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Public Distribution System

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Chapter -3

Analysis of the data

3.1 The Indian Public distribution system

The fiscal background

The most important medium through which the Government ensures food security at the micro-level is the Public Distribution System (PDS). India has a large programme of public food distribution, mainly food grains, through a network of Fair Price Shops (FPS), both in rural and urban areas. With more than 460 thousand FPS, its reach in rural areas is sometimes better than the market. The program me has evolved with the twin objective of providing incentive prices to the farmer for a sustained supply of food grain and subsidizing its consumption.

The rural Indian spends 64% of its budget on food. Food share is an inverse indicator of welfare: it follows that food security should be a major focus of policies concerned with well being in this society. In terms of both coverage and public expenditure, the most important food safety net is the Public distribution system. Of the 200 million tones of food grains produced in 1999-2000, about 29 million where produced by the government under PDS, which now support the largest network of"fair price shops" in the world. (458499 shops in 1999). These provide rice, wheat sugar, edible oil, soft cake and kerosene oil at subsidized prices. The PDS is managed by state governments.

The central government based on the population state and its share of below poverty line households and above poverty line households, determine the total procurement of food grains and total allocation across states. The government also determines the Central Issue Prices (CIP) for commodities. The state government then determines the off-take, the public delivery, and the list of commodities provided. The state government is allow to add to the CIP the transactions cost of keeping the stock and of delivering. Locations of the fair price shops are determined by the officials at the district level. There is enormous variation in the density of the fair price shops as also in the regularity of supplies both across and within states.

The PDS took shape soon after the Bengal famine in 1943. It evolves in the 1950s and 1960s as a mechanism for providing price support to producers and at the same time as providing food subsidy for consumers. At that time the country was threatened by national-level food shortages and there was rapid food price inflation, especially in urban areas. By the 1980s, India had generated a surplus of food grains and the incidence on poverty had declined progressively for about 50 per cent in the 1960s to about 30 per cent in the 1990s. As a result the welfare component of the PDS gains strength in the 1980s, when it was considerably extended to rural and tribal blocks, with and explicit view to reaching areas of high poverty incidence. In the context of currency devaluation and economic reform in the 1990s, procurement and issue prices of PDS commodities were increased leading the government to mitigate the adverse welfare consequences by better targeting of PDS to the poor. Until 1992, there was universal entitlement to the PDS but it has since been restructured. In 1997 it was replaced by the Targeted PDS (TPDS) in which targeting was shifted from poor regions to poor households and the subsidy differential between the poor and non poor was widened. More specifically, 10kg of food grains were available at a highly subsidized price per family per month for families below the poverty line. Those classify as non poor get no subsidy though they are served by fair price shops, which can play a useful distributional function in areas where private shops have not emerged. The problem of crowding out effect may exist if the poor are credit constraint and if they rich are not.

3.2 Evolution of Public Distribution System

History of Public Distribution System

The history of intervention by Governments can be traced from the efforts of the State in providing relief to the needy in times of distress-famines, scarcities and crop failures. Famine relief was always considered as the sole responsibility of the State. The degree to which it was owned and discharged, of course, depended upon a number of factors, chief of which was effectiveness of the Central Government in the country. During the Mauryan Empire, particularly during the reign of Ashoka, as the imperial authority was powerful and strong, the provincial Governors undertook relief operations in times of distress. Grain was supplied from Government granaries and even bullocks were given on loan for which the farmers could make payments in subsequent years and in installments.

This state of affairs continued right till the Mughul period, when the imperial authority was once again established after a long time. History further tells us that the rulers maintained government granaries in which the Government's share of the grain, obtained in lieu of land revenue, was stored and used in times of famine.

The public distribution system (PDS) has throughout these years been an integral part of India's overall food policy. Intervention by the government in the food grains trade started as far back as the Second World War and large urban complexes like Bombay and Calcutta were placed under statutory rationing. Even before freedom came to the country, the colonial rulers were aware of the need for ensuring adequate availability of food grains to rural and urban high-consuming pockets of country. This has been the broad objective also of the country. This has been the broad objective also of the Government of India since Independence though the nature and relative extent of governmental intervention have been largely conditioned by fluctuations in agricultural production.

The concept of grain reserve' for meeting the distress in lean years is noticeable in the British policy too, from the very beginning. The Famine Commission of 1880 seriously examined the proposal but, due to reasons of 'finance' as well as 'management', they advised against the Government holding the reserve by itself. They believed that once employment opportunities were organized on a wide scale, the food grain supplies would be ensured through private trade.

Consolidated

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