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Kerala kicks off PDS reform with direct credit to bank accounts

After many stumbles, the reform of India’s massive food-subsidy system is gathering pace.

Starting this month, Kochi in Kerala will be among the select few cities in India where a new public distribution system (PDS) will be tested out.

Unlike the current system, the new system will not route the subsidy on food and kerosene through the PDS dealers. The dealers, also called ‘ration dealers’, are notorious for refusing to pass on subsidized grains, sugar, kerosene and other items to the intended beneficiaries.

Often when PDS cardholders approach the ‘ration shop’ for getting subsidized grains and kerosene, they are told that stocks have not arrived, and are told to come back later. Many PDS cardholders stop bothering about their entitlements due to the frequent ‘non-availability’ of stocks.

The ration dealer then diverts the subsidized grains and fuel to local merchants, in return for handsome commissions. Both the dealer and the merchant benefit from the supply of cheap food items and fuel.

In some areas, PDS distributors are also known to replace the high quality subsidized food items with rotten or expired items supplied by local merchants. The subsidized grain, sugar etc. are often then sold to the same merchants for just below their market price.

Under the new system which is being tried out in Kochi this month, the government will stop the issue of subsidized kerosene to the PDS dealer. At present, the PDS dealer gets kerosene at just under Rs 14 per litre and is supposed to ration it to the public at Rs 14.50 per litre.

However, a large chunk of this kerosene lies unclaimed by the public, who have no use for it, and is instead used to adulterate petrol and diesel.

In the new system being tried out, the PDS shopowners will now get kerosene at about Rs 55 per litre — the correct market value of the commodity. The dealer is then expected to sell the kerosene at market rates to cardholders and submit the details of how much fuel has been sold to each cardholder back to the civil supplies department of the state government.

Based on the information received from the ration dealers, the government sends a subsidy amount directly to the cardholder’s bank account at the rate of about Rs 40 per litre.

As a result, the subsidy will no longer be routed through the ration dealers and will go directly from the government to the beneficiary’s bank account.

A similar PDS reform pilot in Rajasthan is reported to have cut down the consumption of kerosene from about 83,000 litres to 13,000 litres — indicating that the actual beneficiaries were getting only 16% of the kerosene sent through the PDS channel.

Government officials have already pasted notices on all ‘ration shops’ in the project area (in Kochi) informing the public of the new system. Cardholders have been asked to submit the details of their PSU bank account to the Taluk City Rationing office, along with a copy of their PDS card. The scheme is expected to expanded to all 14 districts in Kerala by December.

The Indian government spends about Rs 3 lakh crore (Rs 3 trillion) every year on four major subsidy schemes — for food, fuel, fertilizer and employment. The number implies that, on average, it sends more than Rs 1,000 per month to each family in terms of these subsidies. Most families, however, do not get even a fraction of the amount in benefits.

The new system of direct credit to bank accounts is expected to not only reduce the bill of Rs 3 lakh crore per year (perhaps by as much as half), but also significantly increase the proportion of the money that ultimately reach the intended beneficiaries.

However, the direct credit scheme is unlikely to be easily implemented, going by the early signs in Kerala. Ration dealers associations have already threatened to go on strike if the scheme is attempted to be implemented in the state. There will be a token strike on July 20.

At a meeting held earlier this week, the Ration Dealers’ Association said the scheme was ‘anti-poor’ as it required them to buy the kerosene at high prices from the ration shops and then wait for the amount to reach their bank accounts. The association said such as scheme placed a “heavy financial burden” on the poor people in the state.

National ration dealers associations are reported to be planning a fast against the move, starting on September 3 in Delhi.

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