1. Team presents the solution to plug these leaks
Plugging the Leaks
Improving reach and efficiency of
The Public Distribution System
Realise Real Lies
 Ayush Gupta (Team co-ordinator)
 Chinmai Garg
 Utkarsh Kumar
 Pranav Sanga
 Suryansh Tibarewala

2. 0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
120,000
130,000
2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
FoodSubsidy
2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
Food Subsidy(₹ in crores) 43,751 53,443 63,344 72,822 73,380 109,016 122,899.60
Data 1 : Quantum of Food Subsidies released by Government
In our nation, where 2166.581
lakh rural people live at a daily
income of ₹ 27.21
and 531.251
lakh urban people have just ₹ 33.331
per day to earn their living, feeding oneself becomes highly
impossible. Therefore, Public Distribution System that provide
subsidized food grains and other materials of need (like sugar &
edible oil) assumes great importance in catering to nutritive needs of
the nation.
For this, The Indian Government has spent a significant amount i.e.
₹ 72,822 crores2
(which amounts to nearly 0.85% of the GDP) in the
financial year 2011-2012 and plans to spend even more. Data 1
gives the details of the amount spent by the Government and the
amount it plans to spend in future.
The amount spent in 2012-13 is about 7.33%3
of the total revenue (tax
& non-tax). Since, the food subsidy released by the GoI is increasing
exponentially, one question that comes in mind is whether the subsidy
released is actually reaching the poor? Unfortunately the answer
disappoints!
As per the Planning Commission’s ‘Performance Evaluation of
Targeted Public Distribution system(TPDS) – 2005’ report, taking into
account all the inefficiencies of PDS, it is found that the GoI spends ₹
3.65 to transfer ₹ 1 to the poor, i.e. ₹ 2.65 is lost to excess cost
(administrative overheads, inefficiencies etc), illegal diversions and
income transfer to unintended beneficiaries.
So, THE CORK just tries to give some revolutionary ideas to answer
the question – Can the food subsidy released actually reach the poor?
1
The statistics are computed as per the Tendulkar method on Mixed Reference Period(MRP). The poverty estimates may be revised by the Rangrajan Committee
that may submit its report by mid 2014.
2
Source: The Indian Union Budget 2013
3
Taking the earning of the Central Government to be about ₹ 10 lakh crores during the financial year 2011-2012.
* Projected by NFSB for TPDS (excludes subsidies for other welfare schemes).
** As per Department of Food and Public Distribution, Annual Report, Feb 2013 (does not include buffer subsidy).
Realise Real Lies
****

3. Where are the leaks?
The Public Distribution System (now TPDS 4
) distributes rice, wheat, sugar, edible oil and kerosene at subsidized prices. However, the subsidy on staple grains (i.e. subsidy
on rice and wheat) constitutes about 99.38% 5
of the total subsidy. Hence, rice and wheat distribution has taken the centre focus throughout the presentation.
The food subsidy provided by the GoI through TPDS can be divided into THREE categories for better understanding :-
Particular Variables
Economic cost of the grain E.P.
Issue Price of the grain I.P.
Market Price of the grain M.P.
Quantity of food grain released by the govt. Q
Quantity of food grain purchased by the poor receiver Q.P.
Quantity of food grain purchased by non-poor receiver Q.N.
Income transfer to poor = Q.P.(M.P. – I.P.)
Income transfer to non-poor = Q.N.(M.P. – I.P.)
Food Subsidy = (E.P. – I.P.) Q
= (M.P. – I.P. + E.P. – M.P.) [Q.P. + Q.N. + {Q – (Q.P. + Q.N.)} ]
= Q.P. (M.P. – I.P.) + Q.N. (M.P. – I.P.)+ [Q – (Q.P. + Q.N.)](M.P. – I.P.) + Q(E.P. – M.P.)
Quantity of grain black marketed
Income transfer
To Poor
Excess
Cost
Income transfer
To Non-Poor
Cost of illegal
Diversions
4
Public Distribution system was re-launched as Targeted Public Distribution System (TPDS) in June 1997 to make it more targeted.
5
The subsidy on rice and wheat distribution during the financial year 2011-2012#
was Rs. 72,370.90 crores and the total subsidy(all inclusive) was about Rs 72,822 crores.
(Source : Department of Food and Public Distribution (dfpd), Annual Report, Feb 2013 & Indian Union Budget 2013)
#
Financial year 2011-2012 has been considered for calculations and other statistical references because the data for the year 2012-2013 is available till 27 February
2013 only.
Food Subsidy Income Transfer Excess Cost Cost of illegal diversions
Income transfer
to the poor (intended
beneficiaries)
Income transfer to
unintended beneficiaries
(i.e. non-poor)
Direct benefit to poor. Direct benefit to non- poor.
Administrative overheads,
inefficiencies etc.
Black marketing of the grains.
On studying these various categories, one gets a basic idea of how food subsidy operates. Data 2#
(On page 3) gives a detailed analysis of these categories for, rice and wheat.
Realise Real Lies

4. 18%
39%
43%
₹ in crores
Income transfer to poor
Income transfer to non-poor
Cost of illegal diversions
7%
23%58%
₹ in crores
Income transfer to poor
Income transfer to non-poor
Excess Cost
Cost of illegal diversions
Data 2
Rice : Income transfer to poor, non-poor and illegal diversions. Wheat : Income transfer to poor, non-poor, excess cost and illegal
diversions.
Realise Real Lies
11781.3
25493.759
37185.19
4730.237
451.1
14157.988
₹ in crores
Analysing the leaks?India is so self-sufficient in feeding itself that its
wheat production can alone cater to 89.49%
(Table 1 Annexure) of the cereal need of the
nation with 105.31@
million ton of rice and
42.04@
million tons of coarse grains left
untouched.It’s an obvious fact
that these hungry people
comprise the same sect
for which the
PDS scheme
of GoI
operates.
Income transfer
to the poor.
Income transfer
tothe non-poor
Illegal
diversion
cost
Excess
cost
Subsidy on
edible oils,
sugar etc.
Loss due to in-efficient
handling
* Calculations are shown in the Annexure
Then too, India rank 66th
among 105 countries in the
2012 Global Hunger Index. This indicates that
subsidized grains intended to reach the
poor are not actually reaching them.
Table 2 & 3 in annexure gives
the statistical details as to
why it is not
reaching
them.
12%
@
During financial year, 2011-2012 since for now we have advance estimate for 2012-2013.
*Calculations are shown in the Annexure

5. Plugging the leaks?
The impact of the food subsidy program on the poor via PDS can be more pronounced by working on two arenas :-
Making it more targeted
i.e correcting the
exclusion and inclusion errors
While it is generally agreed that ‘target leakages’ should be minimized, the question arises whether and how can it be done. This debate is enduring because minimizing
inclusion errors can be costly (administratively) and often leads to greater exclusion errors. With such a tradeoff, optimal targeting depends on how much weight the
government puts on inclusion error relative to exclusion error.
Reducing the excess cost, illegal
diversions cost & other losses
due to mis-management
so that wastage of
public money is reduced.
Study of the targeting errors pre-targeted PDS system regime and post (Data 4) stresses on
the fact that focusing to minimize the targeting errors#
does not give that much high returns
as enhancing the fraction of subsidy going in income transfer can (i.e. minimizing leakages,
excess cost, illegal diversion cost losses and other inefficiencies at the operational and
management level).
Exclusion error (in %) Inclusion error (in %)
2004/2005
Post TPDS regime
70 70
1999/2000
Pre TPDS regime
64 76
Moreover, the policies framed for the latter will save resources that could be used to increase the indulgence of the poor into the same.
THE CORK has aimed to bring ideas that can plug both these leaks.
#
The failure of TPDS as it brought a minor change in the targeting error may rather be attributed to improper implementation of TPDS.
Data 4 : Exclusion and Inclusion errors (Source : adb Report)
Realise Real Lies

6. Present wheat track :- Farmers to FPS
Farmers
FPS8
Private Procurement
1. Procurement at a price significantly below
MSP.
2. Thus farmers do not get the returns they
deserve.
#
De-centralised procurement @
Source : CAG Audit on FCI storage.
* Source : FCI procurement division
** Market Study
8
FPS – Fair Price Shop i.e. Ration shop
Realise Real Lies
1. Procures wheat from farmer’s at MSP
fixed by GoI on the recommendation of
CACP considering farmer’s benefit.
2. Procurement is done via Open End
Policy for farmers’ benefit. This raises the
central buffer stock to about 250-350% of
the minimum buffer norms.
3. Ignorant of proper procurement
targets.
4. Procured from mandis which have only
28%* production arrivals . Hence, farmers
are not largely benefitted by MSP.
Govt's Procurement Center
1. Packaging is done in B.Twill jute bags of
50 kg capacity that cost the GoI about Rs
35 per bag**. The resale value is Rs 15 per
bag**. Hence effective cost of a bag is
Rs 20**.
2. Considering that 28335 X 106
* of wheat
was procured in 2011-12, the cost of
packaging incurred was Rs1133.4 crores.
3. The jute bags used have a weave
clearance of 6-10% . Hence, wheat bagged
is prone to rotting.
4. Packaging is done via conventional
methods. Hence LOT NUMBERS cannot be
assigned to the packing bags.
5. It is easier to open the jute bag and
repack it without considerable alterations.
Hence, illegal diversions are prevalent.
Packaging
1. The available storage capacity with
FCI (including hired capacity) was only
336.04 LMT (excluding the food grains
procured by DCP#
states).
2. As on march 2012 the storage
capacity hired was 179.64 LMT that
costed Rs 1193.03 crores in 2011-12.
3. Average annual expenditure incurred
on hiring (including caring over charges)
from 2008-09 to 2011-12 was Rs 2265
crore.@
4. To bridge the gap 'Private
Enterprenures Guarantee' (PEG) scheme
is being implemented.
Storage
1. Packaging done by used jute bags
procured from the GoI @Rs 15 per 50
kgs** bag.
Packaging Storage
1. Have sufficient space for storage.
SOLD

7. Farmers
 Each farmer gets the benefit of MSP. This provides him with the incentives of his share and in situ boosts agricultural growth.
 Since each farmer gets the benefit of MSP, the aim of open end policy of procurement followed in pre- scheme scenario is realised without filling the
buffer stock to 250-300% of the minimum buffer norm .
 This would benefit the GoI with Rs 19355.2 crores, since carrying of buffer food grains9
was Rs 483.88 per quintal10
in 2011-12 and the extra buffer
stock over the minimum buffer stock norm was about 400 lakh tonnes11
of grains.
 Moreover, about Rs 2000 crores11
on hired capacity and other charges incurred for that extra buffer stock would be saved.
Advanced
Processing
Plants
 Have advanced packaging machinery and sufficient storage space to procure all wheat from the yielding areas.
 Have computerised scales and other equipments for mechanising the transfer of wheat from farmers to the consumers.
 Built in each wheat yielding district by the local middle men & private players that were previously involved in the processing of market wheat.
 Investment will befall upon a group of private players with shares of the corporation and thus profit distributed in proportion to investment.
 The investment in one such plant can be estimated to be about Rs 50 crores12
and since there are 150 districts in India that are high producers of wheat
, the total investment can be estimated to about Rs 7500 crores .
 The extra market provided to the corporation will be of 28335 million tonnes of wheat (wheat procured by the govt. in 2011-12). This would profit the
corporation by Rs 2125.125 crore.13
Therefore the investment of Rs 7500 crores can be covered in 3.5 years.
 Loan at nominal rates can be provided to the corporation for investment if needed.
Procurement in
advanced plants
 Procurement is done via a computerised weighing scale that updates the wheat procured by the corporation onto the server. This prevents quantitative
corruption at the procurement level and would also give exact figures of the agricultural production of India.
 Procurement is done at MSP that is directly transferred to the farmer’s account. This would provide a record of the money transferred and prevent
cheating by the corporation in paying to the farmer.
 Since the flow of wheat is through a unique processor, qualitative analysis, standard checks and quality controls can be exercised.
 The corporation has an experience of properly identifying the procurement targets and thus can procure wheat from even the last farmer in the area
(corporation being formed by local middle men).
Realise Real Lies
We can Decentrally Privatise the System!
Solutions Proposed
9
Includes rice. 10
As per dfpd, Annual Report, Feb 2013 11
CAG Audit of FCI storage.
12
Since, the investors were in the same field in the pre-scheme scenario, all unified, they would be having enough storage capacity for market needs. The extra
investment needed would be just in the packaging machines, scaling machines and in other technological inevitabilities.
13
The market price in pre-scheme scenario had a profit margin of Rs 75 per quintal for the processors. We consider the same in the post-scheme scenario.

8. Realise Real Lies
Packaging
 Packaging is done using advanced machineries and in HDPE bags that have 1-2% of weave clearance which protect grains from rotting.
 Cost of HDPE bags is Rs. 15 per 50 kg capacity, as is of the used jute bags that were used in the pre-scheme scenario. Hence, no more
investment in packaging bags needed.
 LOT NUMBERS are printed on the bags which would help trace leaked wheat at each level of movement.
 Out of the same lot, the required stock for TPDS is sent to the ration shops and the required buffer stock to the instructed centers.
 TPDS beneficiaries get the same stock as the market, hence a certain minimum standard is unambiguously ensured.
Ration shops
 The corporation delivers the grain stock to the ration shops as instructed by the Govt. at market price fixed for the area.
 The received stock maintained by the ration operators and the dispatch stock maintained by the corporation is considered
to reimburse the amount thus withstanding.
 The check on illegal diversions and storage losses is now the responsibility of the private corporation since it gets
money for only the net quantity of food received for the TPDS and the buffer stock. Hence, the loss of Rs 11793.855
crores incurred on illegal diversions can be safely eliminated.
 The excess cost14
of Rs 4730.237 crore* is also eliminated since the handling is now carried out by the private people
who are quite efficient.
Market
 The market price for wheat in a particular area15
is fixed by mutual consideration of the Govt. and the corporation, which
may be revised at requisite intervals.
 This solves the problem of hoarding because how could and why would they hoard when they have to sell at a fixed
price.
 The final price then for an area would be about Rs 50 per quintal more than the existing rates, since the procurement of
the entire grain stock of the nation would be on MSP. So if rates of 2011-12 are considered, market price would be about
Rs 1450 per quintal.
14
Excess cost = Q (E.P. – M.P.), Since economic cost incurred by the GoI would be same as the market price excess cost is zero.
15
M.P. in wheat growing areas would be less than in other areas because of less transport cost. * Calculations are shown in the Annexure.
The solution to the problem related to rice can be solved with a similar approach as wheat. Right now rice is procured via levy, then handled by the govt. for distribution through
TPDS. In this process Rs. 25391.335 crores of public money is lost. A much efficient method would be to make these private rice millers responsible for ensuring that rice
reaches the ration shops without leaks. The received stock as maintained by the ration shop operator could be then considered for reimbursement of money to the miller at a
price higher than the current procurement price (which includes transportation, storage and distribution charges incurred by the miller).

9. Realise Real LiesThe grains you
gave are of
inferior quality!
Take it if you want
else leave it.
The grains you gave are
under-weighed.
Dare you accuse me!
Where are the
remaining grains of
my share?
The “rats” ate them up!!
Nobody listens to us 
Distribution from FPS to consumers

10. Realise Real Lies
Improving
reach of FPS
 FPS i.e. ration shops can be made mandatory in each constituency with the elected representative of the constituency (Parshad)
ensuring that TPDS is properly implemented there.
 This would give the Parshad some powers to monitor the TPDS in his constituency.
 In case of any discrepancies, the Parshad can then be held accounted for.
Benefactors are
the operators
 Instead of present ration shop owners, the ration shop can be operated by the beneficiaries themselves.
 The beneficiaries who can read and write can take the charge of the shop in rotation(rotation would check leakages and corruption).
 The operators can be paid in the form of grains from the stock @1 kg a day.
 This would bring down the GoI’s cost incurred on retailer’s commission for AAY allocation from Rs 485.4 crore16
to Rs 271.5
crore17
and lower the grain’s issue price for BPL and APL.
Consumer
friendly
Operations
 Since most benefactors don’t know how to read and write, visual graphics like pictorial depiction of the amount to be paid, outside
the FPS can help.
Solutions Proposed
16
Since AAY offtake of foodgrains in 2011-12 was 97.08 lakh tons and retailer’s commission for each kg of grain offtake was Rs 0.5, the cost incurred can be calculated to
Rs 485.4 crore (97.08*5 crore)
17
The total ration shops in the nation as on Jan 2013 were 5.13 lakhs. So the cost of the grain pay to the operators of ration shops can be calculated to Rs. 271.5 crore
(1*14.5*365*5.13 lakh) Rs.14.5 is the post-scheme revised price.
TDPS right now entitles each poor family 35 kg of food grain per month which is almost sufficient for a family (considering average family comprises of 5 members)
Monthly cereal need of a family = Cereal need of a person X No. of person in a family
= 0.03 X 4 X 2 X 30 X 5 = 36 kg

11. Income transfer to non
poor
illegal diversion cost Excess Cost Handling Extra buffer cost Hired charges on extra
buffer cost
Losses due to in-efficient
handling
25493.759
37185.19
4730.237
19355.2
2000
14157.988
Rs in crores
Realise Real Lies
Policy Impact
The benefits of the policy proposed have already been stated with the solutions. Here we take a quick review of the economic impacts of the policy.
Leakages plugged (statistically)
*All calculations hitherto indicated
Profit on export of extra buffer stock
In 2011-12 India exported 0.74 million tons of wheat which fetched 202.07 million US dollars. Hence 200 million tons of extra wheat lying in the buffer stock
(which would be useless to stock if our policy is implemented) would thus fetch us Rs 35498 crores ( 1 US Dollar = 65.2 indian rupees considered)
Similarly 200 million tons of extra rice in the buffer stock would fetch us Rs 64000 crores.
The policy proposes to use HDPE bags instead of jute bags. This will tax the domestic jute trade by Rs 1983.45 crores.
But this can be easily covered as we have a huge world market to capture.
Another potential protesters are the black marketers and those who benefit from the fallouts of the public distribution system.
AND IF THESE BLACK MARKETERS, PROTEST WE WILL TAKE IT AS A COMPLIMENT.
Potential Protests

12. consump
Rice Wheat
Particulars AAY BPL APL Total AAY BPL APL Total
Off-take (X 108
kg) @
65.80 113.34 64.11 243.25 31.28 59.69 96.79 187.76
% consumption of subsidized
staple reported in(2004-2005)**
28.0627% 56.3395% 97.55046% 58.9140% 22.08% 29.50% 22.792% 26.531%
% consumption by poor (out of
off-take) (2004-2005)**
13.1894% 19.15545% 20.4855% 18.2542% 11.70% 12.09% 5.01% 10.26%
% Leakage reported (out of off-
take) (2004-2005)**
71.937% 43.6604% 2.4495% 41.0859% 77.917% 70.498% 77.207% 73.468%
Consumption of subsidized staple
(X 108
kg) #
(% consumption in 2004-05)#
X off-take in (2011-12)
18.4652 63.8551 62.5395 143.3083 6.906 17.6085 22.06 46.5745
Quantity of Leaked staple
(x 108
kg)
(% leakage in 2004-05) x off-take in (2011-12)
47.334546 49.48469 1.57037445 99.94145 24.374 42.0815 74.73 141.1855
Market Price (₹/ kg) 30 30 30 14 14 14
Issue Price (₹/ kg) 3 6.15 10 2 5 7.2
Leakage Cost
(in crores)
[leaked rice x (market price – issue price)]
12780.32 11296.94547 314.07 25391.335 2924.88 3787.335 5081.64 11793.855
Income transfer (in crores) [Q received x (market price – issue price)]
4985.604 15867.99 12507.9 33361.494 828.72 1584.765 1500.08 3913.565
Income transfer to poor(in crores) [Q received by poor x (market price – issue price)]
2341.54 5394.93 2626.58 10363.05 439.08 649.44 329.73 1418.25
Realise Real Lies
Annexure
Calculations
#
For calculations % consumption in 2011-12 and in 2004-05 are assumed to be same. It is justified since steps for improving on the targeting errors have not been taken since then.
* Data for year 2012-13 is available only till 27 Feb 2013. Hence it is not taken for calculations.
** NSS Survey of 2009-10 divided per capita consumption in rural and urban categories and deciles
@
As for Department of Food and Public distribution, Annual Report Feb 2013.
Decomposition of staple subsidy (2011-2012) *

13. Cereal need
Wheat production of India 94.88 million tons
# as per population census 2011
** weighed on scale
Weight of wheat in our roti 0.03 kg **
Cereal need of our nation
Weight of wheat
in our roti
No. of roti in
a meal
No. of meals Days in a year Population of
India
0.03 X 4 X 2 X 365 X 1210193422#
= 1.060129438 X 1011
kg
% of wheat catering the need 89.498%
Rice ₹ in crores
Income transfer to poor 10363.05
Income transfer to non-poor 22998.444
Excess cost 7
-------
Cost of illegal Diversion 25391.335
Total Subsidy 58752.829
Subsidy paid by GoI 37775.255
Subsidy paid by private rice millers 20977.574
Wheat ₹ in crores
Income transfer to poor 1418.25
Income transfer to non-poor 2495.315
Excess Cost 4730.237
Cost of illegal Diversion 11793.855
Total Subsidy 20437.65
Realise Real Lies
X X X X
Table 1
7
Procurement Price is decided on levy basis where a part of the subsidy is borne by the private rice millers. Hence, the Economic Price of rice is below the Market Price#
.
During 2011-2012, Source : Market trends and FCI
M.P. = ₹ 30/kg
E.P. = ₹21.8420/kg
Table 2
Table 3

14. Realise Real Lies
 Indian Union Budget, 2013
 Department of Food and Public Distribution, Government of India, annual report, Feb 2013
 Department of Food and Public Distribution, Government of India, annual report, Nov 2011
 Food Corporation of India, financial section
 Comptroller and Auditor General of India, Audit on FCI
 Comptroller and Auditor General of India, Audit on PDS efficiency in Nagaland
 Performance Evaluation of Targeted Public Distribution System (TPDS)- 2005, Planning Commission India
 Department of Food and Public Distribution, Government of India, Appendix 3
 Jute Commissioner of India, Statement of Account
 Department of Agriculture and Cooperation, Government of India
 PDS public portal of Government of India
 Asian Development Bank, Economics working paper series
 Indian economy, by Ruddar Datt and K.P.M Sundharam
REFERENCES