsidies appropriate to local consumption patterns andcapabilities.

Ref: http://www.isid.ac.in/~bharat/Doc/oxford_pds2.pdf


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