Public Distribution System in India - Leakage, Self-Selection and Targeting Errors

Despite the large-scale antipoverty programs, especially food and nutrition programs, 15 per cent of Indian population is undernourished. India's current implementation of the world largest food aid program, the National Food Security Act (NFSA), experiences many challenges and needs rigorous analysis. Current study analyzes consumption patterns of wheat and rice delivered through the Public Distribution System in India. Further, impact of the subsidy on market grain consumption is quantified. The household consumption analysis using cross-sectional econometric techniques reveals targeting errors of the Public Distribution System. There is a negative self-selection of the richer households; however the migrant workers and female-led households are not well covered. The Above Poverty Line quota seems to have higher leakage rate, which strongly affects consumption of the subsidized grains. For the Below Poverty Line cardholders, subsidized grains are imperfect substitutes for the market grains. Further, subsidized grains are found to increase total consumption of wheat and rice. Because of high targeting errors, higher total demand for wheat and rice might result in higher market prices and have negative consequences for the poor excluded from the system. To our knowledge, this is the first empirical analysis of the various targeting errors and reasons for under-purchase on all India level. The results further contribute to the growing evidence that the PDS crowds in consumption of wheat and rice.