The system of foodgrain procurement and distribution has been repeatedly criticised for its inefficiency, burden on the state exchequer, and distortions in the market. The Public Distribution System (PDS) itself has been attacked for leakage and pilferage, cost of delivery, and diversion of supplies to the open market. Alternatives like food stamps have been suggested to PDS. It is also felt that in the country's new business environment, the private sector can effectively market and distribute food. So, do we need government intervention in foodgrain procurement and distribution in the present set-up?

More than a quarter of India's population is below the poverty line - poorly equipped to buy the required food at open-market prices. On the other hand, if open-market prices correspond to the aggregate purchasing power of the country, then the level of production falls much short of the basic requirement. Thus, it is essential to maintain a dual-price system - one price level that encourages farmers to produce the volume needed to meet the country's requirement and another that makes food affordable for the economically-weaker sections. This is what PDS is meant to do. Some experts argue that direct transfer of income or food coupons are much more efficient options for ensuring the food security of poor people. But a problem with this mechanism is that the income transferred by such means, falling into the hands of the head of the household, may not be used to purchase food. We found strong evidence that an increase in the income of a poor household is not accompanied by an improvement in nutrition because it does not perceive food deficiency as the most important unmet demand. Therefore, the alternatives are unlikely to succeed in addressing the nutrition needs of poor people and we have to rely on the PDS.

Creating more awareness about it would pressure the ruling class to make effective use of the PDS. Similarly, Panchayati Raj institutions and civil society organisations can monitor whether the food meant for the PDS is reaching the people. It also needs to be kept in mind that if the system is put under excessive burden, it can collapse. The poor need to be provided food cheap but not at a throwaway price. If the difference between the PDS and open-market prices gets too large, the system becomes prone to leakages and there is too big a financial burden on the exchequer. PDS prices have not been raised since April 2000, whereas the Minimum Support Price (MSP) and open-market prices for wheat and rice have increased by over 50 per cent. To reduce the incentive for leakages and to keep the PDS burden manageable, PDS prices should be revised every year.

The biggest challenge to the food distribution system is from shortfall in procurement. Private players have expanded their operations in foodgrain markets during the last three years after changes in regulations, which facilitated private participation in agri markets. In such a scenario, it is not possible to procure food at MSP. At the same time, it is not desirable to restrict private trade, as it improves price rospects for producers and increases competition in the supply chain. One way to address the situation is that the government differentiate between the role of the MSP and the procurement price. While the MSP should continue to be announced before the sowing season, the government should also announce the procurement price at the start of the harvest season. This price should be used as a benchmark for foodgrain procurement by official agencies. A cell in the Ministry of Food should monitor prices and make changes as per the market situation.

Courtesy: Business World, April 1-7, 2008