Is more inclusive more effective? The ‘New Style’ public distribution system in India

The targeted public distribution system (TPDS) of India—world’s largest food safety-net program—has a reputation for poor targeting, rampant corruption and low impact. Five states of India modified TPDS by reducing targeting, lowering grain prices to Rs.1–3 per kg and tightening its administration. This paper assesses the impact of changes in the TPDS on household food consumption using data from a repeated cross-section of Indian households from five rounds of representative consumption surveys between 1993–1994 and 2009–2010. We use the Difference-in-Difference (DID) method to identify the policy impact, first on consumption of food-grains, and second, on food expenditure. We find that modifications in TPDS led not only to an increase in the purchase of subsidized grains from fair-price shops, but also to diversification of the food basket of poor households. We also find evidence for reduction in the diversion of grains from TPDS to the open market in reform states. Finally, we present suggestive evidence that a food policy reform is likely to fail if price and targeting policy components are not accompanied by effective administrative measures to reduce corruption and improve the logistics of subsidized food distribution. These are important findings for India’s own National Food Security Act (NFSA) and for other food safety-net programs throughout the developing world.