Some Thoughts on Direct Benefit Transfer for PDS

       Some Thoughts on Direct Benefit Transfer for PDS

              As has been recommended by the High Level Committee for restructuring of FCI and decided by the Government a Pilot Scheme for Direct Benefit Transfer for foodgrains is to be launched for the Union Territories of Chandigarh, Puduchery and Dadra & Nagar Haveli.  Under this Scheme, it is proposed to directly transfer the amount of food subsidy to the bank accounts of eligible beneficiaries in order to enable them to procure foodgrains directly from the market.

            This scheme is indeed laudable in its objective as it would give choice to the beneficiaries for buying foodgrains and also take care of the leakages in the Food Supply Chain Management System.  However, the implication of such a scheme would have an impact on the operations of the Food Corporation of India as also for the Government’s objective to ensure remunerative prices for farmers and making available foodgrains in all parts of the country at prices fixed by the Government.  Presence of a player like Food Corporation of India in the procurement and management of rice and wheat ensures that prices of rice and wheat in the Open Market are also controlled.  This is evident if one looks at the rate of inflation for rice and wheat compared to the increase in prices for pulses and oilseeds.  Further, procurement of almost 30% of the production of rice and wheat by FCI and State Agencies for the Public Distribution System ensures that farmers get the Minimum Support Price that is announced by the Government.

Issues with Direct Benefit Transfer:  

1.         In case DBT was to be introduced and beneficiaries were allowed to procure foodgrains from the Open Market there would always be a risk of varying prices across the country and hence the admissible food subsidy for DBT will vary from State to State.  Thus a beneficiary in Punjab would be eligible for a lesser quantum of DBT as against a beneficiary in Mizoram.

2.         Further, the quantum of food subsidy to be given as DBT would depend on the prevailing prices and in case foodgrain prices spiral up on the pattern of the prices witnessed for pulses there would be a risk of food subsidy going up in an uncontrolled manner.  This would have huge impact on the finances of the State.

3.         Further, in the absence of procurement operations by FCI or State Agencies there would be no mechanism to ensure that farmers are getting the MSP for their produce.  This might lead to stress amongst farmers.

4.         Another issue would be to ensure that the amount transferred for food subsidy as DBT is actually utilised by the beneficiaries for procuring foodgrains.  Without a fool proof mechanism it may result in utilisation of the funds released on expenses other than foodgrains and the likelihood of hunger and starvation cannot be ruled out. 

In view of the above, the following is suggested for effective implementation of DBT scheme:-

i)             The key objectives for introduction of DBT are to ensure an efficient Food Supply Chain Management System and to eliminate leakages and corruption in the Public Distribution System.  The prime reason for leakages is the price differential between market price and the issue price of foodgrains under various schemes.  If the issue price of foodgrains is made the same as the economic cost of FCI there would be no incentive for diversion or leakages.

ii)            Thus FCI and State Agencies would continue with its procurement, storage and movement operations.  However, they would be required to sell the foodgrains to the State Government at economic cost and thus the Corporation would be forced to adopt efficient management techniques to ensure that FCI is able to operate in the market as State Governments would be free to procure from either FCI or from the open market.

iii)           The Government would fix the Central Issue Price under various Schemes which will be close to the economic cost of FCI and the difference between the Central Issue Price and the existing Issue Prices will be transferred to the bank account of beneficiaries through Direct Benefit Transfer.  Thus, the beneficiaries will be getting the necessary funds for buying foodgrains.

iv)           The State Government would make available the foodgrains through network of Public Distribution System at the fixed issue prices and citizens will pay the issue price which will be close to the economic cost of FCI.

v)            Another alternative could be that FCI or Agency of the State Government could undertake home delivery of foodgrains to the beneficiaries.  This can be done by delivering foodgrains for six months at one go directly to the home of the beneficiaries.  This would require making 30 kg sealed bags @ 5 kg of foodgrains for six months.  These bags can be sealed and branded so that there is no issue with regard to quality and quantity of foodgrains being issued. Depending on the size of the family of a beneficiary five or six 30 kg bags can be delivered once every six months and verification of the same be obtained through Aadhaar based biometric system.  Payments can be made electronically through the Jan Dhan Debit cards. This would save the need for the beneficiary to make a trip to the Bank for withdrawing cash.  Details of foodgrains issued along with the date and quantity can be made available on a public website so that anyone can verify the actual distribution of foodgrains.

Abhishek Singh

(Views are Personal)

In defense of The Naga Blog - The Dimapur Conundrum

In defense of The Naga Blog - The Dimapur Conundrum

Dimapur and Nagaland have been in the news for all the wrong reasons in the past two weeks. I was deeply anguished and hurt when I heard of the brutal lynching of a rape accused on March 5. The news shook me. The pictures and videos that were shared by people I know were scary, creepy, dark and macabre. Children in school uniforms as part of the mob that was parading the accused was horrid. This is a State that boasts of high literacy levels and Christian values which went to such ghastly levels of violence. It brought back memories of the head hunting days of the past.

There have been various versions of the story. Some called it an expression of people’s fury against the perpetrators of rape – which is a crime worst than murder. Many in my friends and family circles outside Nagaland justified the mob action and felt that this is the way to treat such perverted criminals who indulge in the most gruesome form of violence against women. In the aftermath of the incident and the media hue and cry over it, the Government of Nagaland has rightfully launched an enquiry and taken action against the guilty.

However, what has come as a shock and surprise to me is the reported move to ban Social Media forums like The Naga Blog FaceBook (FB) group. The Naga Blog FB group was started in 2008 and I am proud to be amongst one of the first people to join the group. Today the group has almost 60,000 members and I have seen the way the group has evolved and the role it is playing in today’s Naga society. It is a breath of fresh air in the State and the society which has seen too much of violence, hatred and killings in the past 60 years. At times, there are posts and comments on the group which smacks of tribalism and even hatred for communities but by and large the group admins have regulated the FB group in a fair manner. I commend Yan Kikon, one of the founders of the group to have played a key role in helping the group and page evolve to what it is today. The Naga Blog has also spawned the growth of several similar groups in Kohima, Dimapur and Mokokchung and all of them have given a forum and platform to people, specially the youth to express themselves and vent out their anger and anguish to all that is wrong in the present day Naga society.

The role played by The Naga Blog in the movement against illegal taxation and extortion in 2013 was commendable. This forum helped people of Dimapur express themselves in no unclear terms to the militant organizations that people are fed up of the illegal taxation. In 2012, The Naga Blog launched one of the most noble initiatives in the form of a Blood Donors list which has almost 14000 members and I know many a people who have got their lives saved cause someone from this forum donated blood when it was needed the most. The Naga Blog group also came forward whenever there was a need to collect donations for national disasters like Sikkim Earthquake in 2011 and even extended help to the administration and Government for local relief operations in cases of fire and accidents. The forum also launched innovative campaigns like Mission Potholes in 2012 which was directed towards bringing attention of the Government to the poor condition of roads and highways. The Naga Blog volunteers have over the last few years become the part and parcel of every noble initiative in the State and volunteers have been in the forefront of almost every social activity. This group cuts across the tribal and class boundaries and I was very impressed with the modern tech savvy outlook of this group. This was in stark contrast of the existing systems in the State which are divided on tribal lines and perpetuates parochialism and nepotism. This group and members are like a breath of fresh air in the otherwise polluted and corrupted systems that plague our society.

Given this background, it pains me to hear reports that The Naga Blog is being blamed for whatever went wrong in Dimapur. Instead, I was telling a friend of mine on March 4, that given the strong views being expressed by people on this forum, the administration and police had their task cut out. It was clear that people will come on the streets and the District Administration ought to have taken preventive measures to ensure the security of the District Jail and ensuring that law and order remains in control. Thus, it’s not fair to blame a Social Media group for what has been an institutional and Governance failure.

I would pray and hope that no such action for banning The Naga Blog is taken. I am sure that the Admins of The Naga Blog page would also ensure that views and comments that promote hatred and enmity and violence are edited and blocked from the page. Let’s hope that all in the State work constructively to ensure return to normalcy and supremacy of law and order.

Abhishek Singh

(Views are Personal)

Food subsidy, FCI and PDS – Some Thoughts

Food subsidy, FCI  and PDS – Some Thoughts

As I complete the milestone of almost 4 months in the Food Corporation of India, one thought that has been in my mind all these days is ways and means to bring about efficiency in the operations of the organization. It hurts when analyst and after analyst brands you inefficient and responsible for the rising bills on food subsidy. It is true that we have a mammoth food subsidy program which is largely perceived to be leakage prone and run by corrupt officials. The question is how much of the inefficiencies and corruption can be ascribed to FCI? Is FCI responsible for the mess or the problem lies in the last mile delivery channels which is largely run by the network of Fair Price Shops under the command and control of State Government Officials?

Food subsidy in 2013-14 has been estimated to be Rs 93445 Cr which is almost 33 times the food subsidy of Rs 2850 Cr, 22 years ago, in 1991-92. Ten years back the food subsidy was Rs 25181 Cr in 2003-04. As percentage of agricultural GDP, the food subsidy has risen from being about 2.2% in the 1990s to over 5% now. There is a need to analyze the components of the food subsidy.

As has been analysed by Prof Vijay Paul Sharma of IIM Ahmadabad, in his paper on Food Subsidy in India : Trends, Causes and Policy Reform Options, the key components that add to the food subsidy include : Procurement Price of Food Grains, Procurement Volume of Food Grains, Procurement Costs, Central Issue Price and the Distribution Costs. The procurement price of the food grains or the policy of buying all food grains at minimum support price (MSP) is the single biggest contributor to food subsidy. It is compounded by the fact that Government commits to buy all food grains at MSP that is brought by the farmers to the Mandis. In 2013-14, MSP for Wheat was Rs 1350 per Quintal and for Common Rice it was Rs 1310 per Quintal. The procurement in 2013-14 was 250.92 LMT for Wheat and 313.77 LMT for Rice. The Central Issue Price has remained fixed from 2002 and has varied between Rs 2 per kg for wheat and Rs 3 per kg for Rice to Rs 7.95 per kg for Rice and Rs 6.10 per kg for Wheat. Under National Food Security Act, the entire out go will be at Rs 2 per kg for wheat and Rs 3 per kg for Rice. Just on account of MSP, if we calculate the food subsidy required at NFSA rates for the procurement done in 2013-14, the subsidy amount comes to Rs  11.50 per kg for Wheat and Rs 10.10 per kg for Rice. Thus the total subsidy on this count would have been Rs 60546 Cr including Rs 28855 Cr for Wheat and Rs 31691 Cr for Rice. Thus MSP itself contributes to almost 70% of the Food Subsidy.

However, the above is only part of the story. There are other costs involved. These include statutory charges such as market fees, rural development cess and VAT and non-statutory charges such as arhatia commission, mandi labour charges, cost of gunny bags, handling charges, internal transport and interest charges. The taxes and levies are as high as 14.5% in Punjab and 11.5% in Haryana. Given the fact that the bulk of paddy and wheat procurements are in Punjab and Haryana, the outgo on account of taxes and levies is huge. The objective of procurements at MSP is to help farmers get remunerative prices for their produce, however higher taxes by certain States has made it a means for getting more revenues in the State at the cost of FCI and Government of India. This adds to the economy cost for FCI and also to the food subsidy bill. The only way to resolve this is to declare the MSP as inclusive of taxes so that States which have high rates of taxes will imply that their farmers will get less money and hence will be a disincentive for higher taxes. Higher taxes also impacts private trade in food grains. Over an above, the practice of announcing bonuses by certain States distorts the food grain market.

The economy cost of FCI is also impacted by the interests FCI has to pay. The interest burden is itself Rs 7000 Cr as FCI is forced to take short term loans at a high cost on account of outstanding subsidy payments of almost Rs 50,000 Cr.

The other component of costs is the Distribution Costs of Rs 18230 Cr in 2013-14 which includes Rs 6640 Cr for Freight, Rs 3096 Cr for Handling, Rs 1968 Cr for Storage, Rs 4708 Cr for Interest and Rs 1222 Cr as Admin overheads. FCI has little control over freight and interest charges and only possibility of cost reduction is in the handling, storage and administrative expenses.

When we look at FCI, we also observe that the manpower in FCI has reduced from 62430 in the year 2000 to around 22480 in 2014. This is a reduction of almost 64%. In the same period the stock holding in the Central Pool has gone up from 429 LMT to 698 LMT. This is an increase of almost 63%. Inspite of the general perception, the storage losses in FCI has come down from 0.42% in the year 2000 to 0.22% in 2013. In storage losses, if we look at the breakup, the actual storage losses in Godowns owned by FCI is only 0.11 % whereas that for the Godowns hired from State warehousing Corporations (SWC) is 0.48% and for CWC is 0.23%. And these losses are recovered by FCI from SWC and CWC. Similarly the transit losses of FCI are down from 0.84% in 2000 to 0.46% in 2013.

The key challenges for FCI are in labour reforms. The provisions of Contract Labour Act make it difficult for FCI to replace the Departmental Labour with Contract Labour. The Departmental labour is seven times as expensive than the Contract Labour and if FCI Depots are freed from the regulations of Contract Labour Act, a great deal of cost savings can result.

The above analysis makes it clear as to there is little that FCI can do to reduce food subsidies. However, this does not mean that there is nothing that FCI needs to do to improve operational efficiency. There is an urgent need to move in for modern storage facilities in the form of Silos and bulk movement of foodgrains from procuring to consuming areas in modern wagons with top loading bottom discharging systems. Most of the conventional godowns of FCI are almost 40-50 years old and there is a need to upgrade them to more efficient modern systems. The movement and transportation plan also needs to be optimized and made more efficient.

Other options include limiting the stocks that FCI holds. Open ended procurement results in FCI carrying more stocks than what it should. The stock position today is still more than twice of the buffer norms, even though it has been brought down by more than 100 LMT in the last two years. With deft planning, FCI today has no stocks that are more than two years old. Storage in Covered and Plinth systems is less than 10% and strict monitoring and supervision has brought down the storage and transit losses. Computerisation of accounting and stocks management has brought in improvements.

However, what is needed is much more radical improvements and structural changes in the whole food supply chain management. There is a lot of talk about conditional cash transfers which on the face of it seems to be the most logical and practical solution to all the leakages and inefficiencies in the present system. However, what we miss is that the leakages are the maximum in the last mile and the prime reason is diffusion of accountability when food grains move from the FCI system to the State Government network for last mile delivery.

Transfer of grains from FCI depots to those of the State agencies and onwards to PDS shop owners means multiple levels of handling and transportation and the associated leakages and inefficiency. One way in which it can be resolved is enabling direct delivery of food grains to households.

The way I visualize efficient delivery of foodgrains will involve direct delivery of food grains to home by FCI. This backed by an efficient, modern and scientific storage of foodgrains with bulk movement of grains to points of distribution will bring in operational efficiencies in the supply chain system of FCI. The idea is to build up a network of Silos on a Hub and Spoke model by identifying locations that can service a cluster of 6-7 districts. This would require approximately 100 Silos at identified locations. The Silos can be built in existing FCI Godowns which have railway sidings. In procurement areas the capacity of the Silos can be bigger. In consuming areas, the capacity of Silos will be based on the actual requirement of the food grains. The average capacity of each Silo in procuring areas can be around 700,000 MT and in consuming areas around 200,000 MT. Depending on the regions and consumption patterns, we can have a combination of wheat and rice Silos. After procurement, food grains will move from Silos in procurement regions to those in consuming areas through special wagons with provisions of top loading and bottom discharging. There won’t be any gunny bags and storage, handling and transit losses will be minimized. In the consuming areas the Silos will also function as bagging units.

The next stage of food grain distribution will be direct to home and this would mean eliminating the need of moving grains from FCI depots to godowns of the State agencies and thereafter to PDS shops. Under NFSA, per person allocation is 5 kgs of grains per month and the cost of the same is Rs 10 for wheat and Rs 15 for Rice. For a family of 5, the allocation is 25 kgs per month and costs are Rs 50 for wheat and Rs 75 for Rice. For an individual to come to the PDS shop, every month, with the uncertainty of getting or not getting the grains is not economically viable as the cost of grains is less than a days wages under NREGA. So the idea is to give grains for 4 months or 6 months to a family at one go, direct to home. 6 months of grains will mean a 30 kg of bag for each person at a cost of Rs 60 for wheat and Rs 90 for Rice. For a family of 5, it will mean 5 thirty kg bags and the costs will be Rs 300 for wheat and Rs 450 for Rice. This is actually affordable and since the idea is to deliver food grains, direct to home, once in six months, it is actually feasible also. Handling and Transport agencies will take the 30 kg bags, on a designated route and deliver to home once a month. The authentication of actual delivery can be done through biometrics as almost all beneficiaries will be covered by Aadhaar. The specially 30 kg bags will be numbered and bar coded and information with regard to which bag has been delivered to which household and when can be made available in the public domain. The actual payments to the handling and Transport agencies will be based on actual deliveries done. Thus it will be an accountable system with minimal leakage and losses.

 The only question that some people may raise is if all families will have provisions of storing almost 150 kgs of grains given at one go. People living in flood prone areas and kutchha houses may face challenges, but this can be resolved by making a one time provision of a 100 kg steel storage bin to each household. Delivering grains for 6 months at one go will also reduce the stock holdings of FCI and will bring down the storage losses and costs which will be sufficient to provide for the steel storage bins.

Thus this model will not only bring in efficiency in the operations of FCI but will also improve the last mile delivery in public distribution system.

(Views are Personal)