Perspectives from ISB

Portability in PDS: What happens when beneficiaries of the subsidised ration scheme are no longer tied to their assigned ration agent?

Lakshmi Das, 36, and her husband Raghuvansh Das, 39, start their day at 4 am, so they can be at the village square by 5.30, waiting for potential clients from nearby towns who need daily wage workers. They are among the dozen-odd workers who stand and wait there every day. From hauling bricks to laying roads to fixing water leakages, they have gathered these skills over time; and are ready to sell them at whatever the going rate is for the day. Their work timings are not in their control. Leave is a luxury they cannot afford.

Lakshmi and Raghuvansh are, as a household, eligible for subsidised food grains and other ration from government-assigned shops under India’s Public Distribution System (PDS), but they are not always able to collect it.

The reasons are many. Their work hours won’t let them reach his assigned Fair Price Shop when it is open. Worse, there are days when one of them would make it in time, but a lock would stare back at them. In brutally simple terms, they are at the mercy of the shop assigned to them on his ration card under the PDS. For a household like theirs, this food subsidy can be the difference between a child going to school at all, or not.

Governments have looked to solve the monopoly of shops and the inaccessibility of rations by using technology — linking PDS with Aadhaar. This made a choice of shop possible, which meant they could go to a different shop if their assigned one won’t serve them.

ISB faculty and their co-researchers have sought to study how this programmatic change could help improve public welfare.

Video: Researchers explain their work on PDS, and how choice of shop can improve welfare

Role of Choice in Making PDS More Efficient 

At its nub is a larger management question: How do you allow choice in a government scheme?

That, too, at this scale: India spends nearly 7% of its national budget on its food security programme, which includes the PDS that covers 160 million families who are eligible to receive food grains at heavily subsidised prices. This is several times the total budget and population of many countries.

Typically, households are assigned to a shop in their area. Each such shop, run by an agent, would serve about 300 families. By design, there has been no competition between agents.

Several of the inefficiencies in the system have stemmed from having to collect grains from pre-assigned agents.

This means a large number of people are unable to take advantage of the PDS despite being eligible. There are many reasons for unclaimed rations. Low levels of awareness among households, and limited availability of alternative shops, are some of them. Another reason is the possible denial or inability of shop owners to serve beneficiaries not assigned to them.

Shop owners thus fear they may run out of stock. At the shop level, the introduction of portability gives rise to fluctuations in demand for rations. Shop owners have to maintain sufficient inventory to manage these fluctuations to serve pre-assigned beneficiaries and the new beneficiaries who exercise choice. However, this is not always possible due to financial constraints, lack of storage space, or the absence of a well-articulated stock replenishment policy.

Solving for society: Tech makes it possible

In 2010, governments allowed beneficiaries to use biometrics to identify themselves. This was partly to ensure only eligible people got rations. Technically, this also made it possible for them to collect the rations from any agent, and not rely on their pre-assigned agent.

Thus, the concept of portability in PDS was born. Several state governments implemented this.

Telangana did it in 2018, and in a recently published paper, researchers Rakesh Allu, Maya Ganesh, Sarang Deo and Sripad K Devalkar, the latter two being professors at ISB, chose to study if this caused any rise in availing of the scheme and why.

Prior studies in India, using survey data, documented who uses portability and what factors drive its usage, including a study in Andhra Pradesh by the same researchers. The study in Telangana, however, looked to answer if portability indeed improves welfare, using official programme data.

What does data say about benefits of choice in PDS?

Findings of the research affirmed that having the choice was a positive step. But there was a surprise in the learnings.

The study covered 358 sub-districts in Telangana – analysing data from January 2017 to April 2019 – and found that after the introduction of choice, there was an increase of 6.6% in rations availed by beneficiaries.

Let us distil that number.

  • While earlier only 88 out of 100 eligible households collected their rations in Telangana, the number went up to 94.6 after portability or choice was introduced.
  • At a sub-district level, this was the equivalent of about 800 more families availing benefits.
  • At a state level, that would be about 600,000 more families.

Each of these families potentially saved about Rs 700 a month, according to the researchers. For families such as Lakshmi and Raghuvansh’s, that is about 20% of their monthly budget for food.

Who collected the rations after choice came in?

The study found the increase in uptake of rations, after the introduction of choice of shop, came entirely from households that were already eligible for the benefits but were not collecting them earlier. Therein lay the surprise, and a deeper insight.

It’s not like these new people were collecting rations from different shops. They were, in fact, going only to their assigned agents.

But the mere availability of choice acted as a threat for agents to improve their service, the research found. Agents kept their shops open for longer, and possibly even changed their behaviour.

“The Standard Operating Procedure from the government is, that the agent must keep the shop open for the first 15 days of a month. Most agents won’t do that. After the introduction of portability, we see agents more likely to keep the shop open for the stipulated days,” says Sripad K Devalkar, Associate Professor, Operations Management, ISB.

“This meant people who weren’t collecting their rations earlier, were now able to do that,” adds Rakesh Allu, currently at Cornell University and an alum of ISB.

“Our analysis shows that ration shop owners improved their service standards, keeping their shop open for longer hours. Shop owners feared losing beneficiaries to other ration shops in the vicinity. And to avoid a loss in compensation, ration shop owners facilitated easier access to rations,” Allu explains.

The researchers conjectured that the benefit would be limited to urban areas that have more shops and hence more competition, but interestingly even rural areas saw an increase in uptake. Further on demographics – as to who gains from portability – earlier studies, such as the one by the same set of researchers in Andhra Pradesh, found one set of people benefiting in particular after portability: those who wanted to collect grains later in the month.

Going national and beyond

There are potential global lessons from the study of Telangana. Low- and middle-income countries spend about 3-5% of their GDP on such programmes which involve the transfer of commodities – be it rice, fertilisers, cooking gas, health and hygiene products, and so on.

The research does make one curious about the Indian government’s ambition to have One Nation, One Ration Card.

Someone like Lakshmi, or anyone from the demographic he stands for, may move to another part of the country to work on farms during agricultural seasons. Where and how would they get their ration?

Prof Devalkar explains what further needs to be studied for that: “Migration patterns need to be studied, and shop-wise stocks need to be managed as per that.” Also, PDS is both a central and a state subject, and beneficiaries get different types of grains in different regions. That will need policy clarification.

Won’t simply putting money into bank accounts, and not distributing grains, resolve this? “Today, it is a fixed quantity of food, say 5 kg per person. However, the same 5 kg might cost different in various parts of the country, or even within a state,” underlines the professor.

Rakesh Allu adds, “Also, studies have found that people prefer to have commodities, as the possibility of cash being misused for alcohol and drugs, etc, is higher. Cash transfer might happen eventually; at this point, the movement is slow,” adds Allu.

“From our study, we know a key thing for sure. The mere presence of choice can help improve welfare in large-scale government schemes involving huge transfers of commodities. The actual use of choice by beneficiaries is not even necessary; its presence alone acts as a catalyst for improvement of service by the agents. And that has wide implications,” says Prof Devalkar.

Article based on the research paper: Technology-Enabled Agent Choice and Uptake of Social Assistance Programs: Evidence from India’s Food Security Program (By Rakesh Allu , Maya Ganesh, Sarang Deo, Sripad K. Devalkar) Click here to go to the full paper
You can access a quick summary of the paper here

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