Pds in India Essay Example

Pds in India Essay Research Paper No. 2006/98 The Public Distribution Systems of Foodgrains and Implications for Food Security A Comparison of the Experiences of India and China Zhang-Yue Zhou1 and Guanghua Wan2 September 2006 Abstract A comparative study of the public distribution systems of foodgrains in India and China is expected to reveal lessons and experiences that are valuable to policymakers. This is particularly important for developing countries in their endeavour to ensure food security. This paper undertakes such an exercise. The main features and developments of the two public distribution systems are first highlighted. This is followed by a comparative analysis of their similarities and differences. The role of public foodgrain distribution systems in ensuring food security is then evaluated. Finally, policy implications are drawn. Keywords: public distribution system, food security, poverty, food subsidy, India, China JEL classification: I31, I38, Q11, Q18 Copyright  © UNU-WIDER 2006 1 School of Business, James Cook University, Australia email: zhangyue. [emailprotected] edu. au; 2 UNU-WIDER, Helsinki, email: [emailprotected] unu. edu This paper was prepared for the UNU-WIDER project on Hunger and Food Security: New Challenges and New Opportunities, directed by Basudeb Guha-Khasnobis. The project was carried out in collaboration with the Indian Council of Social Science Research (ICSSR) and the UN Food and Agriculture Organization (FAO). UNU-WIDER gratefully acknowledges the financial contributions to its research programme by the governments of Denmark (Royal Ministry of Foreign Affairs), Finland (Ministry for Foreign Affairs), Norway (Royal Ministry of Foreign Affairs), Sweden (Swedish International Development Cooperation Agency—Sida) and the United Kingdom (Department for International Development). ISSN 1810-2611 ISBN 92-9190-882-7 (internet version) Acknowledgements We wish to thank the participants at the Jaipur workshop for their comments on the paper. In particular, we wish to thank Dr Benjamin We will write a custom essay sample on Pds in India specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Pds in India specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Pds in India specifically for you FOR ONLY $16.38 $13.9/page Hire Writer Davis of the Food and Agriculture Organization of the United Nations and Professor S. S. Acharya of the Institute of Development Studies (Jaipur) for their constructive and helpful suggestions. Acronyms APL BPL FCI PDS (families) above poverty line (families) below poverty line Food Corporation of India public distribution system FAO Food and Agriculture Organization MSP minimum support price PL480 global food aid programme established by the Agricultural Trade Development and Assistance Act of 1954 into law as US Public Law 480, commonly known as PL480 TPDS targeted public distribution system (of India) The World Institute for Development Economics Research (WIDER) was established by the United Nations University (UNU) as its first research and training centre and started work in Helsinki, Finland in 1985. The Institute undertakes applied research and policy analysis on structural changes affecting the developing and transitional economies, provides a forum for the advocacy of policies leading to robust, equitable and environmentally sustainable growth, and promotes capacity strengthening and training in the field of economic and social policy making. Work is carried out by staff researchers and visiting scholars in Helsinki and through networks of collaborating scholars and institutions around the world. www. wider. unu. edu [emailprotected] unu. edu UNU World Institute for Development Economics Research (UNU-WIDER) Katajanokanlaituri 6 B, 00160 Helsinki, Finland Camera-ready typescript prepared by Liisa Roponen at UNU-WIDER The views expressed in this publication are those of the author(s). Publication does not imply endorsement by the Institute or the United Nations University, nor by the programme/project sponsors, of any of the views expressed. Introduction The issue of food security has been around for a long time and the right to adequate food and to be free from hunger have been repeatedly affirmed in a number of documents adopted by the United Nations (e. g. , the Universal Declaration of Human Rights in 1948, the International Covenant on Economic, Social and Cultural Rights in 1966, and the Rights of Child in 1989). Nev ertheless, by the early 1990s, there were still more than 800 million people, mostly in the developing countries, who did not have enough food to meet basic nutritional needs. This led the Food and Agriculture Organization (FAO) to assemble a World Food Summit in 1996, in which 194 countries took part and during which the Rome Declaration on World Food Security was drawn up. The World Food Summit called on the international community to cut the number of hungry people by half to about 400 million by 2015. However, the progress towards achieving the target, as reviewed in the World Food Summit: Five Years Later in June 2002, remained disappointingly slow (FAO 2002). According to FAO (2004: 6), in 200002, the number of undernourished people worldwide remained as high as 852 million, including 815 million in the developing countries. The number of people undernourished in India and China, the world’s two most populous countries, currently stands at 363 million (two-thirds are in India), accounting for 43 per cent of the world total (FAO 2004: 7). Sources of food insecurity for both countries, i. e. , huge population, limited agricultural resources, and unstable and unpredictable world markets, still prevail, presenting potential threats to national food security. Looking into their past practices, especially the access to food by the poor, may reveal valuable experiences and lessons. In this paper, we focus on the institution of the public distribution systems of food in these two countries and discuss how these systems have helped to improve food security. 2 Inception and evolution of the public distribution systems Adequately feeding the huge populations in India and China has been a challenge. At the time of independence of the Republic of India and the founding of the People’s Republic of China in the late 1940s, both countries ncountered severe shortage of food. Since then, governments have made considerable efforts to improve food production and great achievements have been made. In both countries, the supply and reach of food are more comfortable, famines rarely occur, and large foodgrain imports are not required. One of the important policy instruments is the use of the public distribution systems (PDSs). In this section, we hi ghlight how the PDSs are operated in each of the two countries. Due to significant reforms to the PDSs in both countries in the early 1990s, we present the PDSs in two stages: the period up to the early 1990s and the period since the early 1990s. 2. 1 The public distribution systems effective until the early 1990s India In India, foodgrain is distributed through a combination of private markets and the public distribution system (PDS). The origins of the PDS can be traced back to the Second World War period. Before the war, small deficits in foodgrain supply already existed 1 and were met from imports. When the war broke out, imports became difficult and grain prices rose sharply (Suryanarayana 1985: 20). To ensure an equitable distribution of food, ration was introduced in 1942, with supplies from domestic procurement and imports, and distribution through ration shops. From December 1947 the government reverted to decontrol. However, prices had increased steeply by July 1948 and control was re-introduced in September 1948. A new scheme of distribution, the fair-price shop system, was established to ensure low market prices through large supplies to the market. In 1965 the Food Corporation of India (FCI) was set up with the goal of handling grain procurement, distribution, and building a buffer stock. In the same year, the Agricultural Prices Commission (now Commission for Agricultural Costs and Prices) was set up to advise the government on prices to be paid to farmers. Around 1967/68, the name fairprice shop scheme was changed to the public distribution system (PDS) but the role and organization of the system remained unchanged. The PDS is run jointly by central and state governments. While the responsibility of the central government (through FCI) is to procure, store and transport grains from purchase points to central godowns (warehouses) across the country, the responsibility of state governments is to transport these commodities from central godowns and distribute them to consumers through the network of fair-price shops. Fair-price shops are owned privately or cooperatively and make profits from the commission on sales. They are licensed by state governments and principally distribute food items (wheat, rice, sugar, and edible oil) to customers at fixed prices. A shop Table 1 Government subsidy on foodgrain consumption in India * Subsidy: Year 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1994/85 1985/86 1986/87 1987/88 1988/89 1989/90 1990/91 Note: * Rs million US$ million % of GDP 4,773 4,801 5,694 6,000 6,500 7,000 7,110 8,350 11,010 16,500 20,000 20,000 22,000 24,760 24,500 544 586 698 761 749 738 703 735 892 1,310 1,545 1,438 1,357 1,415 1,078 0. 53 0. 47 0. 52 0. 50 0. 45 0. 42 0. 38 0. 38 0. 45 0. 59 0. 64 0. 56 0. 52 0. 51 0. 3 Year 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 Subsidy: Rs million US$ million % of GDP 28,500 28,000 55,370 51,000 53,770 60,660 75,000 87,000 92,000 120,100 174,940 241,760 251,600 277,460 1,013 896 1,764 1,572 1,514 1,668 1,815 2,018 2,044 2,543 3,598 5,189 5,557 6,372 0. 44 0. 37 0. 64 0. 50 0. 45 0. 44 0. 49 0. 50 0. 48 0. 57 0. 77 0. 98 n. a. n. a. Financial year, April-March, subsidies on foodgrain include sugar for some years. All are at current prices. Exchange rates obtained from www//research. stlouisfed. org/fred2/categories/15, accessed on 13 July 2005. Source: GOI (various years). 2 covers about 2000 people. Any person with a designated residential address, rich or poor, urban or rural, can draw supplies from these shops. In 2002, there were about 474,000 shops, 75 per cent in the rural areas. The grains distributed in these shops are of fair-to-average quality. Many well-off people prefer to purchase on the open market for grains of higher quality albeit at a higher price. Pricing is crucial for PDS in India. It is based on current and anticipated open market prices. If prices are too high, the PDS cannot not justify its existence; if too low, a heavy financial burden ensues. When the price of grain is below its cost (procurement, storage, distribution, wastage, etc. ), a government subsidy results. Since the early 1970s, procurement prices were increased annually to ensure reasonable remuneration to farmers. However, the prices at which the PDS dispatched grains could not be raised accordingly. Despite periodical revisions of the centrally-set prices, they were generally kept below costs. Consequently, the subsidy has increased from Rs 67 million in 1970/71 to over Rs 10 billion by 1984/85 and Rs 25 billion by 1989/90 at current prices (see Table 1). The increase in subsidy has attracted much attention and criticism (Parikh 1994; George 1996). It should be noted that subsidy figures in Table 1 are not deflated. No comparable deflators are available for these two countries. Considering that both India and China experienced high levels of inflation during the periods covered, the subsidy in real terms would be smaller. Nonetheless, we calculated the proportion of the subsidy to total GDP and in India in most years it has been typically around 0. 5 per cent. The proportion is higher in recent years due to a higher level of public stocks. China When the Communist Party of China came to power in 1949, there was a food shortage caused by decades of war. The new government took various measures to promote grain production, crack down on hoarding and speculation, and establish as well as strengthen state grain organizations. By the end of 1950, the grain situation was basically brought under control and the state grain organizations had gained a commanding position in the grain market. China started its First Five-Year Plan in 1953. With economic reconstruction underway on a large scale, the demand for grain outpaced availability. In October 1953, it was proposed that the government procure grain directly for supply to consumers in urban areas through a ration system. This was endorsed by the government and implemented in December 1953. Consequently, the ‘unified grain procurement and sale system’ was established, and state grain agencies became the sole buyers and sole sellers in the grain market. Three kinds of buyers were covered by this system: (i) the non-agricultural population (urban) who were issued with grain coupons, (ii) the agricultural population who were engaged in non-grain production or did not produce grain in sufficient quantities, and (iii) other grain users (e. g. , restaurants, bakeries, and food-processing factories or factories using grain as input). An important element of the rationing system was that the grain coupons could be used in government grain stores, restaurants, and manufactured food stores, etc. Usually they could only be used within the issuing area (e. . , a city or a province) but a local grain coupon could be exchanged for a more general one (i. e. , issued by a higher level government) to facilitate travellers. The local grain coupons were usually distributed 3 monthly, but could be used at any time or within a specific period. Although varying across provinces/cities, the proportion of fine to coarse grains was often fixed for a partic ular location. Food items sold through government grain shops primarily included cereals (chiefly rice and wheat flour), other coarse grains, and edible oil. Up till the early 1990s, the system underwent few significant changes. These included: i) ii) iii) Per capita ration was reduced by one kilogram per month in late 1960 in response to the nationwide famine; There were three selling price increases in the mid-1960s; and In 1985, the selling price of grain supplied to qualifying agricultural population was increased to equal the procurement price (the non-agricultural population was still provided with grains at the unified selling price which was below its procurement price). In the same year, changes in the provisions for other grain users were also made. As a result of significant increases in the procurement prices of grains in the late 1970s and early 1980s, and with no increases in the selling price to the non-agricultural population, the government subsidy increased rapidly. By 1990 it had reached 27 billion yuan (see Table 2). This soon triggered much attention and debate within the country. Some advocated de-control over grain marketing, while others proposed that grain prices be determined by the market (see, for example, Liu et al. 1986; Cheng, Lu, and Yan 1987; Yu 1987). But many argued that China’s grain situation could not be left totally to the market because of the critical importance of grain in feeding the people and maintaining social stability (Liu 1986; Ma 1987). The government kept the selling price of grain unchanged in order to maintain social stability. Table 2 Government subsidy on foodgrain consumption in China * Subsidy: Year 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 Note: * ? million US$ million % of GDP 1,114 5,485 10,280 14,222 15,619 18,213 20,167 19,866 16,937 19,543 20,403 26,252 26,761 706 3,666 ,719 8,322 8,232 9,194 8,638 6,747 4,894 5,237 5,468 6,965 5,580 0. 31 1. 36 2. 28 2. 92 2. 95 3. 07 2. 81 2. 22 1. 66 1. 63 1. 37 1. 55 1. 44 Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Subsidy: ? million US$ million % of GDP 26,703 22,435 22,475 20,203 22,891 31,139 41,367 56,504 49,229 75,874 60,544 53,524 55,015 5,005 4,059 3,891 2,338 2,735 3,734 4,972 6,807 5,947 9,165 7,315 6,467 6,647 1. 24 0. 84 0. 65 0. 43 0. 39 0. 46 0. 56 0. 72 0. 60 0. 85 0. 62 0. 51 0. 47 Calendar year, subsidies on grain, cotton and edible oil. Data excluding cotton not available. All are at current prices. Exchange rates obtained from www://research. stlouisfed. org/fred2/categories/15, accessed on 13 July 2005. Source: SSB (various issues). 4 2. 2 The public distribution systems since the early 1990s Clearly, both India and China had spent a large amount on subsidizing food consumption in the early 1990s. By then, however, majority of consumers in both countries were enjoying increased disposable income resulting from economic reforms and could afford foodgrains at market prices. To reduce the food subsidy, many argued that the PDSs need to be reformed so as to target specifically the poor and needy (Deng 1991; Jha 1992; Ahluwalia 1993; Pal, Bahl and Mruthyunjaya 1993). Since the early 1990s, both governments have reformed the PDSs but have chosen different paths. India has endeavoured to make the PDS increasingly targeted to the poor while China has tried to reduce the subsidy burden by cancelling the PDS. India Despite the heavy burden on the public exchequer, few in India have proposed reducing or dismantling the PDS in order to reduce the subsidy. Many agree that the PDS should be viewed as an instrument of income transfer in favour of the poor. From this perspective, existence of the PDS is justified on the ground of providing food security to the poor (Ahluwalia 1993; Dantwala 1993; Pal, Bahl and Mruthyunjaya 1993). Such a view is shared by the government, which believes that (i) eliminating the food subsidy is neither desirable nor feasible in the short and medium term although there is a strong reason to contain it, and (ii) the PDS, as it has now evolved and grown, needs to pay more ttention to the poor and vulnerable (GOI 1994: 66). Under such guidelines the government first launched a scheme in early 1992 to revamp the PDS in some 1800 backward and remote areas. Additional grains were allotted to the states at prices lower than the issue prices for normal PDS. During 1992-95, measures were undertaken to reduce the PDS entitlements to the non-poor or less poor population in an effort to reduce subsidies. Different types of ration cards (in different colours for different rations) were introduced for different groups of the population. In 1997, the government launched a revised scheme of distribution known as the targeted public distribution system (TPDS). Under TPDS, foodgrains were distributed under two-tier delivery system to households below poverty line (BPL) and above poverty line (APL), with each BPL family receiving a set amount of foodgrains per month at heavily subsidized prices (see Table 3). Under the TPDS, the amount of heavily subsidized grains supplied to each of the BPL families was set at 10 kg per month. This set amount, however, has varied over time since 1997, depending on the size of the buffer stock. When the stock level was high, it was increased in an attempt to reduce the stock; for example, in 2001 this amount was increased to 25 kg per month per family (GOI 2002: 128). It was further increased to 35 kg in 2002 (GOI 2003: 94). The price at which the grain is sold to BPL families is set to equal half of its cost. In practice, however, the issue price to BPL families is often less than this stipulated cost (Table 3), and in the earlier years, it was significantly less than half its cost. The issue price to APL families was intended to represent 90 per cent of the cost but in the past years the actual price was often below this target level. The share of grain to BPL families has also changed over the years, and is closely linked to the amount available in the buffer stock. In 1997-98, of the 17. 5 million tons of total BPL and APL allocation, some 41 per cent (7. million tons) were for BPL 5 Table 3 Costs and issue prices of wheat and rice in India (1991-2003) Wheat Cost (Rs/kg) 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 BPL APL 1998-99 BPL APL 1999-00 BPL APL 2000-01 BPL APL 2001-02 BPL APL 2002-03 April BPL APL July BPL APL Source: GOI (2004). 3. 91 5. 04 5. 32 5. 51 5. 84 6. 63 7. 98 Issue price Issue price/cost (Rs/kg) (%) 2. 80 2. 80 3. 30 4. 02 4. 02 4. 02 2. 50 4. 50 8. 00 2. 50 6. 50 8. 87 2. 50 6. 82 8. 58 4. 15 8. 30 8. 59 4. 15 6. 10 9. 15 4. 15 5. 10 4. 15 6. 0 45 56 45 67 48 71 11. 84 5. 65 7. 30 5. 65 8. 30 48 62 48 70 48 97 11. 96 5. 65 8. 30 47 69 28 77 11. 80 5. 65 11. 30 48 96 31 81 10. 74 3. 50 9. 05 33 84 72 56 62 73 69 61 31 56 9. 95 3. 50 9. 05 35 91 Cost (Rs/kg) 4. 97 5. 85 6. 65 6. 95 7. 63 8. 58 9. 37 Rice Issue price Issue price/cost (Rs/kg) (%) 3. 77 3. 77 4. 37 5. 37 5. 37 5. 37 3. 50 7. 00 76 64 66 77 70 63 37 75 population (GOI 1999: 69). In 2000-01, 18. 5 million tons (64 per cent) were allocated for distribution to BPL families, compared to 10. 3 million tons to APL families. Since the TPDS was implemented in 1997, over 60 million BPL families benefit from this revised distribution scheme every year. In addition to TPDS, the Indian government initiated or strengthened a number of schemes to further assist the very poor in the form of cheaper grains. In December 2000, the Antyodaya Anna Yojana (grain scheme for the poorest of the poor) was launched (GOI 2001: 92). It seeks to identify the ten million poorest households out of the 65 million BPL families, and to provide them with 25 kg of foodgrains per family per month at a low price of Rs2/kg for wheat and Rs3/kg for rice. The Annapurna scheme, commenced in 2000-01, provides 10 kg of foodgrains per person per month free to indigent senior citizens above the age of 65 but who are not drawing pension under the national old age pension scheme. In August 2001, the Sampoorna Gramin Rozgar Yojana (integrated rural employment scheme) was announced, under which states are provided with five million tons of foodgrains annually for undertaking work 6 programmes. Other existing welfare programmes were also strengthened to provide foodgrains to benefit the poor. These include the midday meal scheme, wheat based nutrition programme, scheme for supply of foodgrains to scheduled caste/scheduled tribe/other backward classes, the scheme for supply of foodgrains to indigent population living in welfare institutions (GOI 2002: 128). These schemes are used primarily (i) to make the TPDS more focused and targeted towards the poor, (ii) to increase the employment opportunities of the poor, and (iii) to help reduce the overstock of foodgrains in the central reserves. After revamping PDS in the early 1990s, rains are still supplied to consumers at prices lower than cost. Hence, the subsidy on foodgrain consumption remains. Since the introduction of the TPDS, the subsidy has continued to rise (Table 1) because the issue prices for grain for BPL are significantly lower than cost and the distribution of almost free grain has expanded through special schemes. China By the late 1980s and early 1990s, the issue of grain subsidy was receiving considerable atte ntion (Du 1989; Gu 1990; Ke 1990; Huang 1990; Deng 1991). In May 1991, the government moved to reduce subsidies for rationed grain by increasing the unified grain selling prices. But they were still below procurement prices. In April 1992, however, selling prices were further increased to equal procurement prices. Due to a succession of good harvests, market grain prices were low in the early 1990s, and were not much different from the prices of grain in government shops. Urban consumers bought more grain from the market to ensure better quality and selection. Further, the consumption of non-grain food in urban areas started to increase at the expense of foodgrain. This resulted in less importance being attached to the grain coupon and some urban residents started to sell coupons for cash. After certain experiments during late 1992 and early 1993, the state-operated unified grain sale system virtually disappeared around mid-1993. From October 1993, grain prices in the free market increased sharply and this was aggravated by panic buying. Having been sensitive to grain prices, the government immediately mobilized measures to cope with the price surge, including price ceilings on grain traded in the free market. Although grain prices were brought under control early December of that year through heavy administrative interventions, price fluctuations continued in some areas in the first half of 1994. From July 1994, grain prices rose again quickly all over the country. Certain areas reintroduced the coupons in late 1994 and by September 1995, about half of the 30 provinces restored the use of coupons (Anon. 995; Ka 1995). Prices were stable during much of 1995, thanks to additional grain imports and increased grain supply through government shops at subsidized prices. That year local governments were assigned the primary responsibility of handling grain matters under their jurisdiction. Consequently, the public distribution of grains differs across regions, although all regions procure grains under a quota regime at gov ernment-set prices. Some cities sell subsidized grains through government shops without ration; others apply the ration. A few cities, led by Shanghai and Beijing, also attempted to target the low-income population. This was later followed by other cities (Anon. 1996a, 1996b; Shen 1999). 7 However, the need for government provision of subsidized grain through its outlets did not last long. The grain supply in the market turned to abundance from 1996 and prices remained relatively low (Tian and Zhou 2005). For the majority of the population, buying grains at the market price was no longer a problem, although assistance was continued for some low-income consumers. However, approach to providing assistance started to change mainly in the urban areas and a cash income subsidy is currently provided to the needy instead of cheap subsidized foodgrain. From 1993, reform of the old social security system led to the establishment of a new social security system that is cash income transfer based. Since 1994, there has been an increased number of publications addressing China’s social security issues (see, for example, Ding 1997; Shi 1997; Yan 2003; Yu 2003; Guo 2004). Prior to 1994, attention was paid to social security issues by Beijing Review (1994) and Jiao (1994). Jiao (1994) points out that as a result of economic reforms, the old social security system could no longer ‘live up to its functions of promoting production and social stability, helping the underprivileged, and helping to guarantee a basic living standard for all’. It is interesting to note is that in recent years, increasing attention has also been paid to the establishment of a social security system in rural areas (e. g. , Yu 2003; Guo 2004). Wei (2003) attempts to address social security issues for rural migrants working in urban communities. In summary, the PDS in China gradually disappeared around the mid-1990s. Assistance to the poor was no longer provided in the form of subsidized foodgrain. Instead, under the reformed social security system it was gradually replaced with a cash income transfer. Government subsidy on grains, however, was not completely eliminated (see Table 2) but is being spent on maintaining stocks to cover any temporary market fluctuations and the occurrence of large-scale food insecurity. 3 Comparison of the PDSs: similarities and differences Originally introduced to combat food scarcity, the food distribution systems in both India and China have played an important role in ensuring an adequate food intake, particularly during periods of food shortage. Both countries supply their people with food at subsidized prices under a ration system. In this section of the paper, the two PDSs are compared and their similarities and differences are highlighted. 3. 1 The objectives of PDSs Both countries have chosen not to rely completely on the private market but to have instead a government food distribution system. The main objectives of the system in both cases are threefold: i) ii) iii) To contain rises in food prices and keep them within reasonable limits in the wake of production shortage and increasing food demand; To ensure availability of minimum amount of food at a reasonable price to those who do not produce it (or produce it in insufficient quantity); and To make food available at reasonable prices to low-income groups whose food security is most severely affected by high prices. 8 The system has evolved in both countries from a history of periodic food shortages and corresponding sharp price hikes in the private market system. The distribution mechanism also serves as an early warning and quick response system in case of local famine situations. 3. 2 The system The PDS included subsystems for the procurement, storage and distribution of foodgrains. Both countries took steps to involve the local/state governments in the system. China sought to establish a command position for government organizations in the grain market, and thus monopolized grain marketing. The government of India also tried the same but failed. Consequently, less than 10 per cent of the grain production in India is handled by the government and the rest is left to the private market. The Indian PDS does not attempt to meet the public’s entire grain requirement but the PDS is instead intended to cover a certain minimum of the eligible groups coming to the fairprice shops. In contrast, the Chinese government assumed responsibility for feeding the entire registered urban population. As a result, quantities andled by the government of India are much lower than those handled by the government of China (Figure 1). Figure 1 also shows that the quantities despatched through the PDS in India have varied, depending on grain availability and prices on the open market, while in the case of China, with the increasing urban population, the quantity of grains supplied through government shops rose continuously until the mid-1980s when additional agricultural market reforms wer e initiated (Figure 1). In China grains were procured by the local governments according to quotas as assigned by the national government. Total procurements and any imports were allocated to Figure 1 Quantity of foodgrains distributed through the PDSs * 120 100 million tons 80 60 40 20 0 19 84 19 86 19 98 20 00 19 80 19 82 19 88 19 90 19 92 19 94 19 96 20 02 India China Following the price surges in 1993, ration was reintroduced in some regions, and was carried out jointly by the central and local governments. The distribution of foodgrain by the various tiers of government gradually disappeared from 1993 onward. Data for 1994 and thereafter not available to the authors. Sources: GOI (2004); SSB (various issues). Note: * 9 different provinces by the national government, which also managed the stocks. In India the entire procurement process is the responsibility of central government through FCI, which constitutes a part of the farmer price support system. FCI, who handle the distribution to the states, also manages the stocks and distributions across godowns all over the country. Thus, the costs and subsidies involved in the operations of the PDS in China seem to have been shared between the national and provincial governments, whereas in India they are largely borne by the central government. 3. 3 Operation and performance Both countries’ food distribution systems, despite their various shortcomings, have played a significant role in distributing food to the people, particularly during shortages (Acharya 1983; Zhou 1998; Jharwal 1999; Swaminathan 2000; Zhou, Liu and Perera 2001). In addition, the public food distribution system has had a significant role in stabilizing prices in the market and this is particularly true in the case of India (Jharwal 1999). The unit cost of grain handled through the Indian PDS has been rising in recent years (Table 3). This is partly attributable to the high post-procurement cost and leakages to the open market (Ahluwalia 1993). In recent years, India’s excessive public stocks (Table 4) have added to the increasing cost of its PDS (GOI 2002, 2003). Table 4 shows that the actual stock in the beginning of 2002 was more than three times greater than the buffer norm. On the other hand, in China low operation efficiency is a key factor contributing to the increasing cost of its PDS. Although the government has gradually given up supplying grain to consumers through its outlets, it still procures grain for a buffer reserve and various other uses. Low efficiency is a significant