PUBLIC DISTRIBUTION SYSTEM :

PUBLIC DISTRIBUTION SYSTEM :
Definition:
The system of the government and its agencies supplying the essential commodities to the consumers at reasonable prices is called the Public Distribution System (PDS).
History:
The institution of fair price shops came into existence during the Second World War. Earlier, the Government had made arrangements to open grain shops in different industrial and rural areas for the distribution of specified quantities of food grains at subsidised rates to labourers.
To stabilise the prices of food grains. the Government organised fair price shops where card-holders could make purchases at fixed prices. Thus, the Government tried to influence the priccs in the open market.
The Central Government formulated a scheme in 1956 for the extensive sale of food grains through fair price shops. All the State governments were asked to open a large number of fair price shops mainly for the distribution of rice and wheat. The total distribution of food grains in 1956 from the Government stocks was 2.1 million tonnes.
The amount of grains thus distributed increased significantly after 1964 because of poor agricultural production over the three years from 1964-65 to 1966-67. In 1965, statutory rationing (rationing as per law) where the quota of sales for individuals is set by the Government was introduced in four major cities and later extended to a further 10 cities in the country. The family ration card system was also introduced.
WORKING OF THE PUBLIC DISTRIBCTTION SYSTEM (PDS)
The farmers producing the food grains are distributed throughout the length and breadth of the country. So also, the consumers are geographically distributed. Most of the consumption points are the large townships and urban areas where food is not grown. The food grown by the farmers will have to be supplied to these consumption centres. There are both rich and poor people, and in the case of an increase in the prices, it is the latter who stand to suffer. The trading community usually takes care of assembling the crops grown by the farmers and marketing them to the consumers. But, left to themselves, the traders indulge in speculative activities i.e. they speculate (expect) the prices to increase during the nonharvest season because of low availability of foodgrains. This goes by
the simple principle in economics which says that when the demand for a commodity is more than its supply, the price of that commodity increases. Hence, there is a possibility of the traders hoarding (stocking) the commodity and thus creating an artificial scarcity in the market. This leads to an increase in the prices of food grains when the traders release their stock, thus enabling them to make higher profits. It is here that the Government intervenes to prevent such a situation and comes to the rescue of the consumers.
Role of State:
The Government agencies which are involved in the PDS are the Food Corporation of India and the Food and Civil Supplies Corporations for the State Governments. They buy the food grains grown by the farmers usually at the regulated markets. They store these grains and transport them to the distribution (off take) points. From these points, the retailers (Fair Price Shops) buy the commodities and ultimately sell the grains to the consumers. The Central Government fixes the quota month wise for each state regarding the quantity of food grains which can be sold through the PDS. This quota depends upon the needs of the population of the state and its contribution to the central pool of food stocks. Rice and wheat are the two commodities which have been given maximum emphasis for the sale of procurement and distribution through the PDS.
How the PDS helps the consumers:
There are two important concepts.
1)The Market price
2)The Issue Price.
1)Market price :
It is the price of a commodity prevailing in the open market. We usually concentrate on the wholesale price in the open market. This is because the retail price depends upon the wholesale price.
2)The Issue price :
It is the price at which the government releases (sells) its stock to the retailers (Fair price shops) for distribution. Here again, the price we pay in our shop will be more than the issue price itself. The information on prices will usually be converted to Index numbers (Price Indices) to facilitate a better comparison hetween different points of time.
The benefit to the consumers:

* The benefit to the consumers due to the PDS can be realised when we compare the movement of wholesale {open market) prices and issue .

* The benefits not only include the availabiliy of foodgrains at lower prices but also include availability of the commodities throughout the year.

* The PDS in India is recognised as a permanent feature of the strategy to control prices, to reduce fluctuation in prices and to achieve an equitable distribution of essential commodities i.e. all people can have access to buying the essential items at reasonable prices.

* The PDS involves a very good co-ordination between production, procurement, transportation, storage and distribution.
Commodities recognised for sale by PDS :
The Government of India has recognised the following commodities as essential items reflecting the needs of the common man.
1 Cereals-rice and wheat
2 Sugar
3 Edible Oil
4 Soft Coke (for fuel)
5 Kerosene
6 Controlled Cloth
7 Tea
8 Coffee
9 Toilet and Washing Soaps
10 Match Boxes
11 Exercise Books for Children
However, the Central Government has confined its responsibilities to the seven commodities viz., wheat, rice, sugar, edible oil, kerosene, soft coke and cloth. These seven commodities form the core of the PDS. It is not necessary to standardise the commodities sold throughout the country through the PDS because the needs of different states will be different. Hence, we see that some State Governments are distributing a large number of essential commodities through fair price shops. The Central Government also helps the State Governments in acquiring many commodities of common use like razor blades, toilet soaps, cycles, and tubes, etc., at wholesale prices for distributing through the fair price shops.
The working of the PDS is periodically reviewed in consultation with the State Governments. At the Central Government level, an Advisory Council on the Public Distribution System has been constituted to review its working from time to time. All the State Governments have also established such Advisory Councils at district and tehsil levels.
Expansion of the PDS has been an important point of action in the New 20-point programme. Special emphasis is laid on increasing the number of fair price shops in the areas which have not been sufficiently served by the PDS. Hence, the expansion of PDS is supplementary to the poverty alleviation programmes.
FAIR PRICE SHOPS :
As the name itself indicates, a fair price shop is one in which the commodities are sold at reasonable and fixed prices. As far as possible, the Government recognises the co-operative stores as fair price shops. However, many private traders are also permitted to sell the commodities through the PDS by being recognised as fair price shops by the Government.
The number of fair price shops increased from 2.39 lakhs in March 1979 to 3.15 lakhs in January, 1985 .These fair price shops are scattered over both the urban and rural areas. 'Thus all sections of society can derive benefits from them. As was mentioned earlier, several essential commodities are being sold by the fair price shops. The more important of these commodities are food grains, sugar, edible oil, kerosene oil and cheaper varieties of cloth.
In our country there is a system of rationing followed for distribution of commodities by the fair price shops. In fact, they are more popularly called 'ration shops'. Any person or family willing to buy commodities from the ration shops should possess a 'ration card'. The ration card which serves as a permit will be issued only by the Directorate of Food and Civil Supplies of the concerned State Government. On application to the Directorate, a ration card is issued to a family. The family is also referred to the particular shop from where they can buy their supplies. All families living in the jurisdiction of a particular office (Directorate) are eligible to become ration card holders.
The major advantage of buying your requirements from a ration shop:

* It is that you can get the commodities at lower prices as compared to buying the same in the open market (any other shop).

* The prices at which these commodities are sold in the ration shops do not fluctuate as much as they do in the other shops. For example, the price of edible oils increases during the festive season in other shops, while in the ration shop it does not. Hence you are assured of your quota of commodities at stable prices.

* The rationing system has been particularly helpful to the poorer sections of society.

* The poor spend a very large portion of their income on food articles. So, when these commodities are available to them at lower prices, they will be benefitted.

* Further, because the ration shop network is fairly widespread, they can have access to these commodities close to their homes.
Thus, the Government's policy relating to the Public Distribution System and the fair price,shops go together. This policy has helped all sections of the population to avail of essential commodities at stable prices.
FOOD SUBSIDIES :
Definition:
A subsidy is that component of the total price which a buyer need not pay. Food subsidy is one helps the consumer buy his food at a cheaper rate than what he would have actually paid for.
Subsidies are usually awarded by the Government, either Central or State. The main intention of a subsidy is to help the buyer purchase his requirements at cheaper prices. In fad, subsidies are sometimes are sometimes also used to encourage the consumption of some commodities. Examples of such subsidised products include new commodities sold in the market or indigeneously produced goods as against imported ones. Subsidies may come either in the form of absorption of certain costs by the Government or in the form of cash.
e.g. You may have observed that during the loan melas, when loans are given to poor people, it will usually be in the form of providing productive assets like sewing machines, etc. Out of the total loan of Rs. 5000 granted, Rs. 1500 will be subsidy and the remaining Rs. 3500 will be the loan component.
The other form of subsidy may be in the form of non-transfer of some costs to the consumer.
e.g. The Government may incur heavy costs in transporting the goods from one place to another, but will not include these costs in the prices it fixes for the consumers. Most of the public service utilities you consume-such as drinking water, bus transport, electricity, etc., are subsidised in this form.
Buying procedure:
The Government has to first buy the commodities to build up its stock. The procedure of buying stocks by the Government through its agent i.e., the Food Corporation of India (FCI) is called 'procurement. The foodgrains are procured by the FCI from either the open market or collection in terms of some compulsory sales by the millers. The price at which FCI buys the foodgrains is called 'procurement price' .Procurement prices are fixed by the Government of India. The prices at which different commodities like rice, wheat, coarse grains, etc. are procured will be different.
A matter of policy, the Government announces the procurement prices for different commodities at the beginning of the sowing season. Hence, if we closely observe, the procurement prices for kharif crops (June to November) are announced in June. while those for rabi crops (October-November and March-April) are announced in November.Such an announcement of procurement prices in the beginning of a crop season has a favourable impact on the producers. This is because the farmers are aware that this is the minimum price at which they have to sell their produce.
The procurement price is fixed according to the recommendations of an advisory body called Commission on Agricultural Costs and Prices. This body was formerly known as the Agricultural Costs and Prices Commission. This Commission takes into account the average cost of production of the crop (cost per quintal) for its recommendations of procurement prices.
In addition to the payment of procurement price, the FCI has to spend a huge amount of money as incidentals. These include the following:
1 Obligatory charges (Mandi charges, sales tax, cost of gunny bags)
2 Storage and interest charges
3 Handling charges (labour, internal movements etc.)
4 Establishment charges
5 Other miscellaneous charges
The FCI also incurs costs on the following items of distribution.
1 Freight
2 Interest
3 Transit and storage loss .
4 Handling expenses at the godowns
5 Administrative overheads
Thus you see, the total cost of procurement includes
a) Procurement price
b) Procurement incidentals and
c) Distribution incidentals
When you add these three, you arrive at the cost of procurement (per tonne or quintal) which is called the 'Economic Cost'.
The difference between the 'Economic' cost of procurement and the issue price of a commodity is what is considered as 'Consumer Subsidy'. The benefit of this subsidy directly goes to the consumers.
Buffer Stock:
Another important component of food subsidy is the expenses incurred on maintaining the buffer stock of grains. In very simple terms "Buffer Stock" is the total quantity of grains held by the Government agencies, mainly the Food Corporation of India,to meet any emergency requirements of foodgrains during times of shortage of production.
For instance, in the year 1987-88, when the entire country was affected by drought, there was a shortfall in the production of foodgrains to the tune of about 20 million tonnes. Now the buffer stock of foodgrains available in India (about 23.5 million tonnes at the beginning of this year) will be used to make up this shortage.
Uses Of Buffer Stock:

* This buffer stock is needed to stabilise the availability of foodgrains in the country as well as to stabiIise their prices.

* Maintaining these buffer stocks involves costs to the Government.

* These costs include, cost of money used (interest), storage charges, administrative costs, etc.

* These costs are almost entirely borne by the Government. These are called "Carrying costs of buffer stock". In the year 1981-82, the Government spent a total of Rs. 154.81 crores to maintain the buffer stock.
GLOSSARY :
Buffer Stock : Stock of essential commodities held by the Government to meet emergency situations.
Procurement price : The price at which the Food Corporation of India buys the food grains.
Consumer Subsidy : The difference between the Economic Cost of procurement and the Issue Price of a Commodity is
Consumer Subsidy: The non-transfer of certain costs to the consumer such as procurement and distribution incidentals by the Government forms the consumer subsidy.
Freight : Goods transported by commercial transport
Issue Price : The price at which the Government releases its stock.
Market Price : The price prevailing in the open market (wholesale).
Price Index : An indicator of the percentage change in price with respect to a base period. Procurement Price : The procedure of buying stock by the Government through its agent (Food Corporation of India (FCI) is called procurement price.
Public Distribution System: The system of the Government distributing essential (PDS) commodities through fair price shops.
Procurement : The process of Government buying commodities from producers to supply them to consumers through public Distribution System
Rationing : The system of quota of essential commodities permitted to be bought under the Public Distributioil System
TARGETED PUBLIC DISTRIBUTION SYSTEM(TPDS)
Rationing was first introduced in India in 1939 in Bombay by the British Government as a measure to ensure equitable distribution of food-grains to the urban consumers in the face of rising prices due to increased demand from the armed forces.In 1943, the First Food-grain Policy Committee set up by the Government recommende continuation of rationing, maintenance of reserve stocks and extension of rationing to rural areas also.
From the first phase of rationing of food-grains in short supply, the system evolved into the present day Public Distribution System (PDS) in the mid 1960s as the Government envisaged an elaborate PDS as a necessary part of its strategy to boost agricultural production in selected areas through infrastructural investment, technological inputs and price incentives to farmers through government intervention in the food-grain markets.
This second phase, characterized by near self-sufficiency in food-grains production, holding of huge buffer stocks of food-grains by the government and rapid expansion of the network of distribution outlets deep into the rural areas of the country has continued till the present day.
The Public Distribution System, however, has failed in translating the macro-level selfsufficiency in food-grains achieved by the country into micro-level household food security for the poor in the country. In a system that allows access to all, the rich and the poor alike, the quantum supplied by the PDS to each household forms only a small portion of the familys total requirement. Increases in the Minimum Support Price over the years, considered necessary by the Government to keep up agricultural production, has led to corresponding increases in consumer prices in the PDS, adversely affecting the economic access of the poor to the PDS food-grains. The holding of huge buffer stocks through a highly centralized Food Corporation of India has led to enormous costs of storage and transportation, which have to be borne by the Government.
The importance of an effective Public Distribution System that ensures availability of food at affordable prices at the household level for the poor can hardly be over emphasised. The PDS as it stood earlier, however, was widely criticized for its failure to serve the population below the poverty line, its urban bias, negligible coverage in the States with the highest concentration of the rural poor and the lack of transparent and accountable arrangements for delivery. Realising this, the Governmen streamlined the PDS by issuing special cards to families Below Poverty Line (BPL)
and selling food-grains under the PDS to them at specially subsidized prices with effectfrom June 1997.
The Targeted Public Distribution System (TPDS):
Poor family was originally entitled to 10 kgs of food-grains per month at specially subsidized prices and this was likely to benefit about 6 crore (i.e. 60 million) poor families. The identification of the poor is done by the States as per the state-wise poverty estimates of the Planning Commission. These estimates regarding the proportion and the number of the poor in each state are based on the methodology developed by the Expert Group chaired by late Prof. Lakadwala. The policy thrust is to include only the really poor and vulnerable sections of the society, such as the landless agricultural labourers, marginal farmers, rural artisans/craftsmen such as potters, tapers, weavers, blacksmiths, carpenters, etc, in the rural areas and slum dwellers and persons earning their livelihood on a daily basis in the informal sector like porters, rickshaw pullers and hand cart pullers, fruit and flower sellers on the pavements, etc. in the urban areas.
Keeping in view the consensus on increasing the allocation of food-grains to BPL category and to better target the food subsidy, the Government of India increased the allocation to BPL families from 10 kgs. to 20 kgs. of food-grains per family per month on April 1, 2000. The allocation for the Above Poverty Line (APL) population was retained at the earlier level.The number of BPL families was increased in the official records with effect from December 1, 2000, by shifting the base from the earlier population projection of 1995 to the population projections of the Registrar General as on March 1, 2000. This change has resulted in raising the number of BPL families to 652.03 lakhs as against 596.23 lakhs originally estimated when the TPDS was introduced in June 1997. The increased level of allocation of food-grains for BPL category is about 147 lakh tonnes per annum.
In order to reduce the excess stocks lying with the Food Corporation of India, the Government initiated the following measures under the TPDS with effect from July 12, 2001:
The BPL allocation of food grains was increased from 20 kgs. to 25 kgs. Per family per month with effect from July 2001 and the issue price for BPL families was fixed at Rs. 4.15 per kg. of wheat and Rs. 5.65 per kg. of rice.
Reference : B.Udhayakumar
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