A food credit card scheme

Issue 15 - Jun 2008
Ankit Rawal

Indian governments have experimented with a number of poverty alleviation programmes but their success has been limited. Of these, the Public Distribution System (PDS)—a quantity rationing-cum-food subsidy programme—is one of the oldest and most far-reaching in terms of coverage. But in spite of its existence for decades it has not been effective in poverty alleviation due to gross inefficiencies in procurement and distribution. Can civil society do something here? NGOs, especially those engaged in microfinance have to take the lead in this area support government initiatives to make them more effective to the needs of the poor.

The PDS chain broadly consists of the Food Corporation of India (FCI), the co-operative society at each district, fair price shops & the final beneficiary. Though the PDS has been in operation for four decades now, the access of the poor to it is still very limited. There are several reasons for this, mainly involving leakage and pilferage in the distribution chain, gross inefficiencies, diversion of supplies to open market, limited window of distribution of supplies—all at exorbitant cost to the exchequer. One rupee of income transfer costs Rs 6.35 to the government.

Apart from the supply side inefficiencies, one problem plaguing fair price shop owners is that they do not have sufficient funds to purchase sufficient stocks from FCI warehouses to meet the requirements of the poor families in their locality. Thus they end up selling little or nothing to cardholders. The low sales volumes reduce profitability and drive shop owners to black marketing. Another problem is the irregular cash flows of the poor households, which means that they may not have enough cash in hand to make purchases at the time that the stock arrives at shop. The selling window is open only for a period of 2-3 days on an average and if the cardholders do not buy during that period, the shopkeeper has the liberty to divert it to the open market.

This is where NGOs already engaged in microfinance can plug the gap. They can provide funds to the poor families to buy their allocated rations from the fair price shops. As the adjoining table shows the commodity wise break-up of procurement from a fair price shop and the open market of a typical poor household of four members with a monthly income range of Rs 1500 to Rs 3000.

Thus, due to lack of immediate cash at the time of arrival of rations at the fair price shops, a poor household has to pay an extra amount of Rs 554 per month or Rs 6,648 per year to procure the same amount from the private shops, frustrating the entire rationale of the PDS scheme. If microfinance institutions can step in solve the cash flow problem among the poor households, the situation can be rectified. Not only will this alleviate the problem of food security for these families but also increase their purchasing power.