Food debate #2: Universal or Targeted PDS?

Should the government provide food to everyone as a right? Or should it be restricted to the poor people? The debate on how much food dole should be given to Indian residents and how the targeting of the food subsidy should be done has been going on for the last 2 years. This post tries to make sense of that debate given our recent exposure and the way forward.

Food debate #2: Universal or Targeted PDS?
-Tushar Vashisht

As two 26 year olds living at the infamous poverty line of Rs. 32, Matt and I clearly experienced that getting the adequate amount of calories and nutrition was exceedingly difficult if relying on market prices, if not impossible (See our post on nutrition for details). Access to subsidized food would have been of tremendous support, if not a life-saver. So what if we lived just above the poverty line? Should we have been denied subsidized food?

Since the Congress govt proposed the Food security legislation in its manifesto in 2009, there have been two broad factions of the universal vs targeted debate. The National Advisory Council and Food Security legislation supporters want food to be universally available as a right and everybody to have access to massive amounts of food for as little as possible. This group claims their support from 2 things. One is the exemplary success of the Tamil Nadu experience in ensuring food security and minimizing leakages, where universal food access is available at low or nearly free prices (20kg or rice @Re.1/kg, regardless of entitlement status); and Second, the fact that despite APL (Above Poverty Line) subsidy available to all nationally, not everyone claims it.

The Food & Civil Supplies bureaucracy however, believes “universalization” of the BPL (Below Poverty Line) subsidy as per Tamil Nadu model as unsustainable given the exorbitant cost of food subsidy to the nation the universalization would imply (more than double the current amount of $10bn). Instead, they support the current system of Targeted PDS or TPDS (which has been around since 1997 in its current avatar). This current TPDS system looks something like the diagram alongside.

There are 2.5Cr families identified as the poorest of the poor (referred to as Antyodaya or AAY) and are given 35 kg of ration at Rs. 2.0 or 3.0 per kg (wheat or rice); 6.5 Cr families fall under BPL and are given the same amount of grains at Rs. 4.2 or 5.7 per kg; 13.3 Cr families are classified as APL and are given ration (between 10 and 35 kg, depending on the amount available after providing for BPL/AAY) at Rs. 6.1 or 8.3 per kg. Minus any duplicate ration cards, this does leave some unknown number of families that dont claim ration or have ration cards (are likely too rich to care for one).  (Note: the above mentioned prices are Central Issue Prices or CIPs without any added state subsidies)

Food subsidy - last 5 years. Source: Food & Civil Supplies annual report

There are groups within the government that believe that APL should not get any subsidy or it should get reduced, since they already are above poverty line, and that the entire subsidy should be redirected to the poor –  the Supreme Court of India is supporting this line of thought. Now, as the Centrally prescribed prices (or CIPs) for BPL and notably that for the APL haven’t changed since 2002, there has been a giant increase in the overall food subsidy over last 5 years!

There is no doubt in our minds that people below the poverty line deserve food subsidies. However, we also do believe that a significant population above this 37th percentile also needs that security. This could well be because the poverty line is calculated to be too low and should be raised to the appropriate level. The latest Food Security Bill (see page 13 and 14) seems to mitigate the food security problem to some extent by providing the BPL people (46% of rural and 28% of urban population – referred to as “priority households” in the bill) rations at AAY prices and most of the APL (90% of rural and 50% of urban population) at half of Minimum Support Price or the government food grain purchase price.

But regardless of where the poverty line is drawn, there will always be some population that will be dealt with unfairly (just above the line). Perhaps what is needed is a system in which there are many more gradations – not just the simplistic categorizations, such as BPL, APL, etc. If we could redivide the population into a larger number of, let’s say 10, segments according to their income levels (3 sub-slabs of AAY, 5 for BPL and 2 for APL), perhaps it would be more fair, the top segment having no subsidy access, and the more poor you are – the more subsidy access you get.

Wont this be a confusing system with more complex execution challenges? With legacy systems, definitely. But that is where the new technology building blocks – all pervasive mobile/data connectivity, UIDs and mobile phones – come in. If technology is used to link the beneficiary’s ration to an Online Food Account, then any level of customization is trivial, for it can be easily tweaked at the back-end based on the income slab. Yes, identification of the beneficiaries in the right slab will be a one time rigorous process, but beyond that, it will be easy!

Matt and I also discovered that nutrition requirements clearly vary from people to people. I was needing more calories than Matt given my larger size (and hence I lost nearly 3 times more weight!). Unskilled laborers need more than skilled. Females need different than men. Children different than adults. Large families more than small. So how can you make one size fits all solution for the residents of the country? The food subsidy needs to be customized not just according to the income level as one dimension, but needs to have other dimensions such as demography, age, size of family, occupation, geography, etc as part of the food subsidy given to any family. The Food Security Bill has tried to mention some of these dimensions – as special cases for pregnant women, young children etc.; but, they are not sufficient in my opinion. Instead of building “special cases”, these dimensions should be part of regular food distribution system.

Once again, such level of customization was impossible as late as a few years ago, but with advent of online “cloud powered” solutions today – personalization and customization are easy. We all do it while choosing our gmail themes or establishing our personalized online social networks. But won’t such complex identification be difficult? It might seem so, but it likely isn’t. For most state governments have this basic demographic information, family size, and other details already on ration cards today. Once digitized, this information can be easily and automatically used for customizing the ration amount for any family. The UID KYR+ data collection by state governments during UID enrolment will also empower the governments to know more about their residents.

So coming back to the debate, should it be universal or targeted? In my opinion, it should be “universally targeted” where every family in the country can be identified in a the right matrix and provided the correct nutrition and food amount as needed.

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9 Responses to “Food debate #2: Universal or Targeted PDS?”

  1. I would suggest a qualitative approach
    If the “depreciated” foodgrain and soya/lentil/vegetable stocks are given away for almost free, there will be a natural distribution curve – those most needy will avail of it, and those interested in “quality” will shun it, with shades of grey in between
    I really admire that you guys have actually gone through this self-experiment
    If I had the will-power, I’d do the same in order to lose weight!
    Many congratulations on your close observations and calculations

  2. Pardon the long response.

    You guys have touched upon something important, which is discussed in passing and that is the supply side. Here is an interesting article that appeared in the TOI:

    http://articles.timesofindia.indiatimes.com/2011-11-02/edit-page/30349559_1_india-s-gdp-gdp-growth-low-inflation

    The upside of the situation is that people are being lifted out of poverty and with increasing demand, the downside is that food inflation is going to sky rocket, unless wastage is reduced significantly and the middle man squeezed. Farmers are not going to invest in food storage facilities. It will have to be either the government or a PPP initiative.

    That said, my definition of Socialism is that everyone has to be served, the poor, the middle class and the rich. For very little, you get the basic minimum, for a little more, you get more and for a lot more you pay a lot more. Now universal subsidies will work for electricity and water, but hard to manage for food and fuel.

    For instance everyone can be given the first few units of electricity and water free or at the subsidized rate and then the charges step up steeply thereafter. If one wants to enjoy a multi-jet shower and an air conditioned home, let the charges be such that what they pay compensate for the subsidy.

    For food however, what is suggested for AAY and BPL is spot on. Sure an APL subsidy could be tagged on for those who wish to avail themselves of it. Maybe this is called universal “graded” subsidy (for lack of a better term) to differentiate it from “universal” subsidy.

    Finally, all the traditional kirana shops could be licensed to be distributors of food through this system, and recipients could be given the choice of registering with the kirana shop of their choice and have the flexibility to change if not happy.

  3. Oh, and one more thing, there has to be a method established to determine the “Poverty Line”” for each City, Town and Taluk. Maybe even to the Panchayat level. e.g. Rs 100/- a day goes a lot further in my rural neighbourhood. You must have realized the same as you traveled through rural India. Rural India is cheap!

    While this Rs 32/day is fraught with fallacy, there is no abject poverty in my neighbourhood and in many instances poverty is self inflicted due to alcoholism and lack of work ethic. NREGA should not be implemented in my area where daily wages are Rs 150-200 for men and Rs 90-100 for women.

    All said and done, “eliminating poverty” is not an insurmountable problem to solve. Less corruption and affordable housing in urban areas where there is “A Shelter for Every Budget”, could eliminate “poverty” all together. The Rs 32/day would be irrelevant then.

    http://deshbandhu.blogspot.com/2008/03/alleviating-visual-poverty.html

  4. Tushar, why not just provide sliding scale government cash transfers and let poor people make the right decisions for themselves? Depending on the government to develop the infrastructure required to distribute food strikes me as creating the conditions for massive corruption and assumes that poor people are incapable of making the right financial decisions for themselves and their families.

  5. shoot, i read this before i read “Food debate #1: Cash or kind?”

  6. This article has no discussion of economics. It only covers what people “need.” However the policy proposals you put forward only see the immediate consequences and not the long term economic consequences.

    Questions to consider:

    What is the affect of a government subsidy on the price of a good? If the government is to provide more money for the given good and it is not cost-discriminating like a consumer, it will drive the price upward.

    Where would the subsidy be derived from? The government doesn’t have free money. It would have to take money by force from one person in order to redistribute it to another. In this case, the government will take money from productive areas of the economy the consumers voluntarily spend their money on and redistribute it to other areas of the economy. This taxation on production will harm production and thus make the wage rates of the people lower in real terms.

    The real solution to poverty is not handouts, but raising productivity. People need to produce things abundantly, so that there are lots of them to go around. India has tried redistribution of wealth for the last half century, while places like Hong Kong and Singapore gave capitalism a try. Which places are doing better right now?

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