The Public Distribution System (PDS) is a means of ensuring that adequate food at subsidized prices is made available to the poor.
The new Food Security Bill provides that rice will be provided at Rs 3/kg, wheat at Rs 2/kg and coarse grain at Re 1/kg to a vast majority of the total population of the country. Each beneficiary will get 5 kgs of food grains per month.
To support the PDS we need an elaborate system of food procurement and the food procured will have to be stored in Food Corporation of India (FCI) godowns. Living with such a gigantic system of food procurement and distribution is a difficult task for any government. The task becomes all the more difficult when there are leakages in the system and various corrupt and unethical practices prevail.
Food coupons are a means whereby we can ensure that subsidized food grains can be made available to the needy but without the support of a gigantic food procurement and storage system. Under this system instead of actually distributing food grains to the beneficiaries, they are distributed food coupons.
The beneficiaries who receive food coupons can use these coupons to buy food grains from any designated store at the prescribed subsidized price. The dealer who sells food grains at the subsidized price can produce these coupons at the government treasury and get compensated for the subsidy he provided to the PDS beneficiary.
A major advantage of the system of food coupons is that under this system the Government need not procure from the farmers the entire requirement of food grains for the PDS and the need for FCI godowns is reduced. The food distribution will largely be in the hands of private trade and market forces will operate.
The government will, however, need to maintain a buffer stock of food grains. This will be only for the purpose of price stabilization through open market operations of the government. The government will release food grains in the open market when food prices are high and purchase food grains when prices are low.
The quantum of food grains required to be maintained as a buffer stock will be much less than the level of stocks which will have to be maintained if the entire demand of food grains under PDS is to be met by actual physical supply of food grains to the beneficiaries. The idea of providing food grains in physical form to about 75% of the total population of the country under PDS is utopian and unviable. The entire system will collapse under its own weight. The way out is to replace physical supply of food grains under PDS by issue of food coupons.
P V Rajeev , former Economic Adviser of Government of India and worked as an Economist in Government of India for more than three decades. ...
