The management of public distribution system in India
~ A dynamic perspective: (The case of Tamil Nadu)
Fatima P. Jacob
Senior Lecturer in. Management
Dept. of Management Studies
College of Engineering
Anna University, Madras 600 025
India
ABSTRACT
Public Distribution System (PDS) in India is a
consumer-side intervention in the food market. There are
two basic aspects of evaluating the effect of policy
intervention in PDS. One is to analyse the overall
percapita availability of cereals and the other is the
percapita consumption. Based on this, the proposed system
dynamics model looks at the intended Government policies to
ensure whether the objectives of the PDS have been
achieved.
INTRODUCTION
India has a three tier structure in the PDS. At the apex
level, there are the National agencies like Food
Corporation of India (FCI), State Trading Corporation and
the public sector oil companies entrusted with the task of
procuring, storing and attending to other logistical
functions. The state agencies like Civil Supplies
Cérporation procure and supply key commodities for mass
consumption constitute the middle level. At the base
level through a network of Fair Price Shops (FPS) the State
Governments have to ensure uninterrupted supply of
essential items to consumers,
The Central Government took legal, regulatory as well as
restrictive measures to curb abnormal rise in prices by
regulating the distribution of essential commodities at
reasonable prices and also by removing imbalances between
demand and supply.
In spite of the measures the. PDS is not working effectively
and the benefits often have not reached the vulnerable
sections of the society. Unsatisfactory quality of
commodities, long waiting time, rude behaviour of the shop
keepers and malpractices in weights and measures have
eroded the credibility of the PDS. The operation of PDS
has also not stabilised the open market prices of
foodgrains.
The system of distribution of essential commodities has
been in vogue in the State of Tamil Nadu since 1964. There
was statutory rationing in Madras City and Coimbatore town
and the belt areas from 1966 to 1969. In 1975 family cards
were issued after enumeration. Rice was freely available
in the open market and the levy on sugar was abolished in
August 1978. Hence the FPS were not having any business
during the year 1977-78. Distribution of Kerosene was
brought under control in the middle of 1979 and the levy on
sugar was re-introduced in December 1979. The FPS have
become active since then. The Tamil Nadu Civil Supplies
Corporation (TNCSC) was incorporated in 1973 and is fully
entrusted with the responsibility of procurement, storage,
milling, processing and distribution of essential
commodities.
SCOPE OF THE STUDY
The study, part of an on-going research project under the
care of the Agricultural Economic Research Centre of the
University of Madras has the following as its main
objectives.
1. To critically review the present administrative set-up
of the PDS with its sub-systems like procurement,
subsidy and pricing pattern.
2. To analyse the price fluctuations in foodgrains and to
identify whether the PDS has stabilised the prices of
foodgrains in the open market.
3. To identify the determinants of consumer satisfaction
and interalia, how far the PDS is successful in its
coverage of the weaker section of the society.
4. To identify alternative measures to reduce the
budgetory food subsidy in the economy and examine the
feasibility of such measures on the basis of their
impact on the relevant socio-economic parameters.
5. To identify the policy mix with which the Government
can make the necessary minimum supply available to low
in-come consumer at the lowest possible budgetary cost.
MODELLING THE PUBLIC DISTRIBUTION SYSTEM IN TAMIL NADU
There are a few econometric grain.models available in India
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(Raj Krishna, 1983) which have used 2 SLS and 3 SLS
techniques to analytically estimate the projections.
However these models have made some simplisitic assumptions
with reference to the market structure and situation. So
far, there has been no attempt to view the grain models
through a SD simulation approach. An attempt here has been
made to model the PDS with specific reference to Tamil Nadu
through SD approach.
A two market regime - an open market and a government-run
concessional food supply system has existed in Tamil Nadu
since 1964. Government policies towards purchase, sales
and stock have also varied from year to year. The two
important administered prices for major grains - the
Purchase (procurement) price and Issue (concessional)
prices are announed every year and are revised with
increasing frequency based on the guidelines and prices
announced by the Central Government. The controls
exercised over the movement, storage and pricing of grains
in the market oscillated from extreme vigour to almost
total deregulation.
The food market system has always attracted state
interventions irrespective of their economic ideologies.
Such interventions affect both producers side and consumer
side. The state interventionsand the alternative policies
employed may be tested through a System Dynamics simulation
model which is capable of accommodating non-linear and
behavioural factors. This will serve as a synthetic test
market whereby policies could be tested, analysed and
trade-offs performed while options are still kept open.
[Govindarajan, 1991]
METHODOLOGY
Data for the model have been collected from the annual
reports of the Tamil Nadu Civil Supplies Corporation,
Bulletin on Food statistics and Economic surveys of the
Government of India. Primary data was collected through
two schedules, one for the family cardholders and the other
for fair price shops. A stratified two stage random
sampling method was adopted for administering the
instruments. The data were used for the analysis of
consumer satisfaction, income-expenditure pattern, pattern
of consumer subsidy, problems faced by the shop-keepers and
beneficiaries and the overall effectiveness of the PDS in
achieving the National objectives. It is also proposed to
conduct a DELPHI Session amongst the officials of the Tamil
Nadu Civil Supplies Corporation and co-operatives for
eliciting their opinions and consensus on formulation of
more effective policies.
——.
2.
)
THE MODEL
A generic formulation of the PDS through System Dynamics
Simulation has been done. The model consists of the
following sections.
- Marketing structure and service support system.
- Food production system
- Public Distribution System is designed as the controller
- Intervening Exgenous and Endogenous Mechanisms.
DISCUSSION
Supply and Demand Sub-system
Supply is the effect variable and is directly related to
the production in the current year and carried by the
private traders. The three major sources of supply for
concessional sales in Tamil Nadu are procurement, ‘central
allocation and depletion of inventories. These three
components can influence the open market prices. Rice
allocation from the central pool constitutes an important
component and had been fluctuating from approximately 8000
tonnes to 54,000 tonnes during 1957-64. There was no rice
allocation from Central to Tamil Nadu during 1965-74. From
1975 onwards rice allotment continued and the quantum
increased year after year: touching 3.35 lakh tonnes in 1981
and 9 lakh tonnes in 1990.
The state population according to 1991 census is 5.56
crores. If the minimum requirement per adult per day is
taken as 400 grams, then for a family of 5 adult persons,
per month, the requirement would be 60 Kilos. But the
quantum supplied per family card is 12 Kilos which
constitutes one fifth of the total requirements.
The demand side of the PDS is still more complex. Two
demand limits are visualised-market determined lower limit
and Government policy determined upper limit. The lower
limit of PDS issues comes into play during bumper harvest
years, when the supplies available at PDS outlets are in
excess of real off-take. It could happen due to forces
like perceived difference between the open market and PDS
prices. The upper limit is when the actual demand for
foodgrains through PDS is in excess of the actual supplies
through the PDS outlets. The upper limit on issues is thus
determined by the Government and not by the market forces.
Procurement Sub-system
Public procurement is a definite pre-condition for a
satisfactory public distribution. The level of foodgrains
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procurement is basically a policy-dependent variable. If
the Government includes policies like compulsory
procurement and minimum price support scheme in its policy
package, then only the procurement enters the foodgrain
system as an intervening sub-system. Over the last ten
years the procurement policy has been consistent in meeting
the PDS requirements.
Total procurement comprises of two parts - compulsory and
voluntary procurement. Voluntary procurement is that
quantity acquired by the State agency in the. open market
operations which the Government often undertakes to
maintain the price level above certain minimum during the
post-harvest months. The compulsory procurement is the tax
levied by the Government.
Table 1 shows the procurement price for coarse paddy
announced by the Central Government and the Government of
Tamil Nadu from 1980-81 to 1990-91. A comparison of the
cost of production of paddy in Tamil Nadu with other paddy
producing states such as Andhra Pradesh, Orissa and West
Bengal reveals that costs are relatively higher in Tamil
Nadu and Andhra Pradesh indicating higher level of input
use. An all India uniform procurement price therefore does
not reflect the inter-regional variations in the level of
input use. To compensate the farmer for this the
Government of Tamil Nadu has resorted to "incentive bonus"
ever and above the procurement price announced by the
Central Government [Ref. Table] In 1980-81 Tamil Nadu
Government fixed Rs.115/- per quintal when the Government
of India fixed the price for the common variety as Rs.105/-
per quintal. In September 1991 the Government of India
announced support price for paddy as Rs.230/- per quintal
for common variety, Rs.240/- for fine and Rs.250/- for
superfine variety. In line with these announcement by the
Centre, the Tamil Nadu Government announced as Rs.265/- per
quintal for common variety, Rs.275/- for fine and Rs.285/-—
for superfine variety.
Determinant of procurement
The volume of procurement is determined by production
(market surplus), ratio of farm harvest to procurement
prices and mode of procurement. Table 1 indicates
production, procurement and the proportion of procurement
to production and also shows the ratio of farm harvest to
procurement price.
Low proportion of procurement to production indicates that
there has been no attempt by the Tamil Nadu Government to
secure a commanding position in the food trade. An
important reason for this is, the difference between the
open market price and procurement price.The lesser thus the
difference, the greater is likely to be the volume of
procurement.
Concessional sales
The level of PDS issues at concessional rate is also a
policy dependent variable. The Government determines the
level of PDS issues in any particular period based on the
basis of its own stock position and the needs of the food
economy.
There are 21,890 Fair Price Shop (FPS) operated by. the
Tamil Nadu Civil Supplies Corporation (1015 Shops) and
Co-operatives (20878 Shops) engaged in the concessional
sales throughout the state catering to the needs of 1.25
crores family cardholders.
The issue price at which the Government supplies to FPS has
been essentially determined by conflicting pressures - the
pressure of financial authorities to cut losses by raising
the price and urban political pressure resisting any
increase in it. The outcome is reflected in the ratios of
issue price to procurement price and to open market price.
As a welfare measure essential items like rice, wheat,
sugar and edible oil are supplied through FPS at a price
below the “economic price", resulting in huge subsidies
borne by the Government. The subsidy at any year depends
on a = number of parameters like procurement price,
procurement cost, distribution cost and issue price.
Subsidy in Tamil Nadu was 103 crores in 1983, Rs.200 crores
in 1989-90, Rs.257 crores in 1990-91.
POLICY SIMULATION
The policy alternatives tested were in the nature of
- An increase or decrease in procurement by 10% and/or 15%
of annual grain production.
- An increase in price by 5 and/or 15% of controlled
commodities (mainly rice).
- Change in open market price by 5 and/or 15% and
- Combinations of the above.
From these a viable sustainable food policy can be evolved
so as to realise the objectives of growth with stability,
improving the consumption ‘standards of vulnerable sections
PDS_IN_ INDIA PDS Section
Procurement
Quality of Pa
Ration uality 0!
+ Supply i commodities
Quality of
” +
og Ration’ Supply —
x Demand Individual Procurement
23 Storage ,Geleose Rete S~Expenditure
3 & Facility Policy
2
tee : Govt Stock * Ration price
: Bg
iy 3% Food “Subsidy
Fa ¢ Market
zs Procurement Food Supply
2 . SY. con Pri
Market Ration Price
pert Price
0%
Annual a x
d Prod
* + -
Consumption
Total Govt
Cultivation Allocation
Land e .
1, ‘. Lead Time
§ Food per Capita Consumption
= Farm Income = *
3 ¥ i Import
. * imports
as Remunerative Population Nutrition: Consumer
_= Price Harvest bs Subsidy
g é& A Season
2 Birth/ Year Health of Consumer
8 Market Procurement m~ Children Ber ’ Gsaple of ——w| Satisfaction
: i ildren
a4 Price Price Couple
PDS - TAMIL NADU
Year Rice Procure- Ratio Procurement PDS Open Quantum Per
Produc- ment of Prices issue Market of Rice capita
tion (Lakh Procure- (Rs./per Price Price distri- Food-
(Lakh tons) ment to quintal (Rs./per (Rs./ bution grains
tons) Produc Common variety quintal) quintal through (Grams
tion Centre State PDS /aay)
.000 metric
tonnes
'
nw
3
1 80-81 42.79 2.83 2.3 105 ALS 165.00 229.00 671 323
81-82 56.81 6.17 10.8 P15 115 175.00 271.00 731 414
82-83 36.42 3.15 8.6 122 137 188.00 273.00 866 272
"83-84 46.33 10.54 22.75 132 167 208.00 358.00 918 340
84-85 53.65 7.04 7.83 152 187 217.00 300.00 1323 367
85-86 53.70 8.25 15.36 157 192 237.00 339.00 1152 381
86-87 53.33 7.96 13.53 162 197 239.00 333.35 1320 371
87-88 56.14 6.46 11.51 166 201 239.00 368.90 1400 378
88-89 57.04 7.20 12.25 173 208 244.00 394.20 1539 366
of the society, controlling inflation in a climate of
uncertainities in food production.
CONCLUSION
The system dynamics model developed is being improved upon
taking into account the agricultural sector, market
structure and support services. The study is now confined
to the State of Tamil Nadu. It is likely to enlarge as a
national growth model for PDS.
REFERENCES
Raj Krishna and Ajay Chwibber, 1983, "Policy Modelling of a
Dual Grain Market: The Case of Wheat in India", Research
Report:38 of International Food Policy Research
Institute, U.S.A.
Back.N.L. Saeed Khaled, Lukens, 1990, " Dynamics of Food
Policy in a Centrally Planned Economy: The Case of
Vietnam", International System Dynamics Conference,
Boston, 61-74.
Bala B.K., Salter. M.A., Golam Mohiuddin, 1990 "Simulation
of Foodgrain storage Management System in Bangladesh",
International System Dynamics Conference, Boston, 75-79.
Govindarajan. M and Ramaswamy. N, 1991 "Diffusion Analysis
in Marketing", International System-Dynamics Conference,’
Bangkok, 219-229,
Annual Reports of Tamil Nadu Civil Supplies Corporation
1980-81.
