Public Distribution System

Quality of Government Expenditure Index: RBI

Context: Recently, the Reserve Bank of India (RBI) has released the ‘Quality of Public Expenditure’ Index to assess how well the government is spending public money. The latest report makes for a positive picture.

Relevance of the Topic: Prelims: Quality of Public Expenditure Index; Public Expenditure- Trends & Analysis.

Quality of Public Expenditure (QPE) Index

Developed by the RBI to assess how well the government is spending public money.

The Index uses five variables to assess quality of spending:

Capital outlay to GDP ratio
Capital outlay to GDP ratio
Development expenditure to GDP ratio
Development expenditure measured as a percentage of a government’s total expenditure
Interest payments to total government expenditure ratio

Variables of Quality of Public Expenditure (QPE) Index

Capital outlay to GDP ratio:
- Money set aside by the government towards building physical infrastructure expressed as a percentage of Gross Domestic Product (GDP).
- The higher the ratio, the better is the quality of public expenditure (stronger commitment to enhance a nation's productive capacity).
Revenue expenditure to Capital outlay ratio:
- Relative weight of the revenue & capital expenditures. Compares day-to-day operational expenses of the government (like salaries, subsidies, pensions) to the long-term capital investment.
- The lower the value of this ratio, the better is the quality of public expenditure.
Development expenditure to GDP ratio:
- Development expenditure refers to all public expenditure to enhance production factors (labour and capital) or by improving their productivity, in order to stimulate economic growth.
- It includes expenditure on:
  - Education and training
  - Public infrastructure investments
  - R&D (which drives technological advancement and innovation)
  - Healthcare (which boosts both the size and productivity of the labour force by extending the span of healthy life).
  - Subsidies (particularly those aimed at improving nutrition, such as food subsidies) to bring long-term welfare gains.
Development expenditure as a percentage of a government’s total expenditure: The higher the value of this ratio, the better is the quality of public expenditure.
Interest payments to total government expenditure ratio:
- Proportion of government spending on servicing debt.
- A lower value of this ratio shows better quality of public spending.

Quality of India’s Public Expenditure: Analysis by RBI

The RBI has broken the whole period (from 1991 to now) in six phases to illustrate how structural forces have shaped the quality of public expenditure at both levels of government (Centre & states).

Phase 1: Early Post-Liberalisation Reforms & Fiscal Realignments (1991-95):
- Centre’s index (Chart 1) showed a slight improvement in quality of public expenditure (QPE), while the States’ index (Chart 2) declined modestly. These movements were driven by the fiscal pressures faced by both levels of government.
- Public investment fell as fiscal consolidation took precedence.
Phase 2: Pre- FRBM Consolidation (1996-2003):
- Both indices experienced a sharp decline reflecting the combined impact of the Fifth Pay Commission implementation, rising interest payments, and the persistent dominance of revenue expenditure over capital outlay.
Phase 3: FRBM Implementation & Growth Upswing (2003-2008):
- Reflects positive effects of both fiscal discipline (as FRBM Act started guiding government borrowing) and fast economic growth making more money available for spending.
- States also benefited from higher fiscal devolution.
- The index rebounded sharply until the world was hit by the Global Financial Crisis (GFC) of 2008.
Phase 4: Global Financial Crisis & Countercyclical Adjustments (2008-13):
- GFC prompted the Centre to adopt countercyclical fiscal measures, including stimulus packages.
- Governments, especially the Centre had to spend more in order to counter the slowdown and hurt caused by the GFC.
- While this continued to push up the index during this phase, higher spending levels resulted in higher deficits, and it eventually started eroding the quality of public expenditure.
Phase 5: Structural Reforms & GST Rollout (2013-20):
- The trajectory of the index goes in opposite directions for the Centre and the states.
- The QPE saw an improvement in states with improvements in development spending, as well as more money being available to them, thanks to the recommendations of the 14th Finance Commission.
- The Centre further faced challenges with GST revenue sharing initially favouring the states.
Phase 6: Pandemic shock & Infrastructure-focused recovery (2020-Present):
- Economic recovery especially driven by the heightened focus on capital expenditure helped push up the quality of public expenditure.

Thus, according to RBI’s index, the quality of public expenditure in India (both at Centre and state levels) is close to the highest point it has ever been since the start of economic liberalisation in 1991.

Recent Trend shifts in India’s Public Expenditure

Push for Fiscal Discipline:
- To limit the tendency in government to overspend, India instituted the Fiscal Responsibility and Budget Management (FRBM) Act, 2003.
- FRBM limit on Fiscal & Revenue Deficit:
  - As per FRBM Act, the fiscal deficit should ideally not exceed 3% of GDP.
  - The revenue deficit should be zero.
  - Purpose: Government should only borrow for capital expenditure (and not for paying higher salaries and other similar everyday spending).
- Targeting overall debt: India has now shifted to targeting overall debt as a percentage of GDP, instead of an individual year’s fiscal deficit, as a way to maintain fiscal discipline.
Push for higher capital expenditure: Capex boosts productive capacity of the economy.

Also Read: Re-evaluating FRBM Act 2003

India needs to enhance the Quality of Public Expenditure by continued investment in infrastructure, renewable energy, and digital transformation, keeping borrowing under control, strengthening Centre-state financial coordination and using data-driven governance models to track expenditure efficiency.

Right to Food and Struggle with PDS

Context: The 2023 reports from Jharkhand and Odisha highlighted that a substantial number of households have been removed from the rolls of the Public Distribution System (PDS). A substantial number of households have found themselves removed from PDS rolls in parts of north, central and east India.

Relevance of the Topic: Mains: Challenges in Public Distribution System.

Right to Food

The ‘right to food' was recognised as a fundamental right in the People’s Union of Civil Liberties vs Union of India case, 2001.
- The right to food is not a fundamental right explicitly mentioned in Part III of the Indian Constitution, but it can be derived from Article 21.
The Indian Parliament enacted the National Food Security Act (NFSA) in 2013 to address food security.
National Food Security Act (NFSA), 2013:
- Provides affordable food-grains to roughly two-thirds of the Indian population.
  - 75% of Rural population
  - 50% of urban population
- Entitlements: Provides rice, wheat or coarse grains (5kg/person/month) at Rs 3/kg, Rs 2/kg, and Rs 1/kg, respectively.
Targeted Public Distribution System:
- Antyodaya (most vulnerable) people got free food grains (35 kg of food grains per household month).
- Priority households (above Antyodaya level but below poverty line) had to pay at least half the minimum support price (MSP) being paid to the farmer.
- Above poverty line households had to pay 90% of MSP.

Problems in the Public Distribution System

1. Incomplete Enrolment and Inadequate Access:

Case Study of the Musahar community in Bihar: Musahars are extremely marginalised communities that have been pushed beyond the edge of destitution by the socio-politics of caste.
- A number of Musahar households in Patna district do not have an active ration card.
- Even if they do have one, the card does not have the names of all the family members.
Issue with Biometric Verification:
- Several people lost access to their monthly supply of ration ever since biometric verification was made mandatory at fair price shops (FPS).
- Individuals are forced to get a new ration card as after verification it emerges that their names have been struck off the PDS rolls.

2. Corruption:

There are reports of cases where FPS dealers are releasing only four kilograms of food grain/person.
- A below poverty line (BPL) household which has a Priority Household (PHH) ration card is entitled to five kilograms a person.
The four kilograms of grain being issued is rice, which is the lowest quality of ‘Usna’ rice. No amount of wheat is issued.

3. Documentation with no Legal basis:

Bureaucrats involved in the PDS mechanism are reported to claim unnecessary documents for issuing ration cards. E.g.,
- In Bihar, citizens applying for a ration card using a paper-based application as well as through e-PDS portal are asked to submit:
  - Aadhaar details of the applicant and their family members
  - caste certificate
  - income certificate
  - residence certificate
- Uttar Pradesh makes it mandatory to provide an income certificate.
- Madhya Pradesh requires the submission of proof of residence.
The requirements of these certificates do not have any legal basis.
- Neither the National Food Security Act (NFSA) of 2013 nor the PDS control order of 2015 explicate the requirement of such documents.

4. Exploitation by Middlemen:

People from marginalised communities who seek to avail the benefits of PDS, neither have the resources nor the knowledge to interact with online processes.
This situation is aggressively exploited by middlemen who charge a sum of ₹3,000 to have a ration card made.

5. Delays in Issuance of Ration Cards:

There is no guarantee that the applicants will get their ration card. There are cases of people whose applications have been pending for long (between 4-18 months).
- The 2015 order states that ration cards should be issued within 30 days of the application being filled.

Recommendations of Shanta Kumar Committee on PDS Reforms

Need for End to End Computerisation: Given that leakages in PDS range from 40 to 50 percent, Government should defer implementation of NFSA in states that have not done end to end computerisation; have not put the list of beneficiaries online for anyone to verify, and have not set up vigilance committees to check pilferage from PDS.
Reducing the Coverage: Reduce the current coverage of 67% of the population under NFSA to 40% (comfortably cover BPL families and some even above that).
Increased quota of Food grains: The amount of food grains should be increased to 7kg/person from the present 5kg grain per person.
Pricing: Antyodaya households can be given grains at Rs 3/2/1/kg for the time being, but pricing for priority households must be linked to MSP, say 50 percent of MSP
Timely Allocation: Targeted beneficiaries should be given 6 months ration immediately after the procurement season ends. This will save the consumers from various hassles of monthly arrivals at FPS and also save on the storage costs of agencies.
Cash Transfers: Gradual introduction of cash transfers in PDS, starting with large cities with more than 1 million population; extending it to grain surplus states, and then giving option to deficit states to opt for cash or physical grain distribution. This would lead to saving of Rs 30,000 crores.
Storage, movement and Transport of Food Grains: FCI should outsource its stocking operations to various agencies such as Central Warehousing Corporation, State Warehousing Corporation to bring down costs of storage. Covered and plinth (CAP) storage should be gradually phased out. The Movement of grains needs to be gradually containerised to reduce transit losses.
Buffer Stocks: On an average, buffer stocks with FCI have been more than double the buffer stocking norms costing the nation thousands of crores of rupees loss without any worthwhile purpose being served. There has to be a comprehensive liquidation policy which gives sufficient flexibility to FCI to either export or sell the surplus stocks in the market.

Rationalising Food Subsidy: Providing Direct Benefit Transfer

Context: Ahead of Budget 2025-26, the Confederation of Indian Industry (CII) has recommended rationalisation of food subsidies urging the government to adopt direct benefit transfer (DBT) model to provide direct income support to beneficiaries of the Public Distribution System (PDS).

Relevance of the topic:

Prelims: National Food Security Act, 2013- Features

Mains: PDS- Problems, DBT for PDS.

National Food Security Act, 2013

National Food Security Act, 2013 provides food and nutritional security by ensuring access to adequate quantities of quality food at affordable prices to households.
Coverage: Up to 75% of rural population and 50% of urban population (encompassing 67% of total population of India).
Entitlement:
- Priority households: 5 kg/person/month
- Antyodaya households: 35 kg/household/month
- Subsidised prices of Rs. 3/2/1 per kg for rice, wheat and coarse grains.
Nutritional Support: Meals for Pregnant women and lactating mothers and children (6 months- 14 years)
Maternity benefit: Rs 6000 for pregnant women and lactating mothers.
Women empowerment: Eldest woman (18 years and above) considered as head of household for issuing ration cards.
Grievance redressal: At district and state levels.
Accountability through social audits and Vigilance committees.
Food Security Allowance: Provided in case of non-supply of food.

Need for Rationalisation of Food Subsidies

Higher Subsidy Burden: Food subsidy burden has increased to more than Rs. 2 lakh crores on an annual basis. This indicates the unsustainability of food subsidies.
Leakage in PDS system: Recent ICRIER study highlights 28% leakage in the PDS system. Inefficiencies and corruption lead to diversion of food grains.
Rise in fiscal deficit: High subsidy bills strain the fiscal deficit, diverting funds from other critical areas like education, health, infrastructure, etc.

Benefits of Direct Benefit Transfer for PDS Beneficiaries

Empowerment of beneficiaries: Direct income support would empower beneficiaries to purchase food items of their choice, based on individual needs.
Better targeting: DBT can precisely reach the intended beneficiaries with the help of digitisation as the system is linked to Aadhar.
Eliminate middlemen: Cash transfers directly to the beneficiaries remove intermediaries, reducing chances for diversion, corruption and leakages.
Administrative Efficiency: DBT would reduce the logistical burden of transporting and distributing food grains under the PDS system.

Bottlenecks for DBT in PDS

Existing legal provision: There exists an optional provision under the National Food Security Act, 2013, (NFSA) for the states to transfer the subsidy directly to the beneficiary’s bank account. However, no State had requested for DBT since NFSA was rolled out in 2013.
Linkage with MSP procurement: The issue of DBT is linked with the Minimum Support Price procurement as PDS is one of the outlets where the government disposes of the grains purchased from farmers.
Poor Banking infrastructure and Digital Divide: Limited access to digital resources and inadequate banking infrastructure would hinder DBT implementation.

Rationalisation of Food Subsidies should be considered by the government, considering the unsustainable subsidy bill and rising cases of leakages reported in the PDS system. An overhaul of the system along the lines of Direct Benefit Transfer, end-to-end computerisation of PDS, seeding of Aadhar with Ration Card, etc. is the need of the hour.

‘Bharat’ Rice

Context: Centre launches sale of Bharat Rice at an MRP of Rs. 29/kg in 5Kg and 10Kg packs.

What is Bharat Rice

It is the retail sale of Food corporation of India’s (FCI) rice to general consumers at a subsidised rate.

Ministry - Ministry of Consumer Affairs, food and public distribution.
Agencies
- Kendriya Bhandar
- National Agricultural Cooperative Marketing Federation of India (NAFED)
- National Cooperative Consumers' Federation of India (NCCF)

The Bharat Rice will be available for purchase from mobile vans and physical outlets of the three central cooperative agencies.
As per the ministry in future, it will be expanded to other retail outlets and e-commerce platforms.

Why this step

Government received a lukewarm response for sale of rice to bulk users at the same rate through the Open Market Sale Scheme (OMSS).
To check inflationary trends in the food economy, as prices of rice are increasing despite good produce in the Kharif season.
Ample stock in FCI is lying idle due to various regulations on rice exports.

Significance

The launch of retail sale of ‘Bharat’ Rice will increase supplies in the market at affordable rates and will help in continued moderation of prices of this important food item.

Other Commodities

Bharat Atta (wheat flour) is already being sold by these 3 agencies @ Rs. 27.50 per Kg in 5Kg and 10 Kg packs.

Similarly, Bharat Dal (chana dal / Chickpea) is also being sold by these 3 agencies @ Rs.60 per kg for 1kg pack and Rs.55 per kg for 30 kg pack along with onions @ Rs.25 per kg.
Apart from these 3 agencies, state- controlled cooperatives of Telangana, Maharashtra and Gujarat are also involved in retail sale of Bharat Dal.

National Agricultural Cooperative Marketing Federation of India (NAFED)

It was established in the year 1958.
It is registered under the Multi State Co-operative Societies Act.
It was setup with the object to promote Co-operative marketing of agricultural produce to benefit the farmers.
Agricultural farmers are the main members of Nafed, who have the authority to say in the form of members of the General Body in the working of Nafed.
Headquarters is situated in New Delhi.

National Cooperative Consumers' Federation of India (NCCF)

It was established in 1965 to function as the apex body of consumer cooperatives in the country.
It is registered under the Multi-State Co-operative Societies Act, 2002.
It operates through a network of 24 Branch Offices located in different parts of the country.
NCCF Headquarters is situated in New Delhi.

Kendriya Bhandar

The Central Govt. Employees Consumer Cooperative Society Ltd. popularly known as Kendriya Bhandar
It was set up in 1963 as a welfare project for the benefit of Central Govt. employees and public at large.
It functions under aegis of Ministry of Personnel, Public Grievances & Pensions, Govt. of India.
It is registered with Central Registrar of Cooperative Societies, Govt. of India as a Multi-State Consumer Cooperative Society.

Food Corporation of India’s (FCI)

It is a statutory body setup under the Food Corporation’s Act 1964.
It is a public sector undertaking under Department of food & Public distribution, Ministry of Consumer Affairs, Food and Public Distribution.
Objective
- Effective price support operations for safeguarding the interests of the farmers.
- Distribution of food grains throughout the country for public distribution system.
- Maintaining satisfactory level of operational and buffer stocks of foodgrains to ensure National Food Security

Changes in Open Market Sale Scheme (OMSS)

About Open Market Sale Scheme (OMSS)

Open Market Sale Scheme (OMSS) refers to selling of foodgrains by Government / Government agencies at predetermined prices in the open market from time to time to enhance the supply of grains especially during the lean season and thereby to moderate the general open market prices especially in the deficit regions.
Objective: Food Corporation of India (FCI) on the instructions from the Government, sells wheat and rice in the open market from time to time to enhance the supply of wheat and rice especially during the lean season and to moderate the open market prices especially in the deficit regions.
Mode of Auction: For transparency in operations, the Corporation has switched over to e- auction for sale under Open Market Sale Scheme (Domestic). The FCI conducts a weekly auction to conduct this scheme in the open market using the platform of commodity exchange NCDEX (National Commodity and Derivatives Exchange Limited).
Participants: The State Governments/ Union Territory Administrations are also allowed to participate in the e-auction, if they require wheat and rice outside the Targeted Public Distribution Scheme (TPDS) and Other Welfare Schemes (OWS).
Pricing: The reserve price is fixed by the government. In the tenders floated by the FCI, the bidders cannot quote less than the reserve price.
Components: The present form of OMSS comprises 3 schemes as under:
- Sale of wheat to bulk consumers/private traders through e-auction.
- Sale of wheat to bulk consumers/private traders through e-auction by dedicated movement.
- Sale of Raw Rice Grade ‘A’ to bulk consumers/private traders through e-auction.
Recent Changes to OMSS:
- Limits on Quantity Procured: Previously, the Department had already imposed restrictions on the sale of wheat under OMSS(D) to a bidder, limiting the quantity to 3,000 tonnes. Now, under the Open Market Sale Scheme (Domestic) or OMSS(D), the maximum quantity that a bidder can purchase in a single bid is now restricted to ranges from 10 to 100 metric tons.
- Enhanced Reach: This reduction in quantities aims to accommodate more small and marginal buyers, ensuring a wider reach of the scheme and immediate availability of stocks to the public.
- Exclusion of State Governments: As part of the revised policy, the government has also decided to exclude state governments from the purview of OMSS(D) to maintain adequate stock levels in the central pool while controlling prices.
- Exception: For the North-Eastern states, hilly states, and states facing law and order issues or natural calamities. The sale of rice for these exceptional cases will continue at the existing rate of ₹3400 per quintal.
Why Were the Changes Needed?
- Control Inflation: The government's decision to discontinue the sale of wheat and rice under OMSS(D) aims to control food inflation and protect the interests of consumers.
- Accommodate Small Buyers: The quantities have been reduced this time to accommodate more small and marginal buyers and to ensure a wider reach of the scheme. This will facilitate the release of stocks sold under OMSS (D) to reach the general public immediately.
- Meet Other Obligations: This will also lead to higher availability of foodgrains for the Department’s other obligations such as distribution of free food grains to 80 crore beneficiaries under the Pradhan Mantri Garib Kalyan Yojana.
- Implications: States now will have to procure the foodgrains from the open market at a higher cost. This will add to the already burgeoning food subsidy bill.

Food Corporation of India (FCI)

It is a statutory body set up in 1965 (under the Food Corporation Act, 1964) against the backdrop of major shortage of grains, especially wheat, in the country.
Nodal Ministry: Ministry of Consumer Affairs, Food and Public Distribution, Government of India.
Headquarters: New Delhi
Vision: Ensuring Food Security for citizens of the country.
Objectives: FCI aims to fulfil following objectives of the Food Policy
- Effective price support operations for safeguarding the interests of the farmers.
- Distribution of foodgrains throughout the country for the public distribution system.
- Maintaining satisfactory level of operational and buffer stocks of foodgrains to ensure National Food Security
Mission:
- Efficient procurement at Minimum Support Price (MSP), storage and distribution of food grains.
- Ensuring availability of food grains and sugar through appropriate policy instruments; including maintenance of buffer stocks of food grains.
- Making food grains accessible at reasonable prices, especially to the weak and vulnerable sections of the society under PDS.
Since its inception, FCI has played a significant role in India's success in transforming the crisis management oriented food security into a stable security system.

Reimagining ration shops

Context: The Food Corporation of India (FCI) has procured over 20 million tonnes of wheat this season, with Punjab, Haryana and Madhya Pradesh contributing over 98% of the total to the central pool.

Punjab is expected to be the largest contributor to wheat procurement despite producing less wheat than Uttar Pradesh. Farmers in Punjab who used zero tillage and mulched paddy straw at the time of sowing wheat through smart happy seeders were able to achieve a high yield, while others who experienced heavy rain had lower yields. Mulching paddy straw helps increase organic carbon in soil and can be a good case for India to show to the agriculture group of G20, with Punjab Agricultural University and Borlaug Institute for South Asia leading the way.