Almost 28% of the grains supplied by the Food Corporation of India (FCI) and state governments never reach the intended beneficiaries, which amounts to a financial loss of about Rs69,108 crore, equivalent to roughly 20mn (million) metric tonnes (MMT) of rice and wheat. North-eastern states Arunachal Pradesh, Nagaland, followed by Gujarat, are the top-3 states in terms of public distribution system (PDS) leakage of grains, says a report from the Indian Council for Research on International Economic Relations (ICRIER).
India runs perhaps the largest PDS in the world which provides free grains such as rice and/or wheat to almost 813.5mn people. Dr Raya Das, Dr Ranjana Roy and Dr Ashok Gulati, the authors of the research paper, analysed monthly offtake data from FCI from August 2022 to July 2023—including distributions under the National Food Security Act (NFSA), tide-over, non-NFSA state-level allocations, and Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY)—and aligning it with the reference period of the household consumption expenditure survey (HCES) 2022-23, compared reported offtake with actual household consumption levels.
"The findings reveal a significant discrepancy: 28% of the allocated grains, amounting to approximately 20 MMT of rice and wheat, fail to reach their intended recipients. Without state-offtake adjustment, the leakage is 25.3%. The reason we have done both these exercises is because the state-level additional offtake data is not directly available for all the states," the report says.
Linking the ration card of beneficiaries with Aadhaar for PDS has increased the efficacy of distribution, the report says. However, the leakage in the PDS still remains a concern that has not been fully plugged. "The extensive coverage of point of sale (PoS) machines in fair price shops (FPS) has enabled biometric authentication and real-time tracking of transactions, reducing PDS leakage. Despite these advancements, the persistent leakage of 25% to 28% indicates the need for better measures to enhance the system's efficacy."
In absolute quantity, the report says, the PDS leakage amounts to 17MMT for rice and 3MMT for wheat, while the offtake from August 2022 to July 2023 was 71MMT. "This leakage of 20MMT of rice and wheat translates into a substantial financial burden, costing the exchequer Rs69,108 crore (about US$8.42bn- billion) in FY22-23, considering the economic cost of rice and wheat for that year."
"This significant loss highlights the urgent need for reforms and a shift towards direct benefit transfer (DBT) for better efficiency and accountability in distributing food subsidies. By transferring subsidies directly to the beneficiaries' bank accounts, DBT minimises leakage, reduces administrative costs and ensures that the intended recipients receive full benefits. This approach enhances transparency and allows beneficiaries to purchase food grains as per their needs. While the Modi government gives high priority to direct benefit transfers, the PDS has yet to see a change from physical quantities through FPS to direct cash transfers to beneficiaries' accounts," the report says.
According to the report, the extent of leakage issues varies sharply across states. North-eastern states Arunachal Pradesh, Nagaland followed by Gujarat are the top-3 states in terms of PDS leakage of grains. It says, "One of the reasons of higher leakage, particularly in North-eastern states is lack of digitalisation of the distribution system. As per the latest data of 2021, around 60% of Aadhaar has been linked with ration card in Arunachal Pradesh, compared to all India level of 92.8%."
States like Bihar and West Bengal have achieved significant reductions in PDS leakage over the past decade. In Bihar, leakage dropped sharply from 68.7% in FY11-12 to just 19.2%in FY22-23. Similarly, West Bengal saw a decrease from 69.4% to 9% over the same period.
On the other hand, in Uttar Pradesh, PDS leakage remains at 33%, with the state topping the list in terms of the absolute quantity of grains leaked.
According to the report, other states such as Himachal Pradesh, Uttarakhand and Maharashtra experience high rates of siphoning which often involves grains being diverted back to the open market. "Despite the implementation of digital tracking systems, leakage persists, highlighting the need for improved monitoring and structural reforms to address PDS corruption."
The report says Uttar Pradesh has the highest share in all India rice leakage, accounting for 28.42%, followed by Maharashtra at 11.47%. Other states such as Madhya Pradesh, Bihar and Gujarat also account for a large share of the all-India leakage. These five states comprise 64.5% share of total rice leakage in FY22-23.
"It may be interesting to note that in the first ten months of 2019, more than half of the total cases of PDS-related corruption originated from UP and Bihar, according to data revealed by Raosaheb Danve, the then Union minister of state for consumer affairs, food & public distribution in a reply to a question in the Lok Sabha. Out of 807 cases of corruption related to the PDS in India, 328 were from UP alone," it added.
The persistent issue of PDS leakage raises serious concerns about the efficiency of India's grain management system and the resulting financial strain on the exchequer.
"Reliance on grain distribution alone may not adequately address the diverse dietary needs of the population, especially as nutritional challenges increasingly demand access to a variety of high-value foods, including fruits, vegetables, and protein-rich items. This brings into question whether the current grain-centric approach is the optimal policy choice to improve nutrition or if alternative strategies that encourage diversified food consumption are needed to enhance dietary quality and nutritional outcomes across the population," the report says.
