04/02/2015 1:40 PM IST | Updated 15/07/2016 8:24 AM IST

Govt Claims Of Higher PDS Leakage Not True, Economists Say

In this Wednesday, March 21, 2012 photo, Sukhbasi Mandani, 50, second from right, stands in a line with others to buy subsidized rice from a fair price shop in the Public Distribution System in Rayagada, in Indian eastern state of Orissa. India's Public Distribution System sends out 45 million metric tons of heavily subsidized food each year to help 400 million people in their tenuous struggle for survival, but in reality, the $15 billion national program is riven with corruption. But new devices are transforming Rayagada into a laboratory to test a thesis with deep implications for the future of India: Can technology fix a nation? (AP Photo/Manish Swarup)

Corruption in the Public Distribution System has been cited by the Indian government as the main reason to go for cash transfers to low-income and below-poverty-line families that qualify for receiving them.

Such corruption includes siphoning off grains meant for the poor by middlemen and then selling them in the open market to make profit, or higher income families receiving subsidized food through collusion with officials. Both lead to leakages and undermine the system which helps distribute over 45 million metric tons of foodgrains to over 400 million families each year.

But development economists Jean Drèze and Reetika Khera argue that leakages are being overstated to make the case for cash transfers when states such as Bihar and Odisha are proving that an efficient PDS is the best way to reduce poverty. This comes after the Shanta Kumar committee submitted a report to Prime Minister Narendra Modi last week, recommending a gradual phasing out of PDS and moving to cash transfers. To support their case, the committee cited estimates of leakages as calculated by Ashok Gulati, former chairman of Committee for Agricultural Costs, which recommends the minimum support price for farmers, and Shweta Saini of Indian Council for Research on International Economic Relations.

Drèze is a visiting professor at the Delhi School of Economics and author of several books with Nobel Laureate Amartya Sen. Khera is an Associate Professor in the department of Humanities and Social Sciences at IIT-Delhi. Both were involved in the creation of the National Food Security Act, and Mahatma Gandhi National Rural Employment Scheme, which were passed by the last UPA government to ensure food and jobs for millions of poor people in rural areas. They contend that the methodology used by Gulati and Saini is faulty, and inflates the rate of leakages. "Improvements among Indian states has reduced leakages and made the system more efficient. There are serious miscalculations in the Shanta Kumar report," Drèze said in a conference yesterday.

According to their study, soon to be published in the Economic and Political Weekly (EPW), the leakages stand at 41.7 percent, as compared with Gulati and Saini's estimates of 47 percent. "The figure in the Shanta Kumar report would mean that leakages have gone up. Our study shows that has not happened," said Khera. They pointed out that states such as Bihar, Chattisgarh and Odisha have reported sharp falls in grain leakages between 2004-05 and 2011-12.

Bihar, which has traditionally been ranked among the most corrupt states, has shown a remarkable turnaround. The estimated leakage plunged to 24.4 percent in 2011-12, from being at 90.9 percent, a level where almost all of the foodgrains meant for the poor never reached them. In Chattisgarh, the leakage is now at just 9.3 percent from 51.8 percent in the earlier period.

"Our analysis shows that the Food Security Act (FSA) can be soundly implemented, and should be expanded. The impact on poverty reduction is considerable when the PDS works efficiently." — Jean Drèze

Such sharp improvements emerged around 2011, when the states introduced tracking coupons and got access to improved data on families used to decide recipients of PDS. "The quality of data in Bihar is very good now, which has helped make the PDS more efficient there," said Himanshu, an economist at Jawaharlal Nehru University (JNU), who has researched the system, and was present at the conference. West Bengal has also managed to bring down grain leakages in the same period.

On the other hands, states such as Gujarat and Tamil Nadu, which have had higher economic growth in the last decade, reported worsening leakages. "Our analysis shows that the Food Security Act (FSA) can be soundly implemented, and should be expanded. The impact on poverty reduction is considerable when the PDS works efficiently," said Drèze.

Much of the leakages currently happening is in the Above Poverty Line quota. "More foodgrains are now being dumped into the APL. Instead, this quota should be phased out and coverage extended to families through the FSA," he said.

Research at the National Council for Applied Economic Research has also shown a decline in diversion of PDS foodgrains to 32 percent in 2011-12 from 49 percent in 2011-12. The findings have been published in the India Human Development Survey, said Sonalde Desai, Senior Fellow.

Gulati has said that despite decline in leakages, the problem was still significant and cash transfers are the best way to make sure that the PDS is more efficient. He also said that plugging leakages under the FSA is a costlier option for the government.