CONSTITUTION OF CENTRAL VIGILANCE COMMITTEE ON

PUBLIC DISTRIBUTION SYSTEM AND ITS CHARTER

EXECUTIVE SUMMARY

The Hon’ble Supreme Court of India, in a Writ Petition No. (C). 196 of 2001, passed
an order constituting a Committee to be headed by Hon’ble Mr. Justice D. P. Wadhwa,
Former Judge, Supreme Court of India, to look into the maladies affecting the proper
functioning of the public distribution system (“PDS") and to suggest remedial
measures. In particular, the Committee was directed to focus on:

(a) The mode of appointment of dealers;

(b) The ideal commission or the rates payable to the dealers;

(c) Modalities as to how the Committees already in place, can function better; and

(d) Modes as to how there can be transparency in allotment of the food stock to be

sold at the shops.

The Hon’ble Court further directed that while dealing with the question of the mode of
appointment, the Committee shall also suggest a transparent mode of selection of the
dealers. The Committee was also directed to indicate as to how more effective action
can be taken on the report of the vigilance committees already appointed.

The Hon’ble Court’s direction was initially given for the Government of Delhi to be
followed on an all India basis.

The constitution of the Committee was notified on 01/12/2006. The Committee,

pursuant to the Hon’ble Court’s order commenced its work in right earnest. It held a
series of meetings with all the stake holders, invited representations/petitions from
members of the public, visited fair price shops godowns of the Food Corporation of
India (“FCI”) to examine their functioning, held consultations with the officers of the
Department of Food, Civil Supplies and Consumer Affairs (“Department”), Food
Corporation of India, Delhi State Civil Supplies Corporation (“DSCSC”), National
Informatics Centre (NIC), Delhi State Election Commission, individuals connected with
NGO’s, and representatives of FPS dealers associations. The Committee also examined
official records connected with the items falling within the mandate given to it. By a
further order dated 17/04/2007, the Hon’ble Court was pleased to extend the time for
submission of the report till 31/08/2007.
Based on the work done by the Committee and in compliance with the Hon’ble Court’s
order, a detailed report covering all issues tasked to the Committee is being
submitted. The Report is divided into three parts. Part I is an executive summary of
the Report. Part II contains the main body of the Report and examines each of the
issues, duly chapterized at length, identifying the weaknesses in the existing PDS and
makes detailed recommendations for toning up and streamlining its functioning in
Delhi. Part III contains relevant documents annexed to the Report.

The full forms of certain abbreviations, which have been used repeatedly throughout
the Report are given below for the sake of convenience:

1. APL : Above Poverty Line

2. BPL : Below Poverty Line

3. AAY : Antodaya Anna Yojana

4. TPDS : Targeted Public Distribution System

5. FPS : Fair Price Shop

6. SFA’s : Specified Food Articles (issued under the PDS)

The important recommendations under each of the chapters contained in Part II of

the Report are summarized herein under:

1. LEGAL REGIME

1.1. In the chapter dealing with the Legal Regime the existing provisions governing
the PDS, that is to say, the Essential Commodities Act, 1955, the Delhi Specified
Articles (Regulation of Distribution) Order 1981, the PDS (Control) Order 2001 (as
amended in 2004), and the relevant notifications and circulars which govern the
implementation of the said Act and the PDS (Control) Order, 2001 in Delhi are
detailed. This chapter is intended to be a ready reckoner which would help in
appreciating the other chapters wherein relevant clauses of the PDS (Control) Order
2001, notifications and circulars are dealt with in detail.

2. APPOINTMENT OF DEALERS OF FAIR PRICE SHOPS (FPS)

2.1. This chapter discusses at length the existing guidelines for allotment of FPS
licenses and the modifications introduced in these guidelines from time to time, inter-
alia, highlighting eligibility conditions in respect of applicants, shop premises, time
frame prescribed for completion of the selection process and the procedure for
renewal of FPS. This chapter also incorporates the Committee’s findings on how the
existing instructions and provisions of the PDS (Control) Order, 2001 are being
violated with impunity by FPS licencees due to laxity or complicity on the part of the
officials who are required to monitor the functioning of the FPSs. This chapter also
deals with the Committee’s findings that were arrived at pursuant to the perusal of
some of the files pertaining to allotment of licensees of FPS. The chapter provides
instances of blatant violation of norms in allotment of FPS and reveals extraneous
considerations come into play in such cases, resulting in some FPS having ration cards
in excess of the norm of 1000 ration cards per FPS and some FPS having ration cards
much less than the said norm, which in turn, affects their viability.

2.2. The broad recommendations of the Committee include:

(a) consolidation of the existing guidelines and giving them due publicity
through press and on the web site of the Department for information of general
public;

(b) compression of the time involved in completion of the selection process

from the existing 56 days to 42 days;

(c) requirement of being a resident of the concerned circle where the FPS
vacancy has arisen should be substituted with the requirement of being resident of
the locality for which vacancy is notified;

(d) adherence to the Department’s guidelines dated 29.8.1997 stipulating

creation of a vacancy only when there are 1000 cards available to be attached to an
FPS;

(e) allotting of new vacancies for a FPS to cooperative societies or women

self help groups.

3. VIABILITY OF FAIR PRICE SHOPS

3.1. The Committee examined in depth the question of viability of FPS’s, which is
closely linked with the issue of the rate of commission to be paid to FPS dealers. The
Committee discussed this issue threadbare with the licencees of FPS, their
associations, representatives of NGOs, government officials and also invited
suggestions from various sections of society. The findings and recommendations of
the Committee are contained in this Chapter 3 are summarized as under:
3.2. The following table graphically shows the commission rates earned by FPS
licencees under the extant orders governing the sale of wheat and rice to the
Above Poverty Line (APL), Below Poverty Line (BPL) and Antyodaya Anna
Yojana (AAY) beneficiaries.

Category Cost Selling Difference Cartage Commission per

Price Price B/w Cost paid to Quintal paid to FPS
per per Price and DSCSC per
Quintal Quintal Selling Quintal
Price
APL Rs. Rs. 680 Rs. 70/- Rs. 35/- Rs. 35/-
Wheat 610/-
APL Rice Rs. RS. 900 Rs. 70/- Rs. 35/- Rs. 35/-
830/-
BPL Rs. Rs. 465 Rs. 50/- Rs. 15/- Rs 35/-
Wheat 415/-
BPL Rice Rs. Rs. Rs. 50/- Rs 15/- Rs. 35/-
565/- 615/-
AAY Rs. Rs. Nil Rs. 15/- Rs. 35/-
Wheat 200/- 200/- paid to
DSCSC by paid to FPS by Delhi
Delhi Government
Government
AAY Rice Rs. Rs. Nil Rs. 15/- Rs. 35/-
300/- 300/- paid to
DSCSC by paid to FPS by Delhi
Delhi Government
Government

3.3. Keeping in view the existing guidelines of the Department requiring 1000 food
cards to be attached to an FPS unit and assuming full off take of wheat and
rice as per entitlement (25 kgs of wheat and 10 kgs of rice per month) of each
category of card holder subject to the condition of the FPS unit getting its full
allocation, a FPS owner would earn Rs. 15,750/- per month. This amount
includes income derived from the sale of gunny bags at the rate of Rs. 5 per
bag. However, this income projection changes to the FPS owner’s disadvantage
if there is a reduced allocation as is currently the position. While there is 100
per cent allocation in BPL category, allocation under APL category works out to
 35 per cent of the entitlement. Assuming that the BPL and APL card holders are
evenly distributed in an FPS and assuming the current rate of reduced
allocation in respect of the APL category, the income of a FPS comes down to
Rs. 7,369/- per month. The situation is worsened if the number of food cards
attached to a FPS unit is much less than 1000 cards. The table provided in para
5.6 of the chapter dealing with viability shows at a glance, the unequal
distribution of ration cards in Delhi.

3.4. The estimated average expenditure of a FPS on a conservative scale

including expenditure on rent, commission payable to banks on demand drafts,
stationery items, salary paid to helpers, labour and electricity charges etc. works out
to approximately Rs. 6,000/- per month. The absence of a steady income over and
above the monthly expenditure incurred in running the FPS erodes its viability. Hence,
the representatives of FPS dealers associations raised the demand for increasing the
rate of commission. It was also suggested that the commission of the FPS should be
increased to Rs. 70/- per Quintal. Other views touched on entrusting PDS work to a
person already in business, making the PDS attractive enough for more persons to
avail of this facility and ensuring that a FPS dealer earns at least Rs. 10,000/- over
and above expenses incurred by him in running the shop. One NGO representative
suggested that an option should be given to cardholders for purchasing SFAs from
any FPS and the competition generated through this process will improve the viability
of FPS.

3.5. The Committee has observed that there are other factors impacting on the
viability of a FPS. Some of these are:

i) Delay in supply of SFAs;

ii) Losses suffered by FPS dealers due to blockage of working capital

invested for the stock and transport, for long periods;

iii) Losses suffered on account of short supply of goods;

iv) Unequal distribution of ration cards;

v) High transportation costs;

vi) Commission being too low to generate moderate income.

3.6. Keeping in view the Committee’s wide ranging interaction with stake holders,
knowledgeable individuals, government officials and its own findings and also with a
view to avoid any significant additional burden on the system, the Committee has
explored other available options for improving the viability of the FPS instead of
increasing the rate of commission. The main recommendations of the Committee are
as follows:

a) There will be substantial gain for FPS dealers if the cost involved in
transportation of SFAs is based on actual cost in terms of tender floated by the
Government. Elsewhere in the Report, it has been recommended that the
responsibility for transport arrangement through open tendering process be taken
over by the Department in place of the DSCSC.

b) The Department should take urgent action to rationalize the ration card
position of the FPS and ensure that the present anomaly of unequal distribution of
cards is reduced to the minimum.

c) End to end automated system in the PDS chain should be introduced to

plug leakages and improve viability of the FPS. Further, recourse to E-banking is a
favoured option for cutting down delays in depositing money with FCI/ DSCSC. This
will be a substantial improvement on the existing practice.

d) Incentive should be given to FPS dealers for selling other commodities

in conjunction with SFAs. Other commodities should, however, not include SFAs i.e.
wheat and rice available in open market. This will improve the viability of FPS.

e) Accountability should be fixed for any delay in delivery of SFAs.

f) The question of amalgamating Kerosene Oil Depots (though an equally

discredited and corrupt system) and FPS on the Maharashtra model and providing
both the facilities to consumers through the FPS window needs to be examined to
further improve the viability of FPS.

g) The Committee would also like to emphasize the need to provide a

dedicated place on the lines of milk depots, post offices, multi-purpose kiosks for the
FPS at a very nominal rent. The State Government of Delhi should take the initiative in
this regard.

h) As far as the BPL category is concerned the State Government must

bear the responsibility to provide door delivery of SFAs to the FPS at its own cost. This
obligation arises from the PDS (Control) Order, 2001 itself where Clause 6(3) read
with Clause 4(6) of the Annexe to the PDS (Control) Order 2001, casts a duty on the
authorities to ensure physical deliveries of SFA’s to the FPS. Further, in the 9-point
action plan formulated by the Government of India, doorstep delivery has been
highlighted as one of the urgent measures to prevent diversion. Once the State
Government undertakes this obligation the FPS owner is relieved of the burden of
paying a sum of Rs. 15/- per Quintal towards transport of BPL stock which amount
automatically increases his profit.

4. VIGILANCE COMMITTEES AND GRIEVANCE REDRESSAL MECHANISMS

IN THE NATIONAL CAPITAL TERRITORY OF DELHI

4.1. The PDS (Control) Order, 2001 provides for monitoring and vigilance including
constitution of vigilance committees. There are extensive provisions in the said Control
Order regarding the role of these committees, followed by detailed instructions issued
from time to time by the Department for operationalizing the vigilance initiative. Some
of these initiatives include setting up of Circle Advisory Committees to advise on
streamlining the functioning of PDS, holding of public audit, public hearings for
resolution of public complaints, constitution of Citizens’ Watch Committees for
monitoring distribution of SFAs and matters relating to availability of SFAs, their
quality and quantity etc. and reconstitution of FPS vigilance committees to attend to
complaints regarding non-availability or short supply of SFAs. Provisions/ instructions
exist which describe their role, functions and responsibilities of the vigilance
committees and have been discussed at length in the main body of Report dealing
with the subject.

4.2. In addition, there is an Enforcement Branch of the Department to enforce

various control orders and the circulars issued by the Department. There is also an
Anti – Hoarding Cell that is a part of the Enforcement Branch, to check malpractices
and initiate action against guilty persons. The Enforcement Branch and the Anti –
Hoarding Cell, in the Committee’s view have miserably failed in discharging their
assigned responsibilities. Their role has been discussed in detail in the main Report. A
Task Force for each revenue district under Deputy Commissioner (Revenue) has also
been constituted to conduct surprise checks/ raids. There is also a model Citizens’
Charter on TPDS defining particularly the role and functions of vigilance committees to
which the Central Government has drawn attention of State Governments for
necessary compliance.

4.3. In furtherance of the Model Citizens’ Charter on TPDS, the Delhi Government
has also constituted a State vigilance committee, with the objective of preventing
black marketing and diversion of SFAs, attending to complaints regarding non-
availability of wheat, rice, sugar etc. and other related deficiencies in the operation of
the PDS in Delhi.

4.4. The Committee has observed that while there are numerous entities involved in
smoothly steering the course of the PDS in Delhi, their impact is virtually non-existent
on the ground and as a result, malpractices abound to the great discomfiture of the
common man. It has been squarely admitted by Commissioner: Food Supplies and
Consumer Affairs that vigilance committees in Delhi are defunct and ineffective.
Meetings of FPS vigilance committee are not being held separately and instead
whatever meetings are held go under the name of joint meetings of Circle Advisory
Committees and FPS vigilance committees. The Committee has found that these
meetings, apart not from being held on a regular basis, do not serve the intended
purpose and have degenerated into a routine affair without focus.

4.5. The multiplicity of entities entrusted with more or less similar tasks with none
of them performing their assigned functions has gravely undermined the credibility of
these bodies and contributed in no less measure to existing deficiencies in PDS.

4.6. The Committee, therefore, has made detailed recommendations in the main
chapter for revamping the vigilance machinery. Some of the important
recommendations are as follows:

a) The Circle Advisory Committees and Citizens’ Watch Committees, in

their present form, may be scrapped and in their place, district-wise vigilance
committees may be constituted, vesting them with appropriate powers, functions and
responsibilities.

b) No meeting of a vigilance committee should be postponed on account

of non-availability of the area M.L.A. to chair the meeting. In the absence of an area
M.L.A., the meeting may be chaired by the Assistant Commissioner of the concerned
district.

c) The State level vigilance committee should be reconstituted by

retaining the existing composition with the only change that the Commissioner, Food
Supplies and Consumer Affairs be made the member/convenor of such reconstituted
committee. This Committee should meet once in a quarter to review the functioning
of the district level vigilance committees.

d) The process of selection and appointment of members of the vigilance

committees be made more transparent with greater involvement of the public,
stakeholders and household women. The majority of members of the committee
should be women who are ration card holders of the concerned FPS. As far as
possible, the member from SC/ST should also be a woman.

e) There are other recommendations given in the main chapter on this

subject which detail the modalities of the functioning of vigilance committees, such
as, periodicity of holding of these meetings, what should constitute the agenda for
such meetings and nature of follow – up action to be taken in respect of such
meetings.
f) The Committee has recommended a toll free Help Line for attending to
consumer complaints relating to the PDS.

4.7. The Committee has also focused on the need to set up an independent
monitoring mechanism for addressing consumer complaints along with a host of other
related issues. This mechanism may be in the form of an “Ombudsman/ Regulator” to
be created under para 6(1) of the Annexe to Clause 8 of the PDS (Control) Order,
2001. The PDS (Control) Order, 2001 may be further amended to give greater clarity
to the role and responsibilities of the Ombudsman/ Regulator. The structural
framework of this institution along with powers, functions and responsibilities and
other related issues have been discussed in detail in the chapter dealing with vigilance
committees.

4.8. The complaints received by the Ombudsman/ Regulator may be referred by

him for a report from the district vigilance committee or FPS vigilance committees, as
the case may be. It is clarified that this power of the Ombudsman/ Regulator to make
a reference shall be in addition to and not in derogation of the powers of the
Ombudsman/ Regulator to conduct an independent enquiry into the complaints.
While, the reports so received, will assist the Ombudsman/Regulator in providing
solution, these reports will not be binding upon the Ombudsman/ Regulator.

4.9. The Anti – Hoarding Cell should be independent of the Enforcement Branch.
The Anti Hoarding Cell should be headed by an officer holding the rank of not less
than a Deputy Commissioner of Police who will also select the other personnel of the
Cell. A “Special Flying Squad” would also be constituted into the Anti – Hoarding Cell
for taking prompt and immediate action, as and when the need arises. This Squad
shall be functional round the clock without exception. The Anti – Hoarding Cell should
directly report to the Commissioner, Food Supplies & Consumer Affairs.

5. TRANSPORTATION OF SPECIFIED FOOD ARTICLES UNDER THE PUBLIC

DISTRIBUTION SYSTEM

5.1. The Delhi State Civil Supplies Corporation (DSCSC), a public sector company
under the administrative control of Food and Civil Supplies Department, Delhi
Government, has been entrusted with the responsibility of transportation of SFAs from
the six FCI godowns to 2772 functional FPS spread over in 70 circles located in 9
districts in Delhi. This responsiblity is discharged by the DSCSC by engaging trucks
through an open tendering process on an annual contractual basis.

5.2. The Delhi Government fixes the cartage rates pursuant to which DSCSC
receives the charges @ Rs. 35/- per quintal for the APL category and Rs. 15/- per
quintal for the BPL category from FPS dealers. Cartage charges in respect of the AAY
and the APS is paid to the DSCSC by the Delhi Government. The Committee is of the
view that the cartages charges recovered from the FPS dealers are excessive and
disproportionate to the actual cost incurred by the DSCSC in engaging trucks for
transportation of SFAs. This will be apparent from the fact that the DSCSC made a net
gain of Rs. 1.59 crores during the financial year 2005-2006 out of PDS operations
after meeting administrative expenses.

5.3. The Committee has further observed that the transportation rates fixed as a
result of the tendering process vary in the range of Rs. 6.22 to Rs. 25.50 per Quintal.
Such a large variation in the rates is a sad commentary on the tendering process and
leads to the inescapable conclusion that losses suffered in quoting unrealistic rates for
transportation by transporters are sought to be made good by indulging in diversion
of SFAs on a large scale.

5.4. The Committee has noted that there is a plethora of instructions/guidelines

issued by the DSCSC to streamline the transportation system, ensuring timely delivery
of SFAs and for preventing diversion of SFAs. But the very fact that various
malpractices connected with these activities are being committed in a blatant manner
go to show that there is utter laxity in supervision, lack of accountability at all levels
and that there is a deep-rooted and flourishing nexus between transporters, officials
and FPS dealers to defeat the objective behind the PDS and derive pecuniary gains by
subverting the PDS operations.

5.5. The main body of the Report makes references about sting operations carried
out by different TV channels, which among other things, is a pointer towards the
prevalence of a benami tender practice for contracting trucks for transportation of
SFAs.

5.6. The Committee has further noted in its findings that the DSCSC is not
adequately discharging its responsibility of supervising/monitoring the transportation
of SFAs from FCI godowns to FPS. Lack of strict supervision over transporters and
truck movements virtually derails the PDS in as much as this adversely impacts timely
delivery of SFAs at the FPS and leads to the diversion of SFAs. No doubt, DSCSC has
introduced PDS ON LINE to keep an eye on the status of transportation and lifting of
food grains from FCI godowns as also availability of ration items at various FPSs and
other relevant information but this software alone would not suffice to ascertain the
actual movement of PDS trucks and the direction in which they are going. Hence, in
so far as transportation of SFAs from FCI godowns to the FPS is concerned, it would
not be an exaggeration to say that vigilance and supervision are nil.

5.7. The Committee has examined at length the Mumbai model of transportation of
SFAs in the main body of the Report along with its merits and demerits. The
Committee, however, is not convinced whether it can be adopted mutatis mutandis in
Delhi.
5.8. Important recommendations of the Committee emerging from a close study of
system being followed in Delhi for transportation of SFAs are as follows:

a) The present system of entrusting the responsibility for transportation to

the DSCSC is flawed and it would be appropriate for the Department/Delhi
Government to take over this responsibility. The Department should work out detailed
modalities for discharging this responsibility without apportioning administrative
expenses in the transport charges to be paid by FPS dealers. The Committee has
discussed the role that the Assistant Commissioners of Department have to play in
this context.

b) The net gain on the transportation account currently being made by

DSCSC could very well go to FPS dealers, which will improve the viability of FPS.

c) E-banking should be introduced for payment of cartage charges and

cost of SFAs by the FPS.

d) The Committee also recommends availing of funds provided by the

Planning Commission for strengthening the PDS operations by providing a mobile FPS
for areas where the number of food cards/ration cards does not justify opening of a
FPS as per norms.

e) The Committee further recommends zero tolerance in cases of breach

of contract by transporters and imposition of deterrent monetary penalty for infraction
of contract.

f) The GPS should be used on trucks carrying SFAs to track their

movement and installation of the GPS should be made a part of tender conditions.
Any tampering of GPS should be severely dealt with and for this purpose the PDS
(Control) Order, 2001 if necessary may be amended. The Ombudsman should also be
given a role in monitoring the functioning of the GPS.

6. COMPUTERISATION

6.1. The core objective of the TPDS, which was introduced by the Government
in the year 1997, is to ensure that the underprivileged/needy segment of the
population, which depends on the supplies of SFAs for its day to day sustenance, is
provided its full-allotted quota on time. The Committee is of the view that there is
rampant corruption at every level of the distribution chain and the most effective way
to deal with this cancerous and all pervading corruption in the system is to introduce a
completely automated system based on information technology with minimal or no
human intervention.
6.2. Para 6(6) of the Annexure read with Clause 8 of the PDS (Control) Order,
2001[1], the State Government is obliged to monitor the functioning of the FPS
through the computer network installed in the district NIC centres. The clause further
states that computer codes would be provided to each FPS. However, the Committee
has found that the Delhi Government has not setup any system for monitoring the
working of the FPS through the network of NIC or otherwise.

6.3. The Committee invited various organisations and also studied models
currently being implemented by different state governments. Various presentations
were made before the Committee and the Committee had wide range of discussions
with experts in this respect. The various systems studied by the Committee are:

i. Existing computerisation in the FCI.

ii. Coupon System/ Food Stamps.

iii. Card System

a) Machine Readable Cards

b) Biometric Cards

c) Visual Crypto Cards (Grid Cards)

iv. Iris Technology.

v. Automated System using Online Technology.

vi. Automated System using Smart Cards.

6.4. The Committee studied many types of technologies that were

demonstrated and suggested by different agencies. Some of them have been
implemented by some State Governments. On the basis of the above-suggested
technologies the Committee recommends the following:

a) An automated computerisation model has been suggested for the TPDS.

It is submitted that the proposed model has been prepared after consulting various
technical professionals in the field of information technology. It is recommended that
this model may be introduced initially on a pilot basis in one circle in Delhi.

b) The only solution to the ills plaguing the PDS is to introduce a

completely automated system based on information technology, which would result in
minimum human intervention.
c) A database of genuine beneficiaries rectifying all inclusion and
exclusion errors must be created by door-to-door verification entrusted to a credible
independent agency. This will result in elimination of bogus cards.

d) A complete automation of the PDS has to be achieved in a time bound

manner.

e) A pilot study in terms of the suggested model of automation may be

implemented in a few circles.

f) Further, till full automation is achieved, the system of coupons as

suggested in para no. 3.4.1(c)(iii) of the chapter may be implemented. The system of
coupons may also, in the first instance, be tested in a few circles.

7. MAKING TARGETED PUBLIC DISTRIBUTION SYSTEM MORE REALISTIC

7.1. The PDS has evolved as an intrinsic part of Government policy for management
of scarcity of SFAs and for ensuring distribution of SFAs to the vulnerable sections of
the society at subsidized prices. The responsibility for managing, operating and
implementing the PDS rests jointly with the Central and State Governments.

7.2. Responding to the need of vulnerable sections of the society in regard to

availability of SFAs at affordable prices, the PDS has graduated from being a general
entitlement scheme till 1992 to the Revamped Public Distribution System (RPDS) and
now to TPDS which was launched by the Government of India in June 1997, with a
special focus on the poor.

7.3. The three schemes that are being operated currently under TPDS are:

(i). Antodaya Anna Yojana (AAY): This covers the poorest families from
amongst the below poverty line families entitling them to 35 Kgs. SFAs per month i.e.
rice @ Rs. 3/kg. and wheat @ Rs. 2/kg. As on 31/12/2006, there are in all 57,336 AAY
card holders in Delhi.

(ii). Below Poverty Line category (BPL): This covers those poor families whose
income is below Rs. 24,200/- per annum. BPL card holders are entitled to 25 Kgs. of
wheat @ Rs. 4.65/kg. and 10 Kgs. of rice @ Rs. 6.15/ kg. per month. As on
31.12.2006, there are 3,78,947 BPL ration card holders in Delhi.

(iii). Above Poverty Line category (APL): This covers families whose annual
income is in excess of Rs. 24,000/-. Each APL cardholder is entitled to 25 Kgs. of
wheat @ Rs. 6.80/kg. and 10 Kgs. of rice @ Rs. 9.00 /kg. As on 31/12/2006, there
are 22,85,513 APL cardholders in Delhi.
7.4. The functioning of the TPDS and in particular the above three schemes has
been discussed in depth in this chapter of the Report. It will suffice here to say that
gaps abound and the functioning of the TPDS leaves much to be desired. Some
deficiencies identified by the Committee are as follows:

a) There are serious gaps in coverage of people below poverty line and the
existing number of beneficiaries under the AAY/ BPL categories does not seem to
relate to the number who should have been covered.

b) There is a large number of bogus ration cards in BPL category which

distorts the BPL matrix and places avoidable burden on the system. There is a
lackadaisical approach towards weeding out ineligible persons.

c) APL is the most sought after category and the biggest leakage in the
system is in this category as the beneficiaries under this category do not avail of PDS
facility, by and large.

d) Data furnished in respect of lifting of SFAs under different categories by

the Delhi Government between April 2006 and March 2007 itself shows that large
scale diversion takes place in respect of SFAs meant for APL category. The lifting of
SFAs during this period under APL constitutes almost 72 per cent of total quantities of
SFAs lifted.

e) Targeting is not serving its real purpose as the beneficiaries do not get
SFAs in accordance with their entitlements.

f) The system lacks proper accountability at each stage of operation,

otherwise how does one explain continued commission of malpractices with impunity
and flourishing nexus between officials, transporters and FPS owners to milk the
system to their advantage.

g) The existence of the APL category in an open ended manner has diluted
the euphemism “Targeted” and made the system virtually universal, detracting from
its main focus of catering to the poor and destitute.

7.5. The Committee has made several recommendations in the main body of its
Report, the important ones being:

a) launching a time-bound door-to-door drive to identify genuine

beneficiaries under AAY/BPL categories and provide due coverage to them.
b) There would be an amnesty period of four weeks where persons
holding bogus cards could surrender them without liability. However on the expiry of
this period the above mentioned intensive door-to-door verification would be
conducted and during that verification if any bogus card is detected both the holder as
well as the concerned officers who had recommended the card would be prosecuted
under Section 7 and other Sections of the Essential Commodities Act, 1955 without
exception.

c) Revisit the income criterion for the BPL category keeping in view
improvement in the poverty scale.

d) Do away with the APL category and restrict TPDS to the poor namely persons
below the poverty line i.e. BPL and poorest of the poor i.e. AAY. It is needless
to say that it is this category of persons who need food security. While doing
away with the APL category the Committee also recommends increase in the
income threshold of the BPL from the present Rs. 24,200/- to Rs. 49,284/-.
This based on the minimum wage payable to an unskilled workman in Delhi as
per the order No. F.12 (142)/02/MW/LAB/1016 dated 13.3.07. The break up of
the said amount is as follows:

Minimum wage = Rs. 3470/-

per month

Add: 13.6% EPF = Rs. 472.26

Add: 4.75% ESI = Rs. 164.82
Total: = Rs. 4107/-

e) The Committee is aware of the fact that there is going to be a great

deal of opposition from the FPS dealers and other vested groups against the abolition
of the APL category. If the Court is of the view that it may not be possible or desirable
to abolish the APL category altogether, it may consider limiting the APL category to
households whose annual income is Rs. 1,00,000/-. This is based on the fact that a
class IV employee of the Central Government in Delhi gets a consolidated salary of
about Rs. 8,000/- per month making it Rs 96,000/- per annum. This category may be
called “Marginally Above Poverty Line (MAPL)”.

f) Clear delineation of responsibilities and functions of each position

connected with PDS; provide benchmarks for performance levels, and introduce the
concept of personal liability in case of lapses.
g) Introduce an end-to-end automated system in the PDS chain as
discussed in the Computerization Chapter to minimize human intervention in the PDS
operations and reduce the scope for manipulation.

8. INTRODUCTION OF FORTIFIED ATTA (WHEAT FLOUR) IN THE PUBLIC

DISTRIBUTION SYSTEM

8.1. The Committee is of the considered view that fortified Atta along with wheat
should be made available through PDS outlets which would immensely benefit the
vulnerable sections of society and increase off take by consumers of PDS foodgrains.
Even today, persons without BPL ration cards, despite being eligible for the same, and
other persons with BPL ration cards are purchasing wheat flour from the open market
as a matter of convenience and to save on the time and cost involved in grinding of
wheat into flour. The system of distribution of wheat flour is in vogue in the district of
Darjeeling where enriched wheat flour is given @ Rs. 6.80 per kg. In the open
market, packaged wheat flour weighing 10 kg costs anything up to Rs. 150/- and
therefore, it should be possible to price a packet of fortified 5 kg or 10 kg wheat flour
at a much lower price which may be any price between Rs. 7/- and Rs. 8/- per kg.
This will definitely be much less than what may be available through the open market.
The advantages would far outweigh a somewhat increased price that may have to be
paid. At least, providing this option to the vulnerable sections of the society through
the PDS network will be a step in the right direction.

8.2. The Committee has also suggested modalities for operationalising this
innovative step in the main chapter dealing with this subject.

8.3. Fortified Atta would also improve the general health of the vulnerable sections
and reduce instances of Vitamin A deficiency and iron deficiency Anaemia. It has also
been suggested that general instructions may be given to sell only fortified Atta both
under the PDS as well as the open market as this will make implementation easier and
prevent diversion.

9. IMPEDIMENTS IN EFFECTIVE ENFORCEMENT OF PROVISIONS OF ESSENTIAL

COMMODITIES ACT, 1955, PDS (CONTROL) ORDER, 2001 AND DELHI SPECIFIED
ARTICLES (REGULATION OF DISTRIBUTION) ORDER, 1981—ANALYSIS AND
RECOMMENDATIONS.

9.1. Impediments in the enforcement of provisions of the above Act/ Orders

have been identified as follows:

i. Insistence of police authorities to act only on complaints made by the

Department;
ii. Disinclination of police authorities to conduct investigation against
violators of the above Act/Orders;

iii. Failure of the Department to launch timely prosecutions against the

violators including the errant FPS dealers;

iv. Failure to hold delinquent officials accountable for their acts of omission
and commission; and

v. Delay in Court proceedings.

9.2. All the above factors have been discussed in detail citing instances in the
chapter on the subject in the main body of Report. The Department vide Letter No. F.
10(393)/Misc/F&S/Vig./681 dated 20/04/2007, has furnished a list of 42 pending
disciplinary proceedings as on 19/04/2007. Most of these cases are pending since the
last six to seven years with oldest pendency back to the year 1987. The list, which is
annexed, is an eye-opener. None of these cases relate to complicity in diversion of
SFAs, fudging of FPS records regarding stocking and sale of SFAs etc., which have
today become an intrinsic facet of PDS operations.

9.3. The Department has also furnished a list of 37 disciplinary proceedings that
have been disposed off during the years 2005 – 2007. Most of the disposed off cases
relate to unauthorised absence, malpractices in sale and receipt of BPL ration card
application forms, preparing non – genuine ration cards, unauthorised absence from
duty etc. It is seen from the list that even in a case of a serious offence like
preparation of non – genuine ration cards, a meagre penalty of censure or reduction
by one stage in time scale has been imposed.

9.4. It has been observed by the Committee from an analysis of court files that
there are inordinate delays in trials under the Essential Commodities Act, 1955,
defeating the very object and purpose of Section 12A(2) of the Essential Commodities
Act, 1955 which provides for a summary trial.

9.5. After in-depth analysis made in the chapter on this subject, the Committee
has made the following recommendations:

a) The police department should be directed to act on complaints in

consonance with Section 11 of Essential Commodities Act, 1955.

b) The police department should be directed to exercise their powers of

search and seizure without exception.

c) Prosecutions should be instituted against persons involved in

contravention of statutory provisions.
d) Action should be taken without loss of time to seal the FPS if found
contravening statutory provisions and the license of such FPS should be revoked if
enquiry in the matter confirms commission of offence unless a superior court stays
the proceedings.

e) A fast track Court should be constituted in respect of cases pertaining to

violations of Essential Commodities Act, 1955. There should be a special prosecutor
for handling such cases.
JUSTICE WADHWA COMMITTEE ON

PUBLIC DISTRIBUTION SYSTEM IN ORISSA

INDEX

SL. PARTICULARS PAGE

NO.

A. Preface i-
B. Broad Overview i-xxx
1. Introduction 1-3

2. Legal Regime 4-16

3. Wholesale Distribution 17-46

A. Orissa State Civil Supplies Corporation 17-24

B. Storage Agents. 25-41

C. Diversion. 41-44

D. Observations 45-46

4. Retail Distribution (Fair Price Shops) 47-63

A. Appointment of retail outlets 47-50

B. Viability and condition of Retail Outlets 50-60

C. Problems faced by beneficiaries 60-61

D. Observations 61-63

5 Transportation 64-66

6. Vigilance, Enforcement and Complaint Mechanism 67-90

A. Composition and Functioning of Vigilance Committees 67-75

B. Complaint Mechanism 75-77

C. Ombudsman/Regulator 77-86

D. Enforcement 86-90
7. Identification of Beneficiaries 91-112

Observations 112-115

8. Computerization 116-118

9. Recommendations 119-125
 PREFACE

In the matter:

Writ Petition (C) No. 196/2001 – People’s Union for Civil Liberties

V/S

Union of India and Ors.

1. Hon’ble Supreme Court of India by Order dated 12.7.2006 in the aforesaid Writ
Petition constituted a Committee to be headed by me to look into the maladies
affecting the proper functioning of the Public Distribution System (PDS) and to
suggest remedial measures.

2. Hon’ble Court’s direction was initially given for the Government of Delhi to be
followed on an all India basis.

3. Committee submitted report on Delhi on 21.8.2007. By order dated 10.1.2008,

Hon’ble Court while accepting the report, directed the Committee to do the similar
exercise in terms of earlier order for the entire country.

4. Scope of the task assigned to the Committee thus having been enlarged, then
Committee projected to the Department of Food & Public Distribution, additional

requirements of staff, space and delegation of financial powers for its smooth
functioning. The Department dilly dallied and did not meet the requirements. The
Committee had to approach the Hon’ble Court time and again. It was only after a
peremptory Order dated 25.8.2008 was passed by the Hon’ble Court that the
Department started taking steps for creating necessary infrastructure. It was only
thereafter that the Committee could start functioning in right earnest. The Hon’ble
Court extended the time for submitting the report till April 2009.
5. The Committee is submitting report of the State of Orissa. The Committee is
also submitting a separate comprehensive report on ‘Computerization of PDS’.

6. No one has doubted the utility of PDS being the need for supply of food
grains to the poor of the country at affordable rates. Procurement and
distribution of food grains is a huge and gigantic task but then the whole
system is built on corruption. There are more leakages and maladministration
and benefits to the poor are low. Inefficiency and corruption has made PDS
corrupt at several levels. The system lacks transparency, accountability,
monitoring and enforcing. Survey is not being conducted regularly and
properly, with the result people Above Poverty Line (APL) have been issued
Below Poverty Line (BPL) cards and those eligible for BPL cards have been
ignored. Bogus cards are in abundance. Immediate measures are required to
reduce the diversion of food grains. Delivery systems under the PDS have to
be improved so that the real beneficiary gets its due entitlement at fixed price,
fixed quantity, fixed time and wholesome quality. Innovative methods are
required to improve the system. The whole system has to be totally revamped
and modern technology would appear to be the only answer.

7. Committee has suggested that in order to combat corruption and strengthening

PDS there has to be zero tolerance approach.

Based on the work done by the Committee and in compliance with the Hon’ble
Court’s orders, a detailed report covering all issues tasked to the Committee is
being submitted. The first part of the report is a Broad Overview. The report is
then divided into 9 Chapters. Last Chapter contains the recommendations.

9. The task before the Committee has been quite stupendous particularly
considering the time schedule. In this task Legal Team headed by Mr. Dayan
Krishnan and Mr. Dinesh Dayal, Advocates and assisted by Ms. Neeru Vaid, Mr.
 Gautam Narayan, Ms. Meenakshi Chauhan, Mr. Anant Garg and Mr. Aman R.
Nath, Advocates, rendered invaluable assistance. Mr. Ullash Chandra Mohanty
& Ms. Deepali Mohapatra were engaged by the Committee as local lawyers and
they also rendered invaluable assistance. Mr. Biraj Patnaik helped in organizing
public meetings and was helpful in interpreting the Oriya language.

10. For the Committee to complete its task, it got full support and cooperation
from the officers of the State of Orissa particularly Dr. Satya Narain, Resident
Commissioner; Mr. R.K. Sharma, Commissioner-cum-Secretary, Food Supply &
Consumer Affairs; Mr. R.N Das, Commissioner-cum-Secretary, Panchayat Raj;
Dr. A.K. Panda, Commissioner-cum-Secretary, H.U.D. Mr. R.R. Patnaik,
Additional Secretary, F&C.S. Mr. S.K. Roy Chairman O.S.C.S.C; Mr. D.K. Das
Managing Director, O.S.C.S.C.; Mr. B.R. Samal, General Manager, FCI; Mr.
Girish S.N. Collector Angul; Mr Narayan Chandra Jena, Collector Khurda; Mr.
Kishore Kumar Mohanty, Collector, Cuttack; Mr Bishnu Prasad Panda, Collector
Nuapada; Mr P.K. Patnaik, Collector, Sambalpur; Mr. Santhanagopalan R.,
Collector, Kalahandi.

11. Mr. S.C. Rawal, former Registrar of Delhi High

Court performed the functions of the Secretary to the Committee. He handled
all the correspondence of the Committee and looked after the requirements of
the Legal Team attached to the Committee.

12. Mr. K.K. Mittal, Dy. Registrar (equivalent to Director in Central Government)
helped the Committee in going through the draft reports. He also looked after
the administration and staff attached to the Committee and handled
correspondence with the Department of Food & Public Distribution,
Government of India.

13. There may be some overlapping on various points in the report and that is so
because an attempt was made to make each chapter self-contained. It is also
possible that there might have been some inadvertent errors which crept up in
 the report but the whole report is an attempt to present the correct picture of
the ground realities keeping in view the directions of the Hon’ble Court.

The sum and substance of the recommendations are given in Chapter 9 of the report.

(Justice D.P. Wadhwa)

Chairman, Central Vigilance Committee on Public Distribution System

Delhi Dated: 23.2.2009

BROAD OVERVIEW
1. By an order dated July 12, 2006 passed in Writ Petition (Civil) No. 196/2001
Supreme Court constituted this Committee and directed that the Committee
shall look into the maladies which are effecting the (public distribution) system,
and also suggest remedial measures.

2. In particular the Committee was asked amongst other things to focus on;

a) The mode of appointment of the dealers,

b) The ideal commission or the rates payable to the dealers,

c) Modalities as to how the committees already in place, can function better,

and

d) Modes as to how there can be transparency in allotment of food stock to be

sold at the shops

3. It was further ordered that while dealing with the question of mode of
appointment, the committee shall also suggest as to a transparent mode in
selection of dealers. The Committee was also directed to indicate as to how
more effective action can be taken on the reports of the vigilance committees
 already appointed. The Committee was required to invite suggestions from the
general public, organizations and consider suggestions, if any received, in the
proper perspective.

4. The Supreme Court observed that there is large scale corruption involved and
hardly any remedial steps are taken to put an end to this. The ultimate victim is
the poor citizen who is deprived of his legitimate entitlement of food grains.
The Public Distribution System is intended to ensure that a citizen gets the food
grain at a reasonable price keeping in view the economic standards.

5. These directions were initially given for the Government of Delhi and to be
followed on all India basis.

6. The Committee submitted the report relating to Delhi to the Supreme Court on
21.8.2007. By an order dated 10.1.2008 the Court accepted the report and
directed that in terms of the earlier order similar exercise be undertaken by the
Committee for the entire country. The Committee then proceeded to take up
the study for other states. In the process the Committee visited the State of
Orrissa from 15th November 2008 to 24th November 2008. The Committee
invited suggestions from the public through news papers, held public meetings,
met the representatives of various organizations like the FPS owner’s
associations, transporters, Storage Agents and NGO’s. The Committee held
meetings with the Senior Officers of the State Food and Supplies Department,
Panchayat Raj Department, Urban Development Department and District
administration. The Committee also visited the office of the Orrissa State Civil
Supplies Corporation. The Committee had discussions with the officials of the
Corporation. The Committee also visited the godowns of the Storage Agents,
and the Fair Price Shops.

7. The maladies affecting the Public Distribution System in Orrissa can be broadly
classified into the following categories.
 Identification of the beneficiaries Below Poverty Line (BPL)

 Diversion of food grain meant for Targeted Public Distribution System (TPDS)

 Failure in the processes of implementation

 Failure of the vigilance mechanism

 Non existent machinery for enforcement

Each of these problems have been dealt in detail in the report under separate
chapters.

I. IDENTIFICATION OF BPL

1.1 The PDS Control Order 2001 provides that the State Governments shall
(i)formulate guidelines for the purposes of identification of families living Below
Poverty Line (BPL) including the Antyodaya families as per the estimates
adopted by the Central Government. (ii) Care will be taken to ensure that the
families so far identified are really the poor. (iii) Exercise of identification of BPL
and Antyodaya families, wherever it has not been done already to be
completed within three months of the issue of the PDS Control Order, 2001.

1.2 In the meeting held with the senior Government functionaries in the State of
Orissa on 16th November, 2008 it was revealed that the State Government had
not formulated any guidelines for the purposes of identification of families
living below poverty line (BPL) including the Antyodaya families. It appears
that the State Government adopted the BPL Survey of 1997 conducted by Rural
Development Department of the State.
1.3 The Central Government laid down the following guidelines for implementing
the Targeted Public Distribution System:

(I) Identification of beneficiaries of the Targeted Public Distribution System

(TPDS) namely the population Below Poverty Line (BPL) and issue of food
grains at specially subsidized rates are the most important features of the
TPDS. To work out the population Below Poverty Line (BPL) it is proposed to
adopt the provisional estimates arrived at by the Planning Commission for the
year 1993-94 adopting the methodology of constituted by the Planning
Commission under the Chairmanship of Late Prof. Lakdawala (Expert Group).
According to the official methodology so far adopted, the number and
percentage of Below Poverty Line population for 1993-94 works out to 14.98
crores persons and 16.82% respectively. As per the Expert Group
methodology this works out to 32.03 crores and 35.97%. The Expert Group
methodology according to the Deputy Chairman, Planning Commission gives
“poverty estimates closer to ground reality” and as such it is proposed to adopt
them for the Targeted PDS.

(II) While these estimates give the number of persons and percentage of BPL
population at State Level, identification at the micro level of the population Below
Poverty Line can be done as indicated below :-

i) The quinquennial surveys made by the Ministry of Rural Areas and

Employment for Implementation of IRDP, etc. on household living Below Poverty Line
can be a basis. However, the overall number identified should be limited within the
population Below Poverty Line as fixed by the Union Planning Commission adopting
the methodology of the Expert Group by Late Prof. Lakdawala.

ii) Gram Panchayats and Gram Sabhas should be involved in the initial
identification of eligible families.

iii) Final identification should be made after verification of doubtful cases.

iv) As regards urban population, slum dwellers will generally qualify for the Below
Poverty Line. Applications, if any, received from non-slum areas should be verified to
identify eligible beneficiaries.

v) The thrust will be to include only the really poor and vulnerable sections of the
society such as landless agricultural labourers, marginal farmers, rural artisans /
craftsmen such as potters, tappers, weavers, blacksmiths, carpenters, etc. in rural
areas and slum dwellers and persons earning their livelihood on a daily basis in the
informal sector like porters, coolies, rickshaw pullers and hand-cart pullers, fruit and
flower sellers on the payment etc. in urban areas.

vi) The above criteria is indicated only by way of illustration and is in no way an
exhaustive list of those who could be brought within the ambit of the Below Poverty
Line. The total number identified, however, should be within the limits of Below
Poverty Line population indicated by the Planning Commission.

1.4 The perusal of these guidelines would show that the Survey made by the Rural
Development Department of the State could be a basis but the overall number
of BPL identified by the State had to be limited within the limits prescribed for
BPL by the Union Planning Commission adopting the methodology of the Expert
Group headed by Late Prof. Lakdawala.

1.5 The State Government adopted the Ministry of Rural Development (MoRD)
survey of 1997 without laying down any criteria or undertaking any BPL survey
which resulted in large number of inclusion and exclusion errors. The Central
Government thereafter approved the MoRD survey of 2002 in 2005 to form the
basis of BPL census. The State Government has yet not adopted the same
though more that three years have passed. This has resulted in a clamour for
BPL cards and problem is now becoming a headache for the District
Administration. Further the failure of the State Government to provide
guidelines to work out the BPL population has resulted in the number of BPL
ration cards exceeding the estimates of the Planning Commission.
1.6 To work out the population below the poverty line under the TPDS, there was a
general consensus at the Food Minister’s conference held in August 1996, for
adopting the methodology used by the expert groups set up by the Planning
Commission under the Chairmanship of Late Prof. Lakadawala. The BPL
households were determined on the basis of population projections of the
Registrar General of India for 1995 and the State wise poverty estimates of the
Planning Commission for 1993-94. The total number of BPL households so
determined was 596.23 lakh. Guidelines for implementing the TPDS were
issued in which the State Governments had been advised to identify the BPL
families by involving the Gram Panchayats and Nagar Palikas. While doing so
the thrust should be to include the really poor and vulnerable sections of the
society such as landless agricultural labourers, marginal farmers, rural
artisans/craftsmen such as potters, tappers, weavers, black-smith, carpenters
etc. in the rural areas and slum dwellers and persons earning their livelihood on
daily basis in the informal sector like potters, rickshaw-pullers, cart-pullers, fruit
and flower sellers on the pavement etc. in urban areas. The Gram Panchayats
and Gram-Sabhas should also be involved in the identification of eligible
families.
1.7 The number of BPL families has been increased w.e.f. 1.12.2000 by shifting the
base to the population projections of the Registrar General as on 1.3.2000
instead of the earlier population projections of 1995. With this increase the
total number of BPL families is 652.03 lacks as against 596.23 lack families
originally estimated when TPDS was introduced in June 1997.

1.8 The food allocation to the State is made by the Centre according to the
numbers of BPL estimated on the basis of the findings of the Expert Group
headed by Late Prof. Lakdawala. As a result, each BPL family in the State
which is entitled to 35 Kg of grain per month is getting only a reduced quantity
of 25 Kg of grain for month.
1.9 The PDS Control Order 2001 provides that the State Governments shall get the
list of BPL and Antyodaya families reviewed every year for the purposes of
deletion of ineligible families and inclusion of eligible families.

1.10 It was admitted before the Committee by the State Government functionaries
that no such review of BPL families is being done in the State of Orissa. This
provision was made keeping in view the fact that the number of BPL families in
any State can not be static. Some families have an increased income during
the course of time and become ineligible for the benefits given to the BPL.
Similarly, some families have loss of income or new families come into
existence during the course of time that may be entitled to the benefit given to
BPL. Over a period of time, these numbers have grown since 1997. The
position has changed drastically and at present there are a large number of
BPL families who do not have any BPL card or any card at all where as there
are also a large number of families enjoying the benefits of BPL though they
have sufficient incomes to disentitled them to the BPL benefits.

1.11 The PDS Control Order 2001 provides that the State Government shall ensure
that no eligible applicants is deprived of a ration card under the PDS.
Apparently, due to the absence of proper criteria and the absence of review
large number of people entitled to the benefits under the PDS have been
denied such benefits.

1.12 The PDS Control Order, 2001 further provides that the State Government shall
conduct periodical checking of ration card to weed out ineligible and bogus
units in ration card. Ration card shall be valid for a period of five years from
the date of its issue unless it is suspended or cancelled earlier. A ration card
 shall be issued afresh or reviewed after fresh verification of and such other
checking as may be prescribed by the State Government in this regard.

1.13 No such exercise has been undertaken by the State Government. No checking
for weeding out of ineligible or bogus ration cards or bogus units in ration cards
has been undertaken by the state.

1.14 The PDS Control Order 2001 also provides that elimination of bogus ration
cards as well as bogus units of ration cards shall be a continuous exercise by
the State Government to check diversion of essential commodities. This
exercise has never been undertaken and hence there is a complete failure on
the part of the Government to reach at a correct estimation of BPL families in
the State.

1.15 High exclusion error means a low coverage of BPL households. Large inclusion
errors imply that the APL households receive an unacceptably large portion of
subsidized grain.

1.16 The Supreme Court by order dated February 14th 2006 has now directed that
the survey methodology for the next BPL census will be designed by the
Ministry of Rural Development in consultation with the Supreme Court
Commissioner’s in the Right to food matter Case No. 196/2001 along with other
sections of the society latest by the beginning of the XI th Five Year Plan and
that provision will be made to allow new names to be added and ineligible
names deleted from the BPL List 2002 on a continuous basis during the period
that the list will be applicable; This committee in its report has discussed the
issues of identification in detail and its recommendations made there apply
across the board to all states. The committee in essence has recommended
that the need for proper identification is an urgent and necessary measure and
requires time bound implementation.
1.17 It may also be pointed out that there has been a problem due to the nomenclature of
the survey. The survey conducted for providing ration at subsidized rates should be
called by a different name to avoid this confusion. A single BPL list does not
appropriately represent various types of deprivations faced by the people. The
objective of the MoRD is to identify the poor beneficiaries for its programmes and it
can not become a universal list for delivering all programmes. The State Governments
are therefore required to formulate separate guidelines for identifying beneficiaries.
These guidelines should take into account the ground realities in the State.

II. DIVERSION

2.1 Food grain is procured for the Public Distribution System on behalf of the
Central Government by the Food Corporation of India (FCI). State of Orrissa
has also been allowed to do procurement for the Central Pool under the
Decentralised Procurement Scheme. The entire food grain so procured either
by the FCI or the State comes into the Central Pool. The Central Government
then allocates food grain to each State as per their entitlement under the
Scheme.

2.2 Diversion of food grain takes place at every level of the system. The different
ways in which diversion takes place would show that Government Officials, Storage
Agents, Godown Keepers, Transporters and retailers are all involved in the diversion
of food grain in some manner or the other. The malady of diversion is prevalent in the
system in such large scale that it has become a menace and threat to the system.

2.3 The first and foremost reason for diversion is the difference in the price of
TPDS grain and market rate. This serves as an incentive for the unscrupulous persons
connected with the implementation of the system to connive with the traders to divert
the TPDS food grain into open market. The difference in price is also an incentive for
people who are not otherwise eligible under the scheme to get the benefit of the
lesser rates of grain.
2.4 The second reason for diversion is the lack of any system of accounting for the
grain allocated under the system. Ideally there should be a system by which
the grain allocated to the State can be equated with the grain distributed to the
beneficiaries. Since the scale of distribution and the number of beneficiaries is
very large this can not be achieved manually. Thus there is need for complete
automation and computerization of the Public Distribution System.

2.5 The third reason for diversion is that the functions of implementation,
enforcement and vigilance are not clearly demarcated and implemented.

2.6 There are two ways in which diversion takes place. Firstly by selling the TPDS
grain in the open market, and secondly by substituting the TPDS grain by grain
of inferior quality.

2.7 The Targeted Public Distribution System when introduced was intended to
benefit about 6 crore poor families for whom a quantity of about 72 lakh tones
of food grains was earmarked annually. Over and above the TDPS allocation,
additional allocation of 103 lakh tones of food grain was earmarked annually
and provided to the States as ‘transitory allocation’. This was intended for
continuation of benefit of subsidized food grains to the population Above
Poverty Line (APL) as any sudden withdrawal of benefits existing under PDS
from them was not considered desirable. The allocation for APL has continued
till date and has proved to be one of the greatest sources of diversion. At
present the allocation for the APL to any State is 14.6% of its APL requirement.
It is common knowledge that most APL cardholders do not get any food grains
under the PDS. Rest do not bother to draw their entitlement. Since full quota is
not being allotted for the APL most of the States have adopted the ‘first come
first serve’ principal. This enables the FPS dealer to put off any card holder on
the plea that the APL stock has been exhausted and divert most of the stock
meant for APL.
2.8 This Committee in its Delhi report has already suggested abolition of APL
subject to the view that the Court may take. We reiterate the suggestion and
maintain that APL should be abolished and the subsidy provided for APL should
be utilized to increase the BPL and make it more realistic and beneficial to the
poor.

2.9 In the State of Orrissa the Committee learnt about the A system of diversion
notoriously known as ‘Re-cycling’. The government or its agencies procure
paddy from the farmers and give it to the millers for extracting rice. The millers
after extracting the rice return it to the Government. It is then allocated to the
State pool and passed on to the (private) Storage Agents. There is a nexus
between the Storage Agent and the millers. The Committee learnt that the
Government Agencies, Storage Agents and Millers work in close co-ordination
with each other and in fact at many places the procurement is done by the
millers on behalf of the agencies of the Government. The Millers exaggerate
the quantities that they contract to supply. They procure lesser quantities or
withhold and divert certain quantities received for milling and supply a lesser
quantity. When this grain is allocated and reaches the storage agent it is
returned to the miller who again supplies the same to the government or its
agent. For example where a miller agrees to supply 100MT of rice, he would
supply 70 MT and then wait till allocation is made and the food grain reaches
the storage agent. 30 MT of rice would then be transferred by the storage
agent to the miller who would again supply it to the government or its agency.

2.10 As already stated above private storage agents are the major source of
diversion in the State of Orrissa as there is virtually no control or checking on
their activities.
2.11 The retailers also indulge in diversion. APL food grain can be easily diverted by
them as already shown above. They also use bogus ration cards for diversion.
Besides this the committee received complaints showing that the FPS dealers
retain the ration cards of the poor people and indulge in short weighing. As a
matter of fact diversion at any stage has to be ultimately accounted for against
some ration card. This makes the FPS licensee an accessory to all diversion
done at any level and provides scope for him to indulge in diversion on his
own.

2.12 The weighing systems at different levels also provide large scope for diversion.
The Committee found that that at most places manual weighing scales of very
small capacities are used.

2.13 There are provisions in the PDS Control Order, 2001 regarding quality Control.
It is provided that the State Governments shall make arrangements for taking
delivery of essential commodities issued by the Central Government by their
designated agencies or nominees from the FCI.

2.14 Depots/godowns should ensure further delivery to the fair price shop within the
first week of the month for which allocation is made. Before making the
payment to the FCI the representatives of State Governments or their
nominees and the FCI shall conduct joint inspection of the stocks of foodgrains
intended for issue to ensure that the stocks conform to the prescribed quality
specifications. The FCI shall issue to the State Governments stack-wise sealed
samples of the stocks of foodgrains supplied to them for distribution under the
Public Distribution System at the time of dispatch. State Governments shall
exercise necessary checks to ensure that full quantity lifted by them reaches
their godowns and in turn the fair price shops. State Governments shall ensure
that stocks of essential commodities under the Public Distribution System, as
issued from the FCI godowns, are not replaced by stocks of inferior quality
during storage, transit or any other stage till delivery to the ration card holder.
2.15 The Committee found that there was no system of quality control in the state.
No samples were found even at the whole sale distribution points. No samples
were supplied to the retailers. There was no check on quality of grain being
supplied to the beneficiaries. The Committee found insect infested grain at one
of the Storage Agents in Orrissa and rotten grain lying in the godown of BSFC
in Jharkhand.

2.16 It is suggested that there should be complete automation of weighing systems

at all levels. Weigh Bridges should be used at all FCI and whole sale
distribution points. These weigh Bridges should be connected to computer
systems to generate weight check memos automatically. Stock inventories
should also be automatically generated. The system of sampling should be
strictly observed. The State Government has to obtain stack wise samples from
the FCI after a joint inspection of the grain. The whole sail distribution point
must issue samples to the retailers to show the quality of grain supplied. The
retailer must display the sample at his FPS shop so that the quality can be
checked by the officials, vigilance machinery, enforcement machinery and the
consumer.

2.17 The committee also learnt that at every stage of storage and transportation
some pilferage of food grain takes place from the jute bags. It was shown to
the committee how easy it is to poke a jute bag to take out grain from it and
then close the opening created by the poker. A jute bag received from the FCI
was found to contain an average weight of 48.5 Kg against 50 Kg. The same
bag then gets reduced to about 45-46 kg at the whole sale distribution point.

2.18 During the visit to Chandigarh a suggestion was given to the Committee that
the PDS foodgrain should be packed in non pilferable, tamper proof bags of
smaller sizes. Rice and wheat flour is sold in open market by private companies
in such smaller HDPE packaging.
2.19 It is felt that in case TPDS food grain is packed in non pilferable, tamper proof
bags of 10kg and 5 kg the same can be delivered to the beneficiary in sealed
packing. This measure along with automation in weighing and use of
computerization and smart cards would go a long way in eliminating or at least
reducing pilferage. It would also ensure a more hygienic handling of food grain
and help in ensuring that the food grain of proper quality reaches the
beneficiary.

2.20 The Committee feels that diversion of PDS food grain can be largely curbed by
use of information and communication technology (ICT) based solutions.
Suggestions in this regard have been given in separate recommendations made
by this Committee.

III. IMPLEMENTATION

3.1 Licensing

A. The distribution under the PDS in the State is being done through the Orrissa
State Civil Supplies Corporation. The whole sale distribution of essential
commodities is done through storage agents.

B. During the course of the visit of the Committee to the Office of the
Corporation, a case relating to the district of Angul was noticed the applicant
had been recommended by a Minister of the Sate Government. The District
Collector and the Board of the Corporation did not recommend the name of the
applicant. But the State Government appointed the said applicant as a storage
agent. During the visit to Angul, the Committee obtained the file relating to
this case. The matter had been referred to the Sub- Collector for verification
after the orders from the State Government. The complaint was that wife of
the applicant was a public representative and therefore, the applicant was
ineligible for appointment. The applicant submitted an affidavit before the
Sub-Collector that he has been divorced for the last five years and had been
 living separately from his wife. This affidavit was accepted by the Sub-
Collector as sufficient proof of divorce.

C. This case is a glaring example of political interference in the implementation

process of PDS.

D. The process of appointment of a retailer as per the guidelines of the State

Government is that a retailer should be appointed for the population of 2000 in plain
areas and one retailer should be appointed for the population of 1000 in hill and
inaccessible areas. It is provided that marginal variation from the population may be
made in case where fair price shops established on this basis would be inaccessible to
some consumers to that outlet or the distance between the retail below and the
village / hamlet is more than 2 Km.

E. As a general principle, the maximum number of retail centers to be opened in

Gram Panchayat areas was not to exceed three, however, in inaccessible areas the
number in a Gram Panchayat may be increased to a maximum of five.

F. The applicant desirous of obtaining retail license has to submit an application

before the Sub-Collector and satisfy him that the applicant has adequate financial
resources to run a retail fair price shop and has suitable premises for functioning of
the retail shop. It has to be ensured that the location of the retail shop is convenient
to the consumers. The financial viability of the applicant has to be examined with
reference to the value of essential commodities that retailer would be required to lift
in a month.

G. After the enquiry is conducted in the District or sub-divisional office by the SCSO
or other designated officer the application is required to be put up before Block Level
Advisory Committee (BLAC) or Taluk Level Advisory Committee (TLAC) for
consideration.

H. The Block Level Advisory Committee (BLAC) or Taluk Level Advisory Committee
(TLAC) makes a recommendation after passing a resolution. The appointment is then
made by the concerned Sub- Collector / ADM. In case of Gram Panchayat / WSFG and
Corporative, no recommendation of the Block Level Advisory Committee (BLAC) or
Taluk Level Advisory Committee (TLAC) is required.

I. Committee observed that:-

1.There is rampant political interference in the selection of storage

agents and retailers and all procedures are given a gobye by the department if there
is a ‘political’ recommendation.

2. The Committee found there is no transparent mode of appointment of

FPS dealers as no advertisement is issued whenever there is a vacancy.

3. The Taluk and Block level advisory committee would meet only when a
‘convenient’ application is received and what is worse is that only the
‘convenient’ application is considered and the previous applications are just
ignored.

J. It may be mentioned here that in the State of Orissa the Vigilance Committees
envisaged under the PDS Control Order 2001 are named as the Advisory Committee
on PDS. There are District Level Advisory Committee (DLAC), Block Level Advisory
Committee (BLAC) , Town Level Advisory Committee (TLAC) and Rural Level Advisory
Committee (RLAC) both for urban and rural areas. The State has adopted, the system
of one Retail Advisory Committee for each Gram Panchayat in rural areas and each
FPS areas.

K. It may be noticed that the PDS Control Order 2001, envisages the formulation of
Vigilance Committees to perform the functions of keeping a vigil and for monitoring
the working of the PDS at the State/ District / Block and FPS level. However, in the
State or Orissa the Committees have been designated as Advisory Committees and
perform an active role in the implementation of the PDS. The overlapping of functions
ensures that these Committees are unable to perform vigilance which is the main
purpose of these Committees. It was also revealed that these Committees rarely
meet as required and only indulge in interference in the implementation of the
system. A perusal of the files relating to the appointment of retail Licensees and
enquiries from the officials revealed that Vigilance Committees do not meet regularly.
Applications for license are received by the sub- collector and keep lying with him.
Only when an application is received from a convenient person the meeting of the
Vigilance Committee is convened. The only agenda for the meeting is to recommend
the licensee. These Committees are not actually doing any vigilance work.

L. The State Food and Supplies department should frame/ amend the rules
regarding allotment of licenses in order to re-define the role of the vigilance
committees in allotment of licenses. Any vacancy for an FPS should be properly
advertised. The applications received can be scrutinized by the officials to ensure that
they comply with the eligibility conditions. Names of the applicants can be made
public and objections invited from the public and bodies responsible for vigilance. Spot
verification can be done by officials of the department. There can be a committee to
take a final decision.

M. The State Government has introduced a system of distributing the food grains
on fixed dates i.e. 5th, 6th, 7th, 20th,21st and 22nd day of every month. This
system may be convenient for the State Government officials but causes many
difficulties for the beneficiaries. It should not be forgotten that the Public
Distribution System is for the benefit of the public and not for the convenience
of the implementing authorities. There are long queues at every FPS on the
distribution days. If some beneficiary who is daily wage earner comes to get his
ration he has to forego his earnings for that day. The beneficiary is compelled
to take his entire entitlement on one day. This system is clearly violating of
the directions of the Supreme Court contained in the order dated May 2, 2003
in Writ Petition (Civil) No. 196 of 2001. The Supreme Court has directed that
 Licensees who do not keep their shops open throughout the month during the
stipulated period shall make themselves liable for cancellation of their license.
This order also provides that in order to facilitate the supply of grain the BPL
house hold should be permitted to buy the ration in installments. Both these
directions are thus being flouted because of the distribution of ration only on
fixed dates.

IV. ALLOCATION AND DISTRIBUTION

The Orrissa State Civil Supplies Corporation

1. Under the TPDS procurement of grain is to be done by FCI. However, in some

states like Orrissa the Central Government has allowed Decentralised
Procurement under the Decentralised Procurement Scheme. Under this scheme
the State Government, on its own or through its agencies procures paddy in
account of FCI. Allocation is done to the State from the grain purchased by
them. If there is deficiency further allocation is done from the grain procured
by FCI from other States. In case there is excess it is allocated to other States
by the FCI.

2. Orrissa is having large cultivation of Paddy. After procuring Paddy the

Government agencies give it to the Millers for extracting rice. The Millers return
the rice to the State Government which is distributed through the Storage
Agents.

3. As per the rules the Millers should not be related to the storage agents. In
practice it was found that all the millers and storage agents belonged to one
community and work in close co-ordination with each other. There were
complaints that in fact the procurement was being done by the Millers on
behalf of the OSCSC. Thus the officials of OSCSC, Millers and Storage Agents
were all involved in diversion.
4. The State has adequate storage facilities. Orrissa State Civil Supplies Corporation
owns 161 godowns in the State. The State Government has transferred 50
godowns to the Corporation. It has also hired several godowns from CWC,
OSWC, RMC MARKFED and private persons. Besides this the Panchayat Raj
Department owns 6000 godowns of 50 MT capacity and 300 godowns of
100MT capacity which they are prepared to put at the disposal of the
Corporation. The Panchayat Raj Department and the Urban Development
Department are also prepared to construct more godowns. However, it appears
that the Corporation is not interested. It even lets out its godowns to storage
agents.

5. The Committee strongly feels that the system of Storage Agents in the State is a
major source of diversion and should be done away fourth with.

6. The Committee found that the Chairman of the Corporation was a political
person. He would naturally be in a position to exercise influence in the functioning of
the Corporation especially in the matters of appointment of Storage Agents. The
Chairman in the meeting with the Committee also informed the Committee that he
tours the State regularly. This would show that he was certainly in a position to
exercise influence over the distribution system in the State.

7. The Committee is of the view that the Chairman of the Corporation should not be
a political person. The earlier practice of having the Secretary of the Food and
Supplies Department as the Chairman of the Corporation needs to be
immediately restored.

V. VIABILITY, SCALE OF ISSUE AND PRICE

1. Since 1997, the Scale of issue of the BPL families has been gradually
increased from 10 kg. to 35 kg. per family per month. The scale of issue
was increased from 10 kg. to 20 kg. per family per month with effect from
1.4.2000. The allocation for APL families had been retained at the same
 level as at the time of introduction of TPDS (i.e. 10 kg. per family per
month). The allocation of food grains for the BPL families has been further
increased from 20 kg to 25 kg. per family per month with effect from July,
2001. Initially, the Antyodaya families were provided 25 kg. of food grains
per family per month at the time of launching of the scheme. The scale of
issue under APL, BPL and AAY has been revised to 35 kg per family per
month with effect from 1.4.2002 with a view to enhancing the food security
at the household level.
2. State of Orrissa has introduced Rs. 2/= rice scheme w.e.f. 1.8.2008. Under
this scheme all persons in the BPL and AAY categories are to be supplied
rice at Rs.2/= per Kg. Further all non BPL i.e. APL cardholders in the KBK
region are to be treated as BPL and supplied rice at Rs. 2/= per Kg. This
has increased the number of beneficiaries from approximately 30 lakh to 55
Lakh. In order to meet the requirements of larger numbers the State has
reduced the quota from 35 Kg to 25 Kg for BPL beneficiaries. The AAY
cardholders are still getting 35 Kg rice under this scheme at Rs. 2/= per Kg.
3. The Committee was informed that at the initial stages this scheme worked
well. However, this scheme has increased the demand for BPL cards. Extra BPL
cards mean that the real beneficiary gets less than his entitlement and persons
not entitled to the benefit are getting foodgrain at subsidized rates. The
Committee was not apprised of any reason why the State took the decision to
sell BPL rice at Rs. 2/- per Kg. However, the Committee was informed that the
State would meet the expenditure from its own budget.

4. CENTRAL ISSUE PRICE (CIP) :- The present Central Issue Price (CIP) of
food grains being supplied under TPDS is as under: -
(Figure in Rs. per kg.)
Commodity APL BPL AAY
Rice 8.30 5.65 3.00
Wheat 6.10 4.15 2.00
 5. The Scale of issue and the issue price also raises the question of Viability of
the Storage Agents and Retail Licensees.

6. The Storage Agents are paid remunerations for their services as per the
Government approved rates per Quintal. i.e. Storage Commission Rs. 3.20
(BPL) and Rs. 1.60 (AAY), incidental charges Rs. 2.50, interest on investment
Rs. 0.80 (BPL) and 0.40 (AAY) and Transportation charges Rs. 10/- upto 19 Km
and Rs. 0.35 per Km. Beyond 10 Km. Prior to 1197-98 the Storage Agents were
allowed to lift the essential commodities, without pre-deposit of cost but from
1997-98 the agents can lift the essential commodities only after prepayment as
per the policy of the Corporation.

6. The case of Kailash Chandra Aggarwal of Talcher Block is a vivid

example to justify the abolition of Storage Agents. At the time of visit by the
Committee he first tried to project that he was running into losses but on being
prompted by an official of the department accompanying the team members of
the Committee, he changed his stances and provided calculations showing
profits. This case is only an example to show that all is not well with the system
of storage agents. The Committee is of the view that the system of private
storage agents should be abolished and the State Government should take the
responsibility of whole sale storage and distribution through its own
departmental mechanism or through the OSCSC.

7. The calculations of profit margins of FPS shops in Salepur, District

Cuttak and Bada Danda Sahi, Talcher in Angul District clearly show that that the shops
are not viable entities. It is necessary that these shops have some additional income
to make them viable. The commission of the retailers can only be increased by
ensuring that they do not have to spend on transport and door step delivery is
provided to them. It is also necessary that FPS shop keepers are also allowed to do
business in other non PDS items of grocery as it is not possible to ask the Government
to increase the subsidy nor it is desirable to increase the burden on the consumer by
increasing the price of PDS grain.

8. Door step delivery of food grain has to be given to the FPS dealers both in
urban and rural areas. This would not only in accordance with the scheme and
provisions of the PDS Control Order, 2001 but eliminate the expenses incurred by the
FPS dealer on transportation thus increasing the viability. It is suggested that the
licenses for the FPS should be given to persons running grocery shops. This business
of FPS can supplement their income as they will not have to incur additional
overheads for acquiring a shop, electricity etc. It would also help to increase their
customer base as more customers would be coming to their shops to get PDS grain.
The experiment of Women Self Help Groups was found to working well. In case no
such shop keeper is available in the area FPS may be given to WSHG. The Committee
also found that mobile Vans were doing well in distribution of PDS grain in remote
areas or where the license of an FPS is suspended or cancelled. The number of mobile
vans should be increased for distribution.

9. When the Committee suggested to the FPS owners to sell other items of
grocery from their shops to add to their income they showed disinclination. Reason is
not far to seek. It is the diversion of PDS food grain by them. In fact ownership of the
Kirana shop should be made a condition of the license.

VI. MONITORING

The monitoring of the Targeted Public Distribution System can be divided into
two parts

A. VIGILANCE

B. ENFORCEMENT

A. VIGILANCE
1. Awareness and availability of information is the key to vigilance. The PDS Control
Order, 2001 provides that a copy of the allocation order made to the Fair Price Shop
shall be simultaneously sent to the Nagar Palika, Gram Panchayat or the Vigilance
Committees or any other body nominated for monitoring the functioning of the fair
price shop. It further provides that the bodies nominated for monitoring the
functioning of the FPS by the State Government shall display the stocks of essential
commodities allotted during the months to the FPS on a notice board outside their
office.

2. Vigilance under the TPDS is envisaged through the Vigilance Committees, Gram
Panchayats, Nagar Palikas, and the Consumer.

3. The provisions regarding Vigilance Committees have been ignored if not flouted by
the State Government. Either the Vigilance Committees envisaged under the PDS
Control Order, 2001 have not been formed or they have not been meeting and
performing their duties. This is because there is no accountability for any one to
ensure that the meetings of the Vigilance Committees take place regularly. The PDS
Control Order, 2001 provides that the meetings of the Vigilance Committees on Public
Distribution System at the State, District, Block and FPS level shall be held on a
regular basis. The date and periodicity has to be notified by the State Governments.
However, the periodicity has to be not less than one meeting a quarter at all levels.

4. The State Government is therefore duty bound to ensure that meetings of the
Vigilance Committees at all levels take place at least once in three months. However,
no authority has been made responsible for ensuring that such meetings take place. It
has also been seen that most of the Vigilance Committees formed by the State
Government are too large and unwieldy. The State Government should fix the
responsibly of the officials of the administrative machinery to convene the meetings
and ensure the presence of the members. Rules can provide that any member who
does not attend two consecutive meetings would be replaced. The Secretary of the
Department of Food and Supply should be responsible for convening the meetings at
the State level, the District Magistrate should be responsible for the District level
Committee, Block Development Officer should be responsible for the block and FPS
level committees.

5. The PDS Control Order, 2001 also requires the State Governments to make rules
regarding furnishing of copies of the specified documents, namely ration card register,
stock register, and sale register. Any ration card holder desirous of obtaining extracts
from the records of the FPS owner can make a written request to such owner along
with the fee specified by the State Government and the FPS owner has to supply the
copies of the record within fourteen days from date of receipt of the request.

6. The right to information thus provided under the PDS Control Order, 2001 has
been negated by the States by not making rules regarding the fees payable for
obtaining the copies. Such rules should be made immediately and wide publicity given
to educate the beneficiary.

7. The Panchayat Raj Institutions and the Nagar Palikas should be actively involved
in the vigilance. The elected representatives of the people must perform their duty in
keeping a vigil on the activities connected with the Public Distribution System.

8. The purpose of providing that the copies of the allocation order for each FPS shop
should also be sent to the Gram Panchayat or Nagar Palika and should be displayed
on their notice board is to prompt their members to be vigilant and check the
activities of the FPS licensees.

9. As already stated earlier, the involvement of political persons in the

implementation of the scheme should be strictly avoided and they should play a
greater role in vigilance. In case the political persons are involved in the
implementation process it becomes difficult to take any action against the defaulting
license.

10. The involvement of the political persons in the process of implementation

minimizes and negates the provisions regarding vigilance by the Panchayats, Nagar
Palikas or the Vigilance Committees.
11. Another aspect of the Vigilance mechanism is the complaint system. In Orrissa a
helpline has been set up but the complainant has no way to find out if any action
has been taken on his complaint. It is necessary that there should be 24 hour
dedicated helpline set up in the state so that any one can lodge a complaint
against any the person involved in the implementation of the Public Distribution
System.

12. There should be a machinery to verify the complaints and take action against the
guilty. The complainant should be able to follow up his complaint. The identity of the
complainant should be protected. The committee has also recommended the setting
up of an independent watchdog in the form of a regulator/ombudsman to oversee the
smooth functioning of the system.

B. ENFORCEMENT

1. The enforcement under the Public Distribution System is dismal and ineffective.
This is the reason for the improper implementation of the system and large extent of
diversion. No system can succeed if there is no fear of punishment.

2. The Committee found that the States did not have any enforcement mechanism.
Any vigilance set up can not succeed without a proper enforcement mechanism.
Section 7 of the Essential Commodities Act, 1955 provides punishment for violations
of the Control Orders issued under Section 3 of the Act. These provisions are technical
in nature and require specially trained personnel to enforce them. The normal police
have proved ineffective in enforcing these provisions.

3. It has also been observed that the cases filed under the Essential Commodities
Act, 1955 keep on pending in courts indefinitely and a large majority of cases end up
in acquittal of the accused persons. It is necessary that special courts and specially
trained prosecutors are appointed for the trial of these cases.
4. The license granted to the dealers lay down certain conditions. The violation of
these conditions makes the licensee liable for cancellation of his license. The Supreme
Court has also ordered that licensees

• who do not keep their shops open throughout the month during the stipulated
period,

• fail to provide grain to BPL families strictly at BPL rates,

• keep the cards of BPL households with them,

• make false entries in the BPL cards,

• engage in black-marketing or siphoning away of grains to the open market, and

• hand over such ration shops to other person/organizations, will make himself
liable for cancellation of his license.

5. This order was passed on 2.5.2003 but no action has been taken by the State to
enforce this order. It is therefore necessary that the special squads consist of persons
drawn from the administration and the police and should be placed directly under the
District Magistrate. These squads should be responsible for conducting raids,
launching criminal prosecutions and also for recommending departmental action for
suspension or cancellation of license, or imposing penalties No action appears to have
been taken against any official though it is can not be denied that no diversion of food
grain is possible without the connivance of the officials of the department. . It is also
important that these squads should have the powers to recommend action against
officials in whose jurisdiction violations are detected or who are found to be involved
in diversion of food grain. The Committee feels that there should be dedicated Special
squads in every District for enforcement of the penal provisions of the Essential
Commodities Act, 1955. The Committee has suggested Zero Tolerance in the matter
of enforcement in the Public Distribution System. Similarly a special squad should also
be created at the State level for surprise checks whenever there is complaint requiring
such action.

6. It must not be lost sight of that the Public Distribution System is meant to
provide food security to the poor people of the country and diversion of
food grain can not be tolerated.

REPORT

CHAPTER 1

INTRODUCTION

The State of Orissa, which is situated in eastern India is bounded by the State of
Jharkhand on the north, by the State of West Bengal on the north east, by the Bay of
Bengal on the east, by the State of Andhra Pradesh on the south and by the State of
Chhattisgarh on the west.
The majority of Orissa’s population i.e. almost 85% is rural and the balance 15% is
urban. Orissa is divided into 30 Districts and 6234 Gram Panchayats.

The M.S. Swaminathan Foundation Report on Food Insecurity Atlas of Rural India has
classified Orissa as one of the 4 severely food insecure States, the others being
Rajasthan, Uttar Pradesh and Chhattisgarh. According to the Report by World Bank
titled “Orissa in transition: from fiscal turnaround to rapid and inclusive growth” 45%
of Orissa’s population still remains mired in poverty.

It is stated that Orissa has been periodically exposed to starvation deaths. The State
has a high proportion of tribal population and has palpably low literacy rates. In terms
of percentage of lives lost to total lives lost in two years as per data in the year 2001,
Orissa dominates with 62.3%. In terms of number of persons per thousand with zero
meals per day, in the lower expenditure groups the national average is 20 %. Tamil
Nadu, Orissa, Karnataka, Haryana, Bihar and Assam appear to suffer the most
inadequacy.

The UNFP Food Insecurity Atlas of Orissa suggests that Orissa is the worst state in
terms of poverty. The districts of Phulbani Boudh Koraput, Kalahandi, Dhenkanal,
Bolangir, Keonjhar, Mayurbhanj and Sundergarh are the worst hit by poverty. More
than 65% of rural households live below the poverty line. Among the states, Orissa
has the highest incidence of poverty that is 31 % higher than the all India average.

The Orissa Human Development Report says that one of the most significant factors
in food insecurity is access to the Public Distribution System (PDS) and its limited
utilization by the poor. The Report also points out that although the availability of food
is fairly comfortable yet food insecurity is chronic.

Keeping in mind these various reports as mentioned above the Committee decided to
visit the State of Orissa and accordingly visited the districts of Khurda, Cuttack, Angul,
Sambalpur, Bolangir, Kalahandi and Nuaparha from 15 th November 2008 to 24rd
November 2008. The present report is based on the empirical study of the Committee
and its observations in the State.
CHAPTER 2

LEGAL REGIME GOVERNING THE PUBLIC DISTRIUBTION

SYSTEM IN ORISSA
I. ENTITIES INVOLVED IN THE SUPPLY OF FOOD GRAINS TO
CONSUMERS:-

There is clear division of responsibility for TPDS for the Central Government
and the State/Union Territory Governments. Central Government is responsible
for procurement, storage, transportation upto principal centers of FCI,
allocation to State and Union Territories and maintenance of buffer stock.
State and UT Governments are responsible for identification of AAY and BPL
families; issuance of ration cards to eligible families; storage in State/UT
godowns; licensing and supervision over Fair Price Shops; distribution of ration
to ration card holders through FPSs and eliminating of leakages/ghost cards
etc.

For the purpose of distribution, State/UT Governments have constituted

separate Corporations which are Government Companies under the Companies
Act 1956.

The Committee during its visit to Orissa from 15-11-2008 to 24-11-2008 found
that various entities are involved in the process of distribution of food grains.
Their roles and functioning are set out hereunder in brief:-

1.1 Food Corporation of India (FCI), Orissa Region.

Food Corporation of India set up under the Food Corporation Act, 1964 for
procurement and distribution of food grains for the entire country has
established Zonal Offices and Regional offices across the nation. FCI, Orissa,
falls under the East Zone. FCI, Orissa meets the State requirement for
procurement, storage and issue /disposal of stock under the various schemes.
 The Committee examined the records of the FCI for the financial year 2006-
2007 & 2007-2008 regarding allocation of food grain. Orissa being primarily a
rice eating State, the main figures in focus were of allocation & off take of rice.

1.2 Department of Food Supplies and Consumer Welfare, Government of Orissa.

The Committee during its visit was informed that the main functions of the
Food Supplies and Consumer Welfare Department are :-

i) Formulation and implementation of policy relating to procurement, storage

and distribution of food grains.

ii) Implementation of the Targeted Public Distribution System (TPDS).

iii) Administration of Essential Commodities Act, 1955; prevention of Black

Marketing and Maintenance of Services of Essential Commodities Act 1980;
various Control Orders of Central Government and State Government .

iv) Procurement of Paddy.

v) Collection of information and monitoring of prices of various essential

commodities in the market ; and
 vi) Implementation and enforcement of Standards of Weights and Measures
Act and Standards of Weights and Measures (Enforcement) Act and Rules
made there under.

The Committee found out that the Department of Food Supplies & Consumer
Welfare (FS&CW) was engaging in overall supervision as with the existence of
Orissa State Civil Supplies Corporation (OSCSC) since 1980, the detailed
distribution of PDS was taken over from the Department of FS&CW by the OSCSC.

1.3 Orissa State Civil Supplies Corporation (OSCSC)

1.3.1 The Orissa State Civil Supplies Corporation (hereinafter ‘OSCSC) is a fully
owned Government undertaking incorporated as a Government Company under
the Companies Act 1956 on 3rd September, 1980.

1.3.2 In alignment with the food policy of the then State Government, OSCSC has
been established to take over from the FS &CW Department, Government of
Orissa the Public Distribution System in the State. The loss incurred by the
Corporation after taking into account revenues generated and expenses
incurred is being borne by the State Government by way of subsidy.

1.3.3 The Committee examined the Profit & Loss accounts/Income & Expenditure &
Balance Sheet of OSCSC for the past three financial years: 2005-2006, 2006-
 2007 & 2007-2008 and found that the Corporation runs on huge subsidy from
the State Government and still the Corporation had been running in losses.

1.3.4 OSCSC as per its Memorandum of Association engages either on its own or
through any other firm, company corporation or Institution for promoting,
improving, development, counseling or financing production, purchase,
storage, processing, movement, transport, distribution and sale of food grains,
food stuffs, sugar and other essential commodities and to provide assistance,
advise and services connection thereto.

1.3.5 Thus consequent upon the incorporation of OSCSC, the commercial activity and
functioning of the FS&CS Department has been taken over by the OSCSC.

1.3.6 The Committee during its visit to the State found out that the Chairman of
OSCSC was a member of a political party. He not only presides over the board
meetings but also plays a supervisory & critical role in major decisions of the
Corporation. Under the law, a chairman of company/corporation is supposed to
preside over the annual general meeting of the company/corporation and the
Board of Directors meeting.

(OSCSC has a Managing Director who is presently a senior officer of State

Administrative Service.)

1.3.7 OSCSC has also been engaged in procurement of rice under the decentralized
procurement scheme adopted by the State. The OSCSC also appoints storage
agents. The storage agents are the penultimate link in the distribution chain.
 They collect and transport the stock from the allotted FCI Godowns and food
supply depots (FSD) of the Corporation and store in their concerned Block and
Municipal Depots of the Districts. A detailed analysis of the role of storage
agents is dealt with in a separate chapter on the subject.

1.4 Fair Price Shops & Mobile Vans:

In the State there are 29,443 retail outlets or Fair Price Shops operating out of
which of 4382 are in urban areas and 25061 in rural. They are being run either
by private persons or self help groups or gram panchayats, or as cooperatives
or being run as model fair price shops called Maitris. A detailed analysis on this
aspect is given subsequently in this report. Apart from this there are mobile
vans operated by the OSCSC which also distribute PDS food grains.

Mobile Vans/Hat Sale- The committee was informed that 90 mobile vans have
been deployed under hat sale/ Gram Panchayat sale/Door step delivery schemes in all
integrated tribal development programme. To run each van, the corporation has
engaged one driver, one Sales Assistant (SA) cum Godown Assistant (GA) and helper
–cum kantawalla. Commodities like rice, wheat sugar, kerosene etc. are also made
available to the consumers at subsidized rates in remote / inaccessible Gram
Panchayats (GP) in the Integrated Tribal Development Programme (ITDP)/ Drought
Prone Area Programme (DPAP) blocks at their door step.

Model Fair Price Shops (Maitree)- Model fair price shops (herein after
called MFPS) are opened in different urban areas of the state to make
availability of essential commodities at reasonable price to consumers. One SA
 cum GA and one kantawalla mans each shop. Each shop has been tagged with
ration cards in the scale of 1500-2000 so that these shops are made
economically viable to the consumers. At present 40 such shops are run by the
Corporation. It would appear that during market intervention, in the event of
price hike of any commodity, these MFPS called “MAITREE” play a significant
role.

II. Broad Description Of Channels Involved In The Public Distribution

System

2.1 The Food supplies and consumer welfare Department allots on monthly
basis PDS commodities to every district as per the card position.

2.2 On receipt of the allotment, the Collector of the district distributes the
same to all Blocks and Municipalities.

2.3 On receipt of Block-wise and Municipality–wise allocation of PDS commodities,

the district manager, OSCSC makes financial arrangement with FCI
 towards cost of commodities and obtains release orders to lift the stocks from
the base depots of FCI.

2.4 Thereafter, the District Supply Officer who is ex-officio District Manager,
OSCSC allocates the commodities to the storage agents to lift the stocks from
Food Supply Depots (FSD) / FCI.

2.5 The storage agents deposit the prepaid cost of PDS commodities at
government fixed price with the District Manager, OSCSC and obtain delivery
order from the District Manager, OSCSC to lift the stocks from the allotted
FSD/FCI.

2.5.1 The Assistant Civil Supplies Officer (A.C.S.O) is kept in charge of F.S.D. point to
effect delivery of stock to storage agents.

2.6 The storage agents are required to transport the stocks and store in their
godowns situated at concerned blocks and Municipality depots of the Districts.

2.7 The Block level and Municipality issuing officers distribute stocks on
receipt of allotment from the Collector to the retailers according to the ration card
strengths tagged to each retail centre.
2.8 The Inspector of Supplies / Marketing Inspectors endorse the quantity in
the tally registers of retailers to enable lifting of food stuffs from storage agents on
payment of cost of commodities with the storage agents.

2.8.1 The retailers after lifting of commodities, issue stocks to the consumers on
production of cards tagged to them as per the price fixed by the Government.
In so far as the channel of distribution is concerned the finding of the
Committee as discernible hereinafter reveals that in order to ensure smooth,
timely and efficient disbursal of stocks to the target population much requires
to be done.

III BROAD OVERVIEW OF THE STATUTORY REGIME

The statutory framework governing and regulating different aspects of the

Public Distribution System is contained in the Essential Commodities Act, 1955,
PDS (Control) Order 2001 as amended in 2004, the Orissa Public Distribution
System (Control) Order, 2008 as notified on 13.3.2008 and various Government
Orders and circulars issued from time to time by the Department of Food
Supplies and Consumer Welfare, Government of Orissa on aspects of PDS. A
brief summary of the Orissa Public Distribution System (Control) Order, 2008
and other relevant instructions/orders are set out hereunder:-

3.1 The Orissa Public Distribution System(Control) Order 2008.

The Orissa Public Distribution System (Control) Order, 2008 came into effect on
13th March,, 2008. It contains 27 Clauses with three enclosed forms, as under:-

• for grant / renewal / reissue of license;

• for operation as retailer ;
• for filing returns by the licensee.

The Orissa Public Distribution System (Control) Order, 2008 has replaced the
Orissa Public Distribution System (Control) Order.2002.

a. Obtaining of a licence for a dealer under the order is a pre-requisite. (Clause

3). However this does not apply to the dealerships directly operated by the
OSCSC.

While separate license is required for each place of business, in case of ‘Gram
Panchayats’, they are not required to obtain separate license for opening sub-
centers for sale within the Gram Panchayat area. [Clause 3(2)]

b. Clause 4 provides for appointment of dealers and grant of license.

The Government is to prescribe procedure for appointment of dealers. [Clause

4(1)]

First preference for appointment and for grant of license as retailer shall be
given to Gram Panchayats followed by women- self help groups Cooperative
Societies and other self - help groups in that order of preference. [4(3)]
 Sub-clause (5) states that the renewal of license to persons other than those
mentioned in the sub-section (3) & (4) shall not be granted.

c. The Committee during its visit to the State found that the appointment of
Retailers was a mechanical exercise. No advertisement is issued regarding the
vacancies. Names are recommended by the Block Level Advisory
Committee/Taluk Level Advisory Committee & the Sub-Collector on their
recommendation issues the license. The Committee also found that the Gram
Panchayat running the shop may not be the most efficient thing.

d. No dealer shall hold a license under the Act if he or his family members have a
commercial interest in a business or are commercial users of the said
commodity or a commodity closely related to the said commodity or is a
member of any Advisory or Vigilance Committee or any other Committee
entrusted with supervision of the Public Distribution System. (Clause 5) (The
penalty for violation is cancellation of the License & forfeiture of security
deposit. The offender can be asked to surrender the license within three
months.)

e. While Clause 6 provides for issue of license and renewal of license, Clause 7
provides that the duration of the license shall be on yearly basis and can be
further renewed. A provision exists for the fees chargeable from wholesaler and
Retailer for issue of license/ renewal of license. [(Clause 7(2)]. While Clause 8
makes the provision also for deposit of security deposit.
 f. Then there are grounds for the licensing authority to refuse renewal on
different grounds. In case performance is not satisfactory or there is
contravention of any provisions of the Act, Order or the terms for grant of
license or the license has a commercial interest detrimental to the functioning
of PDS or the expected size of operations of the dealer is not economically
viable or the renewal will not be in the interest of efficient functioning of PDS.
[Clause 9(a)]. Sub-clause 2 provides for refusal or grant of license to a private
dealer in case other categories under sub-clause 3 (Women self help group
etc.) are available. There are exhaustive check list of responsibilities and duties
of the FPS licensees. (Clauses 10-16).

g. While Clause 21 read with Clause 2(j) provides for identification of BPL, AAY &
Annapurna beneficiaries in accordance with the State Government guidelines.

h. Clause 22 of the Control Order provides the statutory basis for issue of Ration
Card. The Clause spells out the broad basis for issue of Ration Card. Sub-
clause (c) of the said clause 22 prohibits duplication, misrepresentation or
tempering. Sub-clause (g) provides that normally a ration card shall be valid for
five years after which it can be renewed.

i. Clause 23 gives power for entry, search & seizure to the licensing authority or
authority with delegated powers.

IV. GOVERNMENT INSTRUCTIONS ON ISSUANCE OF RATION CARDS

4.1 Guidelines governing the issuance of Ration Cards.

Instruction No. 35124(27) F&CS dated 28-9-1993 contains guidelines for issue
of Ration Card. These guidelines were issued for elimination of ghost cards
and for making the procedure for issue of Ration Cards uniform. The Ration
Card is required to contain the name of the fair price shop. There is a
requirement of tagging at least 200 ration cards to one shop. An interesting
guideline is that on transfer from one place to another there would be no
necessity to cancel the existing card but the same card would be re-registered
in the new station after having the same endorsed by the issuing authority of
the old station.

4.2 Instructions regarding selection of beneficiaries under the Antyodaya Anna

Yojana (AAY).

Instruction No. /PL III 16/2000/1345 dated 12.01.2001 contains instructions on

selecting beneficiaries under the Antyodaya Anna Yojana (AAY). It provides
that under the Scheme 5,05,000 number of poorest of poor families will be
supplied foodgrains under the Scheme. Para 3.4 of the Government
instructions states that only landless labourers who figure in the BPL list of
1997 survey will be considered under the AAY scheme. Households with
woman head and families having handicapped members shall be given
preference. Family having pucca house, a luna, motor cycle of any power
driver vehicle will be excluded. Families having Government servant and
Government undertaking employees shall be excluded. Families who have
been beneficiaries under the Indira Awas Yojana will be excluded. Persons
covered under National Old Age Pension (NOAP) & State Old Age Pension
(SOAP) schemes and under Annapurna Scheme shall be excluded.
 One of the problems in the State of Orissa is that it is still following the
statistics of 1997 & there are no additions made thereafter, even though there
has been increase in the number of families which would fall under BPL & other
categories.

Para 4.1 states that distinctive ration cards shall be issued to the AAY families.
The word “Antyodaya” Ration Card shall be inscribed on top of the front page.
It shall be issued after receiving an undertaking from the beneficiary that he
fulfills all conditions and that he is a landless person.

4.3 Criteria for eligibility for selection under the expanded AAY.

The Instruction No. 22152/FSCW/PL-III-PD 6/2005 dated 7.10.2005 contains

eligibility criteria for selection of family under expanded AAY. Clause 2 provides
a list of persons who will be considered as falling under the AAY category.
Besides the landless labourers, widows, it contains an exhaustive list such as
potters, snake charmers, rag pickers, destitute, terminally ill persons, persons
over 60 years of age, single woman or single men with no means of
subsistence and primitive tribal households.

4.4 The Rs. 2 per kg rice scheme

The State of Orissa has also introduced a scheme for supply of PDS rice at Rs.
2 pr kg. Under this scheme the BPL entitlement has been scaled down to 25
 kgs. As against the scale of issue which is 35 kgs. It appears to be opposed to
the TPDS and has been disapproved by the Planning Commission in
‘Performance Evaluation of Targeted Public Distribution System (TPDS) – 2005’.
In this report, It has been suggested by them that “the Government of India
may insist that the entitlement to food grains for a BPL household in any State
should not be lower than that stipulated by GOI ”.

CHAPTER 3

WHOLESALE DISTRIBUTION MECHANISM

This Chapter deals with the process of wholesale distribution of PDS grain in the State
of Orissa and the inferences that the Committee has drawn from its field visits to
various godowns in the State and discussion it had with the officials of the
Department, the Corporation (OSCSC) and in various Public Meetings. In this Chapter
the Committee would deal with issues pertaining to the Orissa State Civil Supplies
Corporation (OSCSC) and storage agents who are entrusted with the task of ensuring
that PDS grain in the State reaches the retail point.
The study of the OSCSC and the storage agents appointed by it has to be understood
in the background of the fact that the State admittedly has more than 6000 godowns
of its own and inspite of that fact the concept of storage agents has been devised and
storage of PDS grain has been sub contracted to private individuals at the
intermediary stage of distribution.

I. Orissa State Civil Supplies Corporation

a. The Orissa State Civil Supplies Corporation (hereinafter ‘OSCSC’ or

‘Corporation’) is fully owned Government undertaking incorporated as
Government Company under the Companies Act 1956 on 3rd September, 1980.
In alignment with the food policy of the then State Government, OSCSC has
been established to take over from the FS &CW Department, Government of
Orissa the Public Distribution System in the State.

b. The OSCSC Ltd. functions as an authorised agency of State Government and

ensures availability of adequate quantities of essential commodities to the
entitled consumers.

c. The loss incurred by the Corporation after taking into account revenues
generated and expenses incurred is being borne by the State Government by
way of subsidy.

The Objectives of the OSCSC as stated in its Memorandum of Association are as

follows:-

1.1 Main Objectives

a. OSCSC engages either on its own or as the agent of Government of Orissa or any
other firm, company Corporation or Institution for promoting, improving,
development, counselling or financing production, purchase, storage processing
movement, transport, distribution and sale of food grains, food stuffs, sugar and other
essential commodities.

b. To provide assistance, advice and services, therefore, including capital credit, means,
resources, technical and managerial services.

1.2 Ancillary and Other Objectives

a. To take over from the Government of Orissa any of its projects or services that have
been established in connection with any activity or enterprise relating to Civil Supplies
and with objectives of this Company in view.

b. To enter into any arrangements with the Government of India and Orissa or any other
State Government, Company or Corporation or local authority for the purpose of
carrying out the objects of company or furthering, its interest.

c. To act as agent for Government or other authorities or any manufactures, merchants

and others and to transact and to carry on agency business of every kind and of any
description relating to the purpose of the Company.

d. Thus consequent upon the incorporation of OSCSC, the commercial activity and
functioning of the FS&CS Department has been taken over by OSCSC.

e. The OSCSC also appoints storage agents. The storage agents are the
penultimate links in the distribution chain. They collect and transport the stock
 from the allotted food Supply depots (FSD) and store in their concerned Block
and Municipal Depots of the Districts.

1.3 MANAGEMENT

a. The Corporation is managed by the Board of Directors consisting of Senior

Government officials and non-official Director as Chairman.

Following are presently the Board of Directors as nominated by the government

• Chairman at present non official director.

• Commissioner cum secretary, F.S and C. W Department.
• Commissioner cum secretary, agricultural department.
• Managing director OSCSC.
• Registrar of Co-operative societies, Orissa.
• Additional Secretary, Finance Department.
• Additional secretary, P.E Department.
• Financial Advisor (F.A) and Chief Accounts Officer (C.A.O), OSCSC.

b. Managing Director is the Chief Executive of the Corporation. The Board of

Directors is the authority of the Corporation to decide matters on the
management and administration of the Corporation subject to the directions
and the policy of the government.

c. Legal Provisions Regarding Appointment Of Chairman, His Powers And Duties

1. Section 175 of the Companies Act provides that the members can elect
one of themselves to be Chairman of the meeting. However, the Articles
 can provide ‘otherwise’ & may permit a non-member to be the
Chairman. It has been noted by the author A.Ramaiya that since the
Chairman presides at every general meeting of the Company, appointing
a person who is not a member as Chairman of the meeting can lead to
an absurd result.

2. Article 87 of the Article of Association, OSCSC states that the Chairman

of the Board shall be nominated by the Governor from amongst the
Directors.

3. Article 85 of the Article of Association OSCSC, states that the Governor

shall determine from time to time number of Directors. Article 86 says
that Governor shall also have the right to nominate the Directors.

4. The Article of Association, OSCSC does not prescribe any qualification

for being a Director of OSCSC.

5. As per Table A of the Companies Act, Chairman seem to have the

power to adjourn meetings, to demand a pool, to rule on the validity of
votes at general meetings & to rule on the validity of an amendment;

- Article 50 of Table A to the Act stipulates that the Chairman, if any,

of the Board shall preside as Chairman at every general meeting of
the company.

- Under Article 54 of Table A, the Chairman has a “ second or casting

vote’ in the case of equality of votes.
 - Under Section 178, a declaration by the Chairman whether a
resolution has or has not been carried out or that it has been carried
either unanimously or by a particular majority shall be conclusive.

6. The Committee found that the Chairman of OSCSC actively participates

in the functioning of OSCSC in the administrative side. He also
extensively tours the State on regular basis and claims TA/DA.

7. The Committee found that the Chairman, OSCSC is a political person.

Earlier Secretary of the Department used to be the Chairman of the
OSCSC. It was only some time in 2002 / 2003 that a political person was
appointed as Chairman. There are no rules, regulations or instructions
for appointment of Chairman. The Committee learnt present incumbent
was appointed for first time simply on the basis of note received by the
Corporation from the Chief Minister. At the time of General Election he
had to leave the job like any other Chairman of other State
Corporations. Since 2006, he has again taken over as Chairman. In
between, the Secretary was the Chairman.

1.4 The Staffing Pattern at District Office of OSCSC was :-

Officer (Government Officer working as District Manager)

Assistant Manager (Accts)

 Sr. Accts- Supervisor

Marketing Inspector

(On Deputation from Government)

Sr. Accountant

Jr. Accountant

Ministerial Staff

Senior Sales Manager-cum-Godown Supervisor

 Sales Assistant cum Godown Assistant

Data Entry Operator

Jr. Steno

Driver

Class – IV

1.5 Current position of the Staff in OSCSC office was as followed :-

SI. No. Category of Post Sanction Men in Position Vacancy

Strength
1 Officer ( 8 officers on 18 13 5
deputation from Govt.
 Working at Head Office)
2 A.M. (Accts) 31 19 12
3 Sr. Accts-Supervisors 29 25 4
4 Ministrial Staff 66 53 13
5 Sr. Accountants 78 59 19
6 Senior Sales Manager- 2 2
cum-Godown Supervisor
7 Jr. Accountant 111 40 71
8 Auditors 8 8
9 S.A. cum G.A. 206 174 32
10 Jr. Stenos 8 7 1
11 Drivers 122 117 5
12 Staff Outsourced

Jr. Acct 35

Data Entry Operator 37

SA-cum-GA 179

Kantawalla 156

13 Class – IV 307 298 9

986 1214 (Corporation 179
Staff 807 and
Total
Outsourced 407)

1.6 Position of the Godowns under the control of Corporation :-

Different Godowns No. Of Godown Capacity (In
M.T.)
Corporation own godown 161 77450

Godown transferred from Govt. 50 39878

in FS&CW Deptt.

Godown hired from other 95 65535

Government Agencies like CWC,
OSWC, RMC, MARKFED, G.P. etc.

Godown hired from private 109 93548

persons
Total Godowns 415 276411

1.7 Different activities performed by the OSCSC are :-

1. Lifting, Storage and distribution of food grains under PDS

2. Decentralized procurement operation
3. Mobile maitree shop(mobile van scheme)
4. Model fair price shops (maitree)
5. Gas agencies
6. Relief operation
7. Market intervention
8. Consumer awareness
II. STORAGE AGENT

Orissa Control Order, 2008 defines a Storage Agent in 2 (Q) in the following
manner:-

“Storage Agent means an agent appointed by the Orissa State Civil Supplies
Corporation for transportation and/or storage of PDS commodities for and on
behalf of the said corporation for their eventual distribution through the Public
Distribution System.”

Clause 11 of the Control Order provides for the responsibilities and duties of
such wholesale agents and Storage agents which are as follows:-

(1) The Wholesalers, including Sub-Wholesalers and Storage Agents Shall be

responsible to :-

(a) Keep the essential commodities meant for PDS after obtaining the same
from the authorized/nominated agency in the month preecing to the
month to which the allotment relates ;

(b) Supply the Public Distribution System commodities to the retailer or

Sub-Wholesaler as the case may be, immediately on demand and
subject to prepayment of cost of commodities and production of tally
register etc. as per prescribed procedures;

(c) Maintain register/records as prescribed by the Government/Licensing

Authority from time to time;
(d) Produce such records, and information as called for by the authorized
inspecting officers;

(e) Keep certified weights and measures as may be prescribed by

Government and/ or Licensing Authority;

(f) Display the following information on a notice board at a prominent place

outside the business premises near the entrance of the premises;
namely :

(i) Timing of the Shop;

(ii) Opening Stock, quantity received, sold, closing stock, on a daily

basis;

(iii) Issue price of each (commodity); and

(iv) License number/name of owner.

(g) Maintain books of accounts in the manner prescribed by State

Government/Licensing authority and provide these to authorized officers
for inspection and verification on demand;

(h) Provide correct cash memo in sequential order and, in case of

foodgrains, printed copy of weighments slip to the cutomer;

(i) Display samples of foodgrians in stock kept for sale;

(j) Provide relevant extracts of records to any person on payment of

prescribed fees;

(k) Arrange for scientific storage of Public Distribution System commodities;

and
 (l) Ensure that the agents and employees comply with all terms and
conditions of the license and provisions of this order.

(2) The Wholesaler, including Sub-Wholesalers and Storage Agents shall not :

(a) Close the business premises during the business hours on working days
without obtaining prior written permission of the licensing authority or
an officer authorized by the licensing authority or by Government;

(b) Deliver Public Distribution System commodities to any person other than
that a licensee for whom the commodities are meant to be supplied;

(c) Stock/Store the Public Distribution System commodities at any place

other than the place allowed in the license;

(d) Retain the tally register of other licensees with him ; and

(e) Keep the records relating to the business at any place other than the
licensed business premises.

It is relevant to point out that the Orissa Control Order does not provide the
method for appointment of such Storage Agents. The Storage Agents are
appointed by the OSCSC. The Committee on visits to these godowns, which
fact will be elaborated little later in this report, found a total and blatant non
adherence by Storage Agents to the duties and responsibilities enumerated in
the Clause 11 of Orissa Control Order.
2.1 Appointment of Storage Agents

The OSCSC appoints various private individuals as Storage Agents for

intermediary storage of PDS grain. As explained to the Committee, the process
involved in the appointment of Storage Agents is as follows-

• Publication of advertisement in local dailies and selling of application

form at the office of District Manager, OSCSC.

• Applications are filed before the collector.

• Verification of application/antecedents of applicants and sending the list

of eligible candidates by the Collectors in prescribed proforma along with
recommendation.

• Recommendations made by a public representative.

• A Committee is constituted which examines the recommendations.

• Once examined the report is put in front of the Board of Directors of

the corporation.

• Food and Civil Supplies Department then examines the list of Storage
Agent to be appointed.

• The list must be examined by a cabinet minister or a concerned

minister of Food and Civil Supplies Department.

• Approval of selection list by the State Government.

• Then the Corporation issues the list to the concerned Collectors.

• Thereafter, the Collector makes the necessary enquiries if there are any
complaints against the applicant.
 • Thereafter, the Collector executes the agreement with the storage
agent.

2.1(a) There Shall be one Storage Agent for a population of 50,000/- and fraction
thereof in a Block/Urban Local Body (ULB) as the case may be. Additional
storage agent shall be appointed for population exceeding 75,000. In case of
inaccessible area with geographical barriers, the population criteria should be
reduced to 35,000/-. Specific recommendation to that effect shall be made by
the concerned Collector. In DPAP/ITDP block, the population size would be
35,000/- or part thereof for an agency. Additional storage agent shall be
appointed for the population exceeding 52,500. In case of small ULBs with
less than 35,000 population, population of neighboring block should be
clubbed to form a unit of 50,000/35,000 as applicable for the block.

2.2 The Corporation appoints Storage Agents in each Block and Municipality of the
State for transportation, Storage and distribution of essential commodities for
about 30,000 retail fair price shops. They are paid remuneration for their
services as per the Government approved rates i.e. Storage Commission Rs.
3.20/- per qtl (BPL) & Rs. 1.60/- per qtl (AAY), incidental charges Rs. 2.50/-,
interest on investment, towards transport charges Rs. 10/- upto 10 Km & Rs.
0.35/- per Km/quintal beyond 10 Km. Prior to 1997-98 the Storage Agents
were allowed to lift the essential commodities, without pre-deposit of cost but
from 1997-98 the agents could lift the essential commodities only after
prepayment as per the policy of the Corporation.

2.3 The Committee during its visit found that the appointment of Storage Agent
was susceptible to high political influence. The Committee obtained the
 particulars of the applicants who applied for storage agency for the year 2007-
2008 of the District Angul. The Committee while perusing the files observed a
case of a storage agent named Mr. Bijay Kumar Sahoo whose appointment was
approved despite a complaint having been lodged against him.

2.4 Particulars of the case are as followed:-

District - Angul

Block - Kishorenagar

Name of applicant - Mr Bijay Kumar Sahoo

Address of the applicant - Nunukapasi, Po, kishorenagar

Financial solvency of the applicant- 15,00,000

Recommendation by the collector - No

Recommendation by a minister - Mr. Sanjeev Kumar Sahoo

Complainant against the applicant - Mr. Santanu Pradhan

Nature of Complaint - Applicants wife was the Chairman of K.

Nagar block

Details of the case explained step by step-

1. An advertisement is given in the local newspapers.

2. Mr Bijay Kumar Sahoo (applicant) applies before the Collector. The

Collector does not find him to be a suitable candidate for the
appointment of storage agent since in a complaint filed against his name
stated that his wife was the Chairman of the Kishorenagar block at the
time of the filing of the application.
 3. A Committee is constituted at the corporation level that scrutinizes the
recommendations of the Collector or the public representative as per the
guide lines and submits a report. The Committee also does not find him
to be a suitable candidate.

4. A report is further put in front of the Board of Directors who also do not
recommend his name to the government for the appointment of storage
agent.

5. The government however approves his name, presumably at the

intervention of the minister for the appointment as a storage agent and
sends the order back to the Board of Directors

6. The Corporation then sends the file back to the district collector to make
final enquiries and verification

7. The District Collector after making the necessary enquiries and

verification approves Mr Bijay Kr Sahoo’s name for the appointment as a
storage agent. The District Collector states that an enquiry had been
conducted by the sub collector. Vide letter dated 4/11/2008 to the
district collector it was informed that an affidavit had been submitted
by Mr Bijay Kr Sahoo in which he had sworn that he had been divorced
from his wife Mrs. Gauri Sahoo for the last five years and they had been
living separately since then .

8. The District Collector further sends a letter to the Managing Director of

the Corporation in which he asks the managing director to issue
clearance in the case of Mr Bijay Kr Sahoo at the earliest.

2.5 This case was the astonishing example showing the political influence on the
appointment of Storage Agents as just on the basis of an Affidavit submitted by
 the Storage Agent, the Collector agrees that applicant is divorced from his wife
and does not think even for once that a court decree would be an essential
document in proving the genuineness of the divorce.

2.6 Visits to Godowns of the OSCSC and Storage Agents

The Committee visited some godowns of the OSCSC and godowns operated by
Storage Agents.

A. OSCSC Godowns

1. Visit to the OSCSC Godown. A-101 Mancheshwar, Bhubaneshwar:-

(i) On visiting the Godown owned by the Corporation, the following

observations were made by the Committee-

• Electronic weighing machine at the Godown had only a capacity of 3

quintals.

• Facilities of repacking were not there at the Godown.

• Over 4200 empty bags were lying in the godown. The godown in
charge said that these were the empty gunny bags which were in a bad
condition and could not have been used to store food grains. The
Commission then enquired from the godown Officials as to how did the
4200 empty gunny bags reach there. The Committee was then informed
that the godown had received 2 rakes of food grains out of which the
4200 empty bags were damaged and had to be replaced.

• There were two sheds to store food grains.

• The first shed contained only levy sugar and the second shed contained
PDS stock.

• Position of stock in the second shed was as followed :-

Under Decentralized procurement scheme (DPS)- 780.90 quintal

Annapurna Rice - 71.70 quintal (wholesaler)

APL Rice – 9.79 quintal (retailer)

• This godown is used for storing whole sale as well as retailer quota.

• Samples of food grains were stated to be issued by the miller to the

godown but not issued to the Storage agent by the godown incharge.

• No sampling of grains was kept by godown incharge of the food grains

received through millers. This happened because samples of food grains
received from millers are kept by the FCI officials.

• A computer was placed in the godowns managerial office but not used
by the godown employees for storing any data.

• Assessment of godown was done by FCI on the basis of infrastructure

and cleanliness.

• The godown in charge informed the Committee that he had never

received any bad quality food grains.

• Stock register was maintained at the godown.

• Moisture check and quality check of food grains received through

millers was done by a FCI official.
 • No records maintained when food grains were rejected on the basis of
bad quality.

(ii) The Committee found that:-

• This Godown is handling very large quantities of grain but had no

weigh bridge. It only has a weighing machine which can weigh
only 3 quintals at a time. Apparently no weighments are done and
grain is received and distributed only by counting the bags
irrespective of the quantity in each bag.

• It will be relevant to point out that at this stage the Committee

found that bags of rice which were supplied to the storage agent
did not contain full quantity of 50 kgs. On an average a bag
contained 2-3kgs less rice. Storage agent receive food grains
after proper weighment. However they distribute the food grain
to the FPS Shops on the basis of number of bags presuming one
bag to be of 50 kg. Thus for every 100 quintals the storage agent
received 15 to 20 extra bags which ultimately remains with them.
Consumers were not being supplied rice by weighing. They were
told that less quantity are being received in every bag, therefore
either 2 consumers were given 1 bag or 1 consumer was given a
bag for two months quota. Since each consumer was suppose to
get 25 kgs every month, he was only getting proportionately less
quantities.

2. Visit to the OSCSC Godown at Salepur, License No. 26/2007-08,

District Cuttack.

(i) The Committee visited the OSCSC Godown at Salepur. The following
observations were made:-
 • The Godown was divided into two parts by a thin wall of bricks. The first
part of the Godown was used by the OSCSC for storage of grains
procured either through DPS or from FCI and the Second part of the
Godown was leased out to the Storage Agent by the OSCSC for storing
his grains.

• There are 83 FPS shops attached to the first part of the Godown
belonging to OSCSC.

• Mr. Chakrodhar Barik was the Godown Superintendent and was an

employ of the Department and deputed to the Corporation.

• First part of the Godown had a capacity of 3000 M.T. and Second Part
had a capacity of 2000 M.T.

• No weighbridge was installed in the Godown to weigh the trucks

bringing the Grains from the millers. The nearest place to weigh the
grains was in Cuttack District at Jagatpur which was a Private
weighbridge. Trucks are weighed only at the millers and no cross check
done when grains reached the Godown. No samples were kept in the
godown. No samples were being given at the time of issue of the grains.

B. Storage Agent Godown

1. The other part of the Godown at Salepur which was leased by the OSCSC to
a Storage Agent on a monthly rent of Rs. 2000.

(i) Condition of the Godown was as follows:-

• Electronic weighing machine used for weighing bags was installed in the
Godown.
• This weighing machine at the Godown seemed to be a new one since
the plastic cover of the machine was not torn off. It appeared not to
have been used at all.

• But Storage Agent informed the Committee that this machine was
installed 4 months ago.

• The Weight memo issued at the time of delivery of grain from the
Millers Mill to the Storage Agent Godown was cross checked by the
Supply inspector and BDO.

• BDO informed the Committee that Civil Supply Officer (CSO) informs
him about the delivery of grains through a letter asking him to go for
inspection.

• Records of this inspection by the BDO of the Weight memo was

maintained in the Tally Register, which was kept by the Storage Agent
only. This Register was also very new and appeared to have been
prepared recently presumably for the visit of the Committee. But
Storage Agent said that this Register was being maintained for the last 3
months i.e. since he had taken the charge of this Godown.

• The newly prepared records of the Storage agent did not show that they
were verified by the Department Officials.

• No records are kept by the departmental officer in charge for ensuring

that the Food grains are reaching the Storage Agent Godown or not.

• Name of the Storage Agent was Mr. R.C. Prushti. But his son Mr. Ajay
Kumar Prushti managed the Godown as he has the power of attorney
from his father in his name.
• The Storage Agent has taken over charge of this Godown only 3 months
back on the death of the Storage Agent who was previously handling
this Godown.

• Prof. Kalindi Behra (MLA) had recommended the name of present

Storage Agent for the appointment as the Storage Agent for this
Godown.

• Renewal of License was done in every two years.

• This Storage Agent picked his quota from Orissa State Warehousing
Block Godown, Jagatpur.

• He informed the committee that he paid Rs 300 for Wheat and Rs 150-
180 for Rice to the OSCSC Labour at the time of loading and unloading
of Food grain from the OSCSC Godown.

• This Labour was under the employment of OSCSC and is paid labour.

• The Banner lying outside the Storage Agent Godown containing the
name of the Storage Agent is made on the same material of same colour
which was used for making banners mentioning about the arrival and
welcome of committee.

• Computerization is easily possible. Connectivity is not at all a problem.

• Samples are available in the Godown.

• FCI person comes for checking the level of moisture in the food grain on
the next day of arrival of food grain from the millers.

• The Storage Agent was issued gate passes at the Orissa State
Warehousing Corporation (OSWC) each time when he went for collecting
the food grains.
 • The Storage Agent had ample notice of visit of the Committee to his
godown.

(ii) The Committee found:-

• The records were all presented in crisp new books and appeared to be
prepared keeping in mind the visit of the Committee.

• It was a stage managed event which confirmed our suspicions that the
storage agent is a device to ensure diversion.

• As to what was visible to the naked eye was that there was no
weighment and no method to properly verify the exact amount of stock
received and disbursed

• The electronic weighing machine looked so new and unused.

• The Corporation had no explanation in respect of the query of the

committee as to the need to have a storage agent in a state owned
godown. The Corporation also had no answer or justification as to why
this additional intermediary was required when the FPS dealer was in
fact directly lifting his goods from the said godown.

2. The Committee thereafter visited a private godown managed by a Storage

Agent in Talecher, Angul District

(i) The details of the Storage Agent are :-

Storage Agent Name - Kailash Chand Agarwala

 Licence No. - 01/2005-06

Position of the Stock in the Godown was :

Commodity Rate/Quintal Stock

Sugar 1340 24.17q

Wheat 682 702.12q

BPL Rice 180 3q

AAY Rice 180 Nil

Annapurna Rice Free Nil

APL Rice 930 Nil

Palmolive Oil 47.58 2200 ltrs

(ii) The Committee then probed the viability of the business of a storage
agent from PDS goods. The agent gave us the following calculation

Calculation for Gross Expense

Particulars (Quintal/Rs) Monthly Figures(Rs)

a. Rice from Angul ( 2000 X 11.50 ) - 23000

Labour 4/- - 8000

b. Wheat From JagatPur (1000 q X 42/- ) - 42000

 Labour 4/- -
4000 Staff Expense - 1000

c. Sugar from BBSR (90 q X 50/- ) - 4500

Labour -
360 Staff - 200

d. Oil from Angul ( 1000 carton X 4/-) - 4000

______
Gross Expense 87060

Calculation for Gross Income

a. Rice Commission ( 2000 X 6.50 ) - 13000

b. Wheat Commission (1000 X 5.50 ) - 5500

c. Sugar Commission ( 90 X 2.50 ) - 225

d. Oil Commission ( 1000 Litre ) - 200

Frieght charges paid by Department

e. Rice (2000 X 8 ) - 16000

f. Wheat ( 1000 X 24 ) - 24000

g. Sugar ( 90 X 30 ) - 2700

h. Oil ( 1000 X 2 ) - 2000

______

Gross Income 63625

(iii) On the basis of these figures provided by the Agent – Mr. Kailash Chand
Aggarwala, it appears that he is incurring a monthly loss of Rs 23,435/-.
The question which Committee is faced with is as the how this agent is
in a position to sustain himself and keep the agency running despite
incurring such a substantial monthly loss.

(iv) An official of the department accompanying the team at this point

conversed with the storage agent in Oriya whereupon Mr. Kailash Chand
re worked the calculations showing a profit of Rs. 7545/- now.

Re-worked Calculation for Gross Expense

a. Rice from Angul (2000 X 8) - 16000

Labour 4/- - 4000

b. Wheat from JagatPur (1000 q X 27/-) - 27000

Labour 2/- - 2000

Staff Expense - 1500

c. Sugar from BBSR (90 q X 32/-) - 2880

Staff - 200

d. Oil from Angul (1000 carton X 2/-) - 2000

Labour - 500
______

Gross Expense 56080

Re-worked Calculation for Gross Income

a. Rice Commission (2000 X 6.50) - 13000

b. Wheat Commission (1000 X 5.50) - 5500

c. Sugar Commission (90 X 2.50) - 225

d. Oil Commission (1000 Litre) - 200

Re-worked Freight charges paid by Department

e. Rice (2000 X 8) - 16000

f. Wheat (1000 X 24) - 24000

g. Sugar (90 X 30) - 2700

h. Oil (1000 X 2) - 2000

_______

Re-worked Gross Income 63625

(v) Certain other observations made at this Godown revealed the

following:-

a. That the Storage Agent received grain directly from Angul

Godown.
b. There was an occasional electricity problem.
c. That the Storage Agent apart from dealing in PDS Commodities,
sold Amul products and was also an Airtel Connection Dealer.
d. He stated that he did not only rely on income coming from
distribution of PDS commodities since he had other form of
businesses running on his name.
e. There were 41 shops in a municipal area and 120 at the Block
level connected to his storage agency.
f. The weighment of Food grain was done by a manual scale.
g. The Storage Agency had a computer and private Internet
connectivity which was his personal.
 h. The Storage Agent did not have any sample in his Godown. He
informed the committee that when he receives grain from FCI or
Millers, the Departmental officials take Samples for checking them
in the laboratory; however no records in this regard were being
maintained. He further stated that he was taking samples on his
own for issuance to the retailers.

i. Operating a storage agency is really not a viable enterprise and

reinforces an inference that the additional intermediary viz. the
storage agent is probably meant only as an additional diversion
point.

J. Both storage agents interviewed by the Committee stated that

without political patronage they cannot continue in business as
they have to be recommended by the local MLA.

K. The two questions that are therefore posed for consideration are
as to whether a storage agent is required at all and secondly
even if assuming for the sake of argument that this intermediary
is required, whether the elected representatives should have a
role to play in the process of storage agents.

3. The Committee on its visit to another private godown managed by a

storage agent in Sainthala Village, Saintala Block, Bolangir District found
that the state of affairs was equally abysmal and to compound the problems
the quality of rice available in the godowns was bad and infested with
insects.

III. DIVERSION OF PDS STOCK

 The issue of Diversion can be could be broadly categorized as:-

• Recycling
• Weighment of food grains
• Storage agents

3.1 Recycling -The Committee learnt about the system of recycling.

A) OSCSC is allowed to procure paddy on behalf of the FCI under the

Decentralized Procurement Scheme. The State Government through OSCSC
procures paddy and gives it to the millers who extract rice and give it back to
the OSCSC.

B) As per the rules the millers should not be related to the storage agents. In
practice it was found out that all the millers and storage agents worked in close
co-ordination with each other. It was also found that in fact the millers on
behalf of the OSCSC were doing the procurement.

C) The millers exaggerate the quantities which they would be supplying to the
OSCSC/FCI. They in fact procure lesser quantities. After extracting rice from
the procured quantities they supply same to the OSCSC/FCI as per agreement.
Then they slow down or stop further supplies till the rice already supplied has
been allocated to the storage agents. The storage agents transfer some part of
this rice back to the miller who again supplies the same to OSCSC/FCI.

To illustrate, a miller agrees to supply 1000 MT. He would initially supply only
700 MT and then wait till the allocation is made to the storage agent’s. 300MT
 would be recycled and received back by the millers from the storage agents
and again supplied to the OSCSC/Government.

D) The people who attended a public hearing on the 22 nd November also spoke
about the recycling system. As a matter of fact, the Committee was also
informed that Millers have to pay 3% of their revenue earned from OSCSC for
smooth functioning.

3.2 Weighment of food grains.

A. On Visiting Godowns of OSCSC and Storage Agents, the Committee

found that there are no proper weighment methods to weigh the food
grains. Most of the Godowns did not have adequate weighing machines.
Godowns store a large quantity food grains but machines of lower
capacity are installed at these Godowns. For instance Mancheshwar
Godown owned by the Corporation had a weighing machine with
capacity of 3 quintals only.

B. Lower capacity weighing machines was not the only problem regarding
the weighment of food grains. The local officials informed the
Committee that storage agents received food grains in shortage in
weight from the FCI/FSD and in turn they also deliver the same bags
with shortage in weight to the FPS after taking out their quota.
3.3 Storage Agents.

A. In the public meetings it was the general complaint made to the committee
that storage agents were the biggest problem and one of the major factors
responsible for the diversion of food grains.

B. The committee visited several Storage Agencies in the state of Orissa. On

enquiring from various storage agencies it was learned that the weight of
the empty gunny bags used for food grains by the millers and the FCI was
650 grams and was included in the weight of 50 kg bag.

C. It was also informed to the committee that the storage agents were not
issued any samples of food grains. It was also learned by the committee
that an initial sum of Rs. 4 lakhs had to be deposited with the OSCSC as a
down payment and security fees by all the storage agents.

D. It will be relevant to point out that at this stage the Committee found that
bags of rice which were supplied to the storage agent did not contain full
quantity of 50kgs. On an average a bag contained 2-3kgs less rice. Thus for
every 100 quintals the storage agent received 15 to 20 extra bags. It was
also learnt that fair price shops were not being supplied rice by weighing
but on the basis of no. of bags. They were told that fewer quantities are
being received in every bag, therefore either 2 consumers were given 1 bag
or 1 consumer was given a bag for two months quota and not by weight.
Since each consumer was supposed to get 25 kgs every month, he was only
getting proportionately less quantities.

E. The Storage agents thereby extract certain quantities from the bags
containing food grains and supply the extracted food grains either back to
 the miller as stated above under the heading of “RECYCLING”. They also
divert this extracted grain to other resources.

F. Storage agents are not only a mechanism for diversion but also were the
main reasons for the lack of proper functioning of PDS in Orissa.

G. As stated in the introductory lines, the system of storage agents was

introduced in the initial period of OSCSC when it did not have any self
owned Godowns but now OSCSC has its own Godown everywhere in the
state and even leasing out Godowns to these storage agents for their use,
so the system of this Storage Agents (intermediaries) does not hold any
merit.

IV. OBSERVATIONS

4.1 There is unbridled political interference in the selection of the storage agents
and all procedures are given a go bye by the department if there is a “political”
recommendation.

4.2 The Committee found that the process of weighment followed in the godowns
was by and large manual and was therefore susceptible to pilferage and
diversions.

4.3 The Committee found that bags of rice which were supplied from the FCI/FSD
to the godowns did not contain full quantity of 50 kgs. On an average a bag
contained 2-3kgs less rice. Thus for every 100 quintals the storage agent
 received 15 to 20 extra bags. It was also learnt that godowns were supplied
the food grain by counting the number of bags and taking the average weight
of each bag as 50 kg. Thus the remaining could be easily diverted.

4.4 Operating a storage agency is really not a viable enterprise. It reinforces an

obvious inference that the additional intermediary viz. the storage agent is
probably meant only as an additional diversion point.

4.5 The Panchayat Raj Department has 6000 godown of 50 MT capacity and 300
godown of 100 MT capacity but the OSCSC is not interested in hiring these
godowns. The Panchayat Raj Department and the Urban Development are also
prepared to construct more godowns if required by the OSCSC.

4.6 The position is that since the State has adequate storage facilities and
sufficient resources of the Corporation, the concept of a storage agent must be
done away with. It is the main source of diversion of PDS grain in Orissa.

4.7 The Chairman of the OSCSC should not be a political/private person. His
appointment should be transparent. Corporation should be run strictly on
professional basis.
 CHAPTER 4

RETAIL OUTLETS (FAIR PRICE SHOPS)

In the State of Orissa, the fair price shops are run by the OSCSC (which are described
as Maitree shops), Women self help groups (WSHG), Gram Panchayats, and Private
individuals.

Apart from this, State has mobile vans owned by the OSCSC. Total number of Mobile
vans running presently in the State of Orissa is 94.

In this Chapter, the Committee deals with the method adopted for appointment of
retail outlets in Orissa, their viability and the different types of retail outlets currently
operating in the State.

I. MODE OF APPOINTMENT OF DEALERS.

1.1 STATUTORY FRAMEWORK

A. Clause 4 of the Orissa PDS Control Orders 2008 provides for the modes and
methods of appointments of Fair Price Dealers.

B. Clause 5 provides for the prohibition in respect of grant of licence which

includes that a licensee or his family member shall not have any commercial
interest in the business which pertains to PDS Commodities and also
provides that neither dealer nor members of his family shall be member of
any advisory committee.

C. The definition of family under the clause is interesting in as much as it

includes only “dependent parents” and unmarried sons and daughters. The
loopholes are apparent as a married son can under the PDS Control Order
do competing business.

D. Executive instructions No. 14200(13) dated 21-04-1992 containing

instructions on appointment and removal of retailers is still in vogue. The
said instruction envisages that the Block Level Advisory Committee (BLAC)
and Town Level Advisory Committee (TLAC) are to make recommendations
for appointment of Retailers. The nature and composition of such
Committees are elaborated in the chapter dealing with the vigilance
mechanism. The said instruction also provides that there should be one
retailer for a population of 2000 in the plains and one retailer for the
population of 1000 in the hilly areas. The maximum no. of retail outlets
should not exceed 3 in a Gram Panchayat area but may be increased up to
5 in an inaccessible/hilly area.
1.2 The Committee during the visit learned that the Sub Collector on the
recommendations of the Block Level Advisory Committees/ Taluk Level
Advisory Committees (BLAC / TLAC) appoints the dealers. It was further
learned that preference is given to gram panchayats, women self help groups
and cooperatives. The licensing provisions for retailers, their duties and
responsibility are laid down in the Orissa PDS (control) orders, 2008. It was
also observed by the Committee that the following entities operate FPS outlets
in the State,

a. Private individuals

b. Panchayats.

c. Women’s Self Help Groups.

d. Maitri Shops/Model Fair Price Shops. Both operated by the OSCSC

e. Mobile Vans

Note: - The Order of preference for the appointment of FPS dealer is stipulated in
Clause 4(3) of the Orissa Control Order, 2008 as follows:

The First preference for appointment and grant of licence as retailer shall be given to
Gram Panchayats, followed by women self help groups, Co-operative Societies and
other self help groups in that order of preference;
1.3 Files Regarding Appointment Of Retailers

A. Committee inspected the files pertaining to the appointment of dealers which

revealed that

• No public advertisement is issued regarding vacancies.

• Applications are made to the Sub-Collector/Additional District Magistrate

(ADM).

• Meetings of Taluk level Advisory Committes or Block Level Advisory

Committees takes place whenever there is a vacancy.

• Names are recommended by the BLAC / TLAC to the Sub-

Collector/ADM.

• Sub Collector or ADM does the necessary verifications if required.

• The Sub-Collector/ ADM executes the agreement with the dealer.

B. The Committee made the following observations –

• There is no transparent mode of appointment as admittedly no

advertisement is issued.

• The Taluk and Block Level Advisory Committee would meet only when a
“convenient” application is made and what is worse is that only the
“convenient” application is considered and the previous applications are
ignored.
 • The system requiring the BLAC and TLAC to be a part of the
recommendatory process results in a direct conflict of interest as it is the
same entity which is entrusted with the task of vigilance as well as choosing
the fair price shop.

• The extent of political interference and arbitrariness in the process of

allotment of outlets came to light when the Committee visited retail outlets
in Rajabagicha lane, Cuttack. In one Shop the dealer was one Mr.
Aurobindo Mohanty and it is relevant to point out that the shop’s condition
was very bad, infact there was no board identifying the shop as a FPS. The
condition of another shop in the lane was equally bad and the dealer of this
shop was Smt. J.B. Mohanty who is the wife of Aurbindo Mohanty.
Therefore a husband and wife has 2 shops in the same lane and it came to
light on interviewing beneficiaries and officials that the said Aurobindo
Mohanty is a politically influential person and throws his weight in the
locality.

II. VIABILITY & CONDITION OF THE RETAIL OUTLETS

The Committee visited various retail outlets in the State and found that the
shops were either making only marginal profits or were incurring losses. On
the visit of the Committee to an outlet run by a private individual the following
observations were made,

2.1 Visit to the FPS Shop in The Salepur, District Cuttuck

A. Name of the FPS :- Mahima Enterprises

 Name of the Retailer: - Mr. Birender Kumar Bhayan

Name of the Gram Panchayat:- Chandradepur

Name of the Block: - Salepur

No. Of Cards attached: - BPL APL AAY AY

212 300 154 11

B. It was observed by the committee that everything was in order as it was

obvious that it was stage managed by the State Government for the purpose of
the Committees visit. Therefore the Committee took the opportunity to access
the viability of the fair price shop and got a detailed costing which indicated
that the net profit earned was only Rs. 657 whereas his helper was getting a
salary of Rs 900 per month. The dealer informed the committee that he would
be happy with a net profit of Rs. 1000-1500 and wanted a marginal increase in
the commission. He also wanted permission to sell other household items. It
was observed that no samples were kept in the shop.

C. Details of the income of the FPS

Income Heads

1. Income earned from selling Rice [(107 X 200) – (107 X 1800)]= 2140

2. Income from Kerosene (@ 0.30 X 2500) = 750

3. Income from Sugar (@ 0.10 X 300) = 300

4. Income from Wheat (@ 0.25 X 600) = 150

5. Income by selling the Sacks = 1000

 ______

Gross Income Rs. 4340

Expenses Heads

1. Salary of the Employee = 900

2. Shop Rent = 1000

3. Transport and handling/loading Unloading Charges

i. For Rice ( Rs 14/quintal X 107 ) = 1498

ii. For Oil ( Rs 20/barrel X 12 ) = 240

( 1 Barrel = 200 Lits )

iii. For Sugar ( Rs 5/quintal X 3 ) = 15

iv. For Wheat ( Rs 5/quintal X 6 ) = 30

________

Total Expenditure Rs. 3683

Thus, Net Income of the FPS Owner was (4340 – 3683) = Rs 657

D. This would clearly indicate that the shop in its present form is unviable. It is
obvious that with such income, the shop keeper would be indulging in illegal
activities of diversion for the purpose of his very existence.

2.2 Visit to FPS Shop at Bada Danda Sahi, Talcher, Angul District

A. Name of the FPS Owner - Raj Kumar Mishra

 Licence No. - 1/2002-03

B. The said dealer has being dealing in this business for last 18 years.

C. Position of the Cards attached to his shop are :-

APL BPL AAY

274 51 20

D. He stated that his average monthly income was Rs. 1100/- to 1500/-.
Calculations showing this profit are: -
Type of Quantity Allotted Commission per Income (Rs)
Commodity every Month Quintal (Rs)
(quintals/litres)
Rice 13 20 260
Wheat 12 18 216
Sugar 1 12 12
Kerosene 1300 0.35 455
Empty Gunny 45 10 450
Bags
Total Income 1393

E. He said that only expense he has to bear is transportation as his shop is part of
his house and electricity charges are covered under house electricity bill.
Transportation cost for a month comes to Rs. 300/-.

Thus, his net monthly profit is Rs 1393 – 300 = Rs 1093/-

F. The Committee found that:-

 1. List of Beneficiaries was found to be displayed outside the shop.
2. He had distributed the entire quota of this month.
3. He informed the committee that he wants to sell other commodities
also but the department does not permit this.
4. Three years ago, he was selling non PDS Commodities but was stopped
from doing so by the Departmental officers. However Government
Officials who are accompanying the Committee clarified that there was
no such prohibition for selling non PDS Commodities.
5. He also informed the Committee that the last time anyone from
vigilance committee visited his shop was three years ago and no one has
come since then.
6. License was renewed every year by the concerned authorities.

2.3 Visit to the FPS Shop run by Women self helf group (WSHG), Talechar

A. License No. of Shop was 14/2004-05.

B. Shop was run by a WSHG consisted of 10 members.
C. Name of the Group was Mahashivani.
D. Mrs. Ritala Maharanna, member of the WSHG present at the shop stated that
they had small savings (personal) every month, which help them running the
shop.
E. She said they are making a profit of Rs 400 – Rs 500/- every month from this
shop.
F. Position of the card attached to the shop are :

APL BPL AAY

30 72 15

G. She stated that personal rapport with beneficiaries was essential for running
the shop efficiently.
H. Out of the 10 members of the WSHG, 8 are cardholders which helps them in
understanding the position of the other cardholders.
I. They have been running this shop for last 4 years.
J. This group also imparts training to people for making toys for a living.
K. Since they belong to the same group, they ensure the proper delivery of the
food grain.
L. This Shop is operated from the house of one of the member present there
who rented out this portion of the house to SHG for running this shop for a
rent of Rs. 250 per month.
M. The Committee interviewed one member of the WSHG. During the interview
when her husband tried to intervene, she politely told him that it was her
enterprise and he should keep out of the interview.
N. On being asked whether the officials or others in the chain demanded bribe
they answered that they don’t pay bribes even if demanded.
O. The visit to this shop run by the Women SHG was certainly positive.

2.4 Visit to Model Fair Price Shop (Maitree Shop)

The Committee visited a Model Fair Price Shop (Maitre Shop)-cum-Government
Storage Agent Godown owned by the OSCSC at Sector 6, Cuttack Development
Authority, Cuttack.

A. The Corporation has 38 MFPS under its control to provide Rice, Wheat, Sugar
and Kerosene Oil to the PDS consumers covered under different schemes.
Besides the above, some other essential consumers goods are sold through the
MFPS.

B. Mr. Liyakat Ali (Storage Agent cum Godown Assistant) was in charge of the
shop.

C. Committee found the following during the Visit to the Shop:-

1. Details of the cards attached to the shop are :-

BPL AAY APL Annapurna

3476 1456 2890 203

2. Four Maitre shops were covering the all BPL, AAY and Annapurna Card
Holder requirement in Cuttack city (Other FPS in the city were only holding
APL cards). Total No. of BPL, AAY and Annapurna cards attached to these 4
shops are:-

BPL AAY Annapurna

17,443 5966 740

3. In the shop Committee visited, 3 persons are employed.

4. This Shop also sells many other Non PDS Commodities like Pulses, Salt,
other brand Palmoline Oil, etc.

5. Current Stock position of the Shop was:-

Category Wheat Rice

APL 102.52 qtls

BPL 264.76 qtls

AAY 325.90 qtls

Annapurna 16.50 qtls

6. No sealed samples are available in the shop.

 7. Records are properly maintained in the shop. List of all beneficiaries are
displayed outside the shop.

8. The weekly holiday of the shop was on Thursday.

9. Empty gunny bags were sold for Rs. 7 or 8 per bag.

10. The shop was earning profits. (Both from sale of PDS Goods and other
activities).

11. The shop worked as a storage Godown as well as retailer shop.

12. Private Retailers also take their quota from this Maitre Shop.

D. The Visit to the Shop brought into the notice the following facts:-

1. The model fair price shop which works both as a wholesale and retail outlet
and which sells non PDS commodities as well, seem to work well and were
also making profits.

2. Keeping in mind the success of the maitree shops or the model fair price
shops, the question thus arises for consideration is whether in terms of the
obligations set out in the PDS Control Order, the Government itself must
undertake the task of door step distribution without franchising the same to
private persons.

2.5 Visit to FPS operated by Gram Panchayat Gursang Block Talechar, District
Angul.

A. The Gram panchayat had 8 villages attached to it.

B. Position of the cards attached to the gram Panchayat was -:

AAY BPL APL

70 NIL NIL

C. The Committee found that:-

The licence for the shop is in the name of Panchayat Secretary. The Shop is
run by the panchayat secretary who is a government servant and hence this
FPS in all respects is a government shop. Although the shop was operating at a
very small scale having only AAY cards, the shop was totally uninspiring and
showed that the shops run by the panchayats in contradistinction to the
Corporation run Maitree shops were not run in an efficient and orderly manner.

2.6 Visit to Fair Price Shop operated by Gram Panchyat in Chamunda Village,
District Sambhalpur.

A. Details of the Gram Panchayat:-

Name of Gram Panchayat secretary - Mr Gorang Sahu

Stock In Charge - Mr. Patoa

Sale Register - Maintained

No of cards:-

BPL- 449

APL- 131

AAY – 7
 Villages attached to the Gram Panchayat - 6

B. The visit showed that in a village setting the PDS system had totally broken
down and the person who are most vulnerable are not protected by the PDS
owing to the tardy working of the shop. It was strange to find out that
exclusion errors were apparent as many families who are living in a very poor
state having nothing to eat were excluded from the system as a whole. Those
persons who are within the system also had little or no access to it owing to
the poor working of the PDS Shop.

C. It was found that most of the genuine persons do not possess any card. There
are many families in the village who are very poor and living in a very bad state
having nothing to eat. This again leads to the inevitable inference that
exclusion/inclusion errors are one of the major maladies afflicting the PDS. The
team also visited a FPS shop run by the gram Panchayat situated in the
Chamunda village.

D. The major maladies affecting the functioning of PDS in the district is the
presence of naxalites in that area. The presence of Maoists in these areas has
become a cause for considerable alarm. This is compounded by factors such as
inaccessible hilly terrain, dense forests and lack of development. The officials
also use this as an excuse for not performing their duties relating to PDS in
these areas.
E. The officials also used the presence of naxalites as an excuse for not
performing their duty. The situation in an interior and poverty striker part of
the State was grim and shocking and requires urgent redress to ensure

food security reaches the poorest of the poor.

F. Further Observations made by the committee are –

• Visit was made in order to study the working of fair price shop in an interior
and rural setting.

• Secretary of the Panchayat who was the incharge of the shop failed to
produce any records or registers about the working of FPS Shop.

• Secretary first stated that he does not have any records and later he said
that he can not show any records as they are in the possession of some
other person.

• Only 2 Litre of Keroseine Oil was distributed to every card holder but entry
was made for 4 Litre.

• There was no electricity in the village. It was stated by the Villager that two
years earlier the Village was electrified. However for the over one year, the
transformer was burnt. Villagers were told unless they contribute towards
the price of transformer, new transformer will not be put up. Considering
the poverty existing in the village, it would appear that new transformer will
never be put up.

2.7 MOBILE VANS

A. The Corporation has started operation of Mobile Vans in the State from the year
1985. As many as 145 Mobile Vans were purchased out of funds provided by
Government of India on 50 : 50 loan and subsidy basis for utilization in
inaccessible area by way of ‘Hat sale’, with an aim to ensure distribution of
essential commodities at the door steps of the poor and needy consumers. At
present 94 Mobile Vans are running in 15 districts. Out of that, there are 40
Mobile Vans operating in 6 KBK districts of the State. The Committee was told
that 51 Mobile have been condemned being beyond repair.

B. Visit To Mobile Van In Gikki Village, Bissora Gram Panchayat, Nuapada District

1. Villagers were very happy with the working of mobile van.

2. Distribution of food grain was done in more proper and better way than
the FPS Shop.

3. 3 persons are employed in the mobile van. They are sales man, Driver
and Helper.

4. The salary of these 3 persons for a month are :-

Driver – 8000

Helper – 80 Rs Daily

Sales Man - 5000

5. This mobile van was also used for transportation of food grain from
godowns to Gram Panchayat, FPS Shops, Maitree Shops, etc.
 6. On the day of the visit Mobile van had received 70 quintal rice from
Storage Agent Godown for distribution.

7. Total grain distributed to the Card holders was 69.45 quintal.

8. The difference of 55 kg was Shortage in weight in the gunny bags

received from Storage Agent.

9. Total Cards attached to this Mobile Van are :-

APL - 97

BPL - 136

AAY - 32

10. Manual Weighing Scale was used.

11. The State Government has introduced a system of distributing the food
grains on fixed dates i.e. 5th, 6th, 7th, 20th, 21st and 22nd day of every
month. Special permission has to be taken from the collector for
distributing grain on non distribution day.

12. Since Mobile van is Corporation run, its viability as FPS does not arise.

2.8 Viability of Fair price shop is critical to sustenance of Public distribution system
and to minimize leakage of PDS grains. The number of ration cards attached to FPS,
their BPL-APL breakup, off take of grains, margin on commodities, cost incurred on
transport and handling, rents etc. are the determinant of viability of FPS’s. Programme
Evaluation Organization under Planning Commission in its evaluation Report of year
2005 on TPDS put that Viability of FPS means an annual return of 12% or more on
the working capital. This has been again mentioned in 11th Five Year Plan report of
Planning Commission.

III. FIXED DISTRIBUTION DAYS AND RELATED PROBLEMS

3.1 The State Government has introduced a system of distributing the food grains
on fixed dates i.e. 5th, 6th, 7th, 20th, 21st and 22nd day of every month. This
system may be convenient for the State Government officials but causes
many difficulties for the beneficiaries. It should not be forgotten that the
Public Distribution System is for the benefit of the public and not for the
convenience of the implementing authorities. There are long queues at every
FPS on the distribution days. If some beneficiary who is daily wage earner
comes to get his ration he has to forego his earning for that day. The
beneficiary is compelled to take his entire entitlement on one day. This system
is clearly violating of the directions of the Supreme Court contained in the
order dated May 2, 2003 in Writ Petition (Civil) No. 196 of 2001. The Supreme
Court has directed that Licensees who do not keep their shops open
throughout the month during the stipulated period shall make themselves
liable for cancellation of their license. This order also provides that in order to
facilitate the supply of grain the BPL house hold should be permitted to buy
the ration in installments. Both these directions are thus being flouted
because of the distribution of ration only on fixed dates.

IV. GENERAL OBSERVATIONS IN RESPECT RETAIL DISTRIBUTION IN

THE STATE OF ORISSA
4.1 The visit to the shop run by the Women SHG had many positives. However,
such shops face tremendous difficulties in terms of the low number of cards
being allotted to them and thus low commission and short delivery of stock.
The WSHG, however, have to be those which have an existing track record and
not one created only to run an FPS. That is to say those WSHG’s created under
the Integrated Child Development Scheme (ICDS) and allied schemes of
Government.

4.2 Maitre shops operated by the Corporation were found to be operated more
efficiently than privately managed shops.

4.3 The outlet operated by the Gram Panchayat is run by the panchayat secretary
who is a government servant and in all respects is a government shop.
Although the shop visited the Committee was operating at a very small scale
having only AAY cards, yet the visit to this shop was uninspiring and showed
that the shops run by the panchayats in contradistinction to the Corporation
run Maitree shops were not run in an efficient and orderly manner.

4.4 The general condition of the retail outlets was found to be poor and the
guidelines contained in the Control Orders are not being followed in letter and
spirit.

4.5 Political interference in the appointment of retail dealers is wide spread.

4.6 Weighing of stock is being done manually which facilitates diversion.

4.7 There is a shortage of 1 or 2 Kgs in every jute bag of 50 Kg received from the
godown of Storage Agents as mentioned in detail in paragraph 2.6 of the
Chapter dealing with Wholesale distribution.

4.8 The quality of rice distributed under the PDS System is found not to be good.
4.9 The State Government has introduced a system of distributing the food grain
on fixed dates i.e. 5th, 6th, 7th, 20th, 21st and 22nd of every month. This system
may be convenient for the State Government officials but causes many
difficulties for the beneficiaries. It should not be forgotten that the Public
Distribution System is for the benefit of the public and not for the convenience
of the implementing authorities. There are long queues at every FPS on the
distribution days. If some beneficiary who is daily wage earner comes to get his
ration he has to forego his earning for that day. The beneficiary is compelled to
take his entire entitlement on one day. This system is clearly violating of the
directions of the Supreme Court contained in the order dated May 2, 2003 in
Writ Petition (Civil) No. 196 of 2001. The Supreme Court has directed that
Licensees who do not keep their shops open throughout the month during the
stipulated period shall make themselves liable for cancellation of their license.
This order also provides that in order to facilitate the supply of grain the BPL
house hold should be permitted to buy the ration in installments. Both these
directions are thus being flouted because of the distribution of ration only on
fixed dates.

4.10 Mobile Vans are an important tool for improving the coverage of the PDS and
therefore the number of Mobile Vans must be increased to ensure that the
outreach of the PDS is increased.

4.11 FPS owners should be permitted to stock and sell non PDS Commodities also
like tea, oil, dals, etc. to make business profitable and cover their losses if any.
In fact the concept of a stand alone FPS outlet is an inherently unviable
proposition. From the present regime of stand alone shops to a regular
kirana/grocery shop which also sells FPS commodities, with the rider that the
shop will not sell PDS food grains.

4.12 In a village setting the PDS system had totally broken down and the persons
who are most vulnerable are not protected by the PDS owing to the tardy
working of the shop. It was strange to find out that exclusion errors were
 apparent as many families who are living in a very poor state having nothing to
eat were excluded from the system as a whole. Those persons who are within
the system also had little or no access to it owing to the poor working of the
PDS Shop.

4.13 The officials also used the presence of naxalites as an excuse for not
performing their duty. The situation in an interior and poverty stricken part of
the State was grim and shocking and requires urgent redress to ensure food
security reaches the poorest of the poor.

CHAPTER 5

TRANSPORTATION

1.1 There are three main mode in the Public Distribution System in the State of
Orissa by which the food grains move ultimately reaching the consumers.

1.2 FCI Godowns to OSCSC Godowns or Storage Agent Godown: The

OSCSC/Storage Agent is responsible for the transportation of the food grains
from the FCI Godown to their own Godown. The cost of the transportation is
paid by the State Government through the OSCSC and that the transportation
is done by the transporters who are appointed by tender process.
1.3 OSCSC Godown to Storage Agent Godown : When the OSCSC procures food
grain under the Direct Procurement Scheme on the behalf of FCI, and store in
their own Godown, then the Storage Agent is responsible for transportation of
the food grain from OSCSC Godown to their own Godown. The cost of the
transportation is paid by the State Government through the OSCSC

1.4 OSCSC or Storage Agent Godown to Fair Price Shop: The fair price shop owner
arranges transport for transporting the food grains from the OSCSC or Storage
Agent Godown to the fair price shop. FPS owner has to bear the cost of
transportation is included in his margin.

1.5 As in the State, the responsibility to transport food grain has been entrusted to
the Storage Agent, the Agreement is made between the Storage Agent and the
OSCSC. The Agreement clearly puts the responsibility of Transportation of food
grain on the Storage Agent for which he gets the commission.

1.6 Clause 7 of the agreement between Storage Agent and OSCSC requires the
Storage Agent to make arrangements for transportation for which he is
reimnursed in accordance with approved rates revised from time to time. The
r
a
Transportation BPL Rice AAY Rice APL Rice APL Wheat
t
charges
e
Up to to 10 10 10 7.00 7.00
s
km
a
r Beyond 10 Km 0.35/km 0.35/km 0.30/km 0.30/km

e as follows :-
 Observations

1. The role and responsibilities of Storage Agent are provided in Clause 11 of

Orissa PDS Order, 2008. Interestingly however, the said Clause does not
provide any specific responsibilities for safe transportation of food grain. No
such obligation is found in the agreement between the Storage Agent and
OSCSC. It is a well established fact that a lot of the diversion takes place during
transits of Goods. Yet in the State of Orissa there is absolutely no check at this
stage.

2. A proper vigil has to be kept on transportation of the foodgrain at all level i.e.
from FCI to Storage Agent and at the time of Storage Agent to Fair price
shop. GPS system can be used for tracking the movement of Trucks carrying
foodgrainn. For this, routes that have to be followed by Trucks carrying food
grains have to be prepared and specified. Devices required for GPS should be
installed on every such Truck and movement of the Truck should be
monitored. Attachment of device of GPS in the Trucks engaged in Public
Distribution System may be made part of the tender conditions.

3. There should be routine daily physical checking of the GPS Units to detect
any tampering etc. Any tampering with GPS system installed on the Trucks
carrying food grains or any deviation of the Truck from the route prescribed
would be considered as violation of the Public Distribution System (Control)
Order, 2001.
4. Though the task of monitoring the functioning of GPS should be with the
Department and in addition, the Ombudsman will also have access to the
system to ensure its proper implementation.

CHAPTER 6

VIGILANCE, ENFORCEMENT AND COMPPLAINT MECHANISM

Although the Statutory instruments namely the PDS Control Order, 2001 as well as
the Orissa Control Order 2008 provide for the monitoring and Vigilance of Fair price
shops, The Committee found the Vigilance mechanism is totally defunct and almost
non existent. The Committee in this Chapter details its observation in this regard.

I. COMPOSITION AND FUNCTIONING OF VIGILANCE COMMITTEES.

1.1 Instruction No. 15756 dated 31.07.2006 contains government instructions on

composition of Vigilance Committees. It contains two sets, one set contains
old instructions of 1991 and the second set contains reconstitution of
Committees and instructions thereof in 2006.

1.2 Three types of Vigilance Committees are constituted in the State of Orissa:-

A. DISTRICT LEVEL ADVISORY COMMITTEE

B. TOWN /BLOCK ADVISORY COMMITTEE

C. RETAILER LEVEL ADVISORY COMMITTEE

1.3 DISTRICT LEVEL ADVISORY COMMITTEE (DLAC)

A. Composition: The composition of DLAC is as under:-

1. Collector Chairperson

2. Hon’ble MP’s or their representatives.

3. Hon’ble MLA’s or their representatives.

4. Two members of Zilla Parisad of whom

Atleast one shall be a woman to be nominated

by the Zilla Parisad.

5. Two Chairpersons of Panchayat Samities of

whom at lease one shall be a woman nominated

Collector.

6. Two representatives of Voluntary Consumer

Consumer Organizations or NGO’s active in the field of

Consumer Protection of whom at lease one shall be

a woman to be nominated by Collector.

7. Additional District Magistrate (1/c of PDS)

8. Project Director, District Rural Development Agency

9. District Social Welfare Officer

10. District Manager, Food Corporation of India

11. District level Coordinator of Oil Companies

 12. Civil Supplies Officer Member-Convener

B. FUNCTIONS: The functions of the District Level Advisory Committee are

specified to be:-

1. To monitor the over-all functioning of Public Distribution System in the

district.

2. To monitor progress in implementation of Antyodaya Anna Yojana and

Annapurna Yojana and to approve beneficiary list thereof.

3. To monitor the functioning of Block / Town level Advisory Committees

in the district.

4. To look into the complaints of irregularities in the Public Distribution

System and to make appropriate recommendations to the Licensing
Authorities concerned.

5. To ensure supply of adequate quantity and prescribed quality of PDS

commodities through the Public Distribution System.

6. Such other functioning as may be entrusted to the Committee by the

State Government.

7. The Committee is required to meet atleast once in a quarter or more

frequently as required.

1.4 TOWN /BLOCK ADVISORY COMMITTEE (TLAC/BLAC)

A. COMPOSITION

Instruction No. 16958(30)/SFS&CW dated 16-08-2006 on constitution of Town

/ Block Level Advisory Committee is as follows:-

1. Hon’ble MLA of the local constituency Chairperson

2. Chairperson of the Urban Local Body Member

3. Hon’ble MP or his representatives Member

4. 2/4/5 Ward Councilors to be nominated by the

Urban Local Body concerned as follows: Member

(a) for ULBs with upto 16 wards 2

(b) for ULBs with more than 16 and upto 20 Wards 4

(c) for ULBs with more than 20 Wards 5

5. One representative of a Voluntary Consumer

Organization to be nominated by the Collector Member

6. One representative of women Self Help Group

(other than PDS licensee to be nominated by Member

the Collector)

7. Three consumers of which at lease one shall be a

 Woman and one from ST/SC community Member

8. ASCO concerned Member

9. Inspector of Supplies Member

10. ARCs Member

11. Executive Officer of Urban Local Body

Concerned Member Convenor

B. Additionally the following representatives from the following categories shall be

inducted as members:-

(1) Two Sarapanches to be nominated by the Collectors (in place of one

Sarapanch at present)

(2) Four Consumers to be nominated by the Collector (in place of three at present)
out of whom at least one shall be a woman and one from SC/ST community.

(3) One representative of Voluntary Consumer Organisation to be nominated by

the Collector.

(4) Two representatives of WSHGs (other than PDS licensee to be nominated by

the Collector.

C. FUNCTIONS OF THE BLAC:- The functions allocated to be Block Level Advisory

Committee are :-
 1. To monitor receipt of stocks of essential commodities;

2. Ensure their proper distribution;

3. To make recommendations for appointment of retailers;

4. Suggest measures for ensuring availability of Essential Commodities, for

holding the price line, for ensuring equitable distribution of the allotted stocks
to the consumers with the area;

5. To detect and prevent malpractices.

D. Instruction No. 6540(13)/F&CS-PL.IP-59/90 dated 20.2.1991 provides that the

meetings of Block Level Advisory Committee shall ordinarily be held once every
month and at intervals not exceeding one month.

E. Block Development Officer (BDO) is required to convene the meeting and also
keep record of the proceedings of the meeting duly authenticated by the
members present.

1.5 RETAIL LEVEL ADVISORY COMMITTEE (RLAC)

A. COMPOSITION
Instruction No. 15758 dated 31.07.2006 lays down the composition of the Retail
Level Advisory Committee:-

1. Rural Areas:-

(i) Sarapanch of the Gram Panchayat concerned Chairperson

(ii) All Ward Member(s) in whose ward area

The FPS’s are situated.

(iii) Four literate consumers from the area of operation

of each of the FPS’s in the GP of which at lease

one shall be woman and one from SC/ST community

(to be nominated by the G.P.)

(iv) One representative of a WSHG (other than

a PDS licensee (WSHG) from the GP area

to be nominated by the BDO.

(v) One voluntary Consumer Organization / NGO

active in the field of consumer protection

from the GP area to be nominated by the BDO.

(vi) One consumer from each of the Fair Price Shop

area to be nominated by Hon’ble MLA.

(vii) Executive Officer of the GP - Member Convener.

2. Urban Areas:- The composition of RLACs in the Urban Areas is to be as

follows:-

(i) Councilor of the Ward within which Chairperson &

FPS is situated. Convener

(ii) Councilors of other Wards if any,

Whose areas are serviced by the FPS.

(iii) Four literate consumers from the area

of operation of the FPS of whom at lease

one from SC/ST community (to be nominated

by the Urban Local Body).

(iv) One representative of a WSHG to be

nominated by the E.O.

(v) One Voluntary Consumer Organisation / NGO

active in the field of Consumer Protection to

be nominated by the E.O.

(vi) One consumer from the FPS area to be nominated

 by Hon’ble MLA

4. In the Gram Panchayat areas as well as licenses for the “haat” sale, one
RLAC is to supervise all the FPS located with the FP areas. But in urban
areas there has to be separate RLAC for each FPS.

5. The BDO & E.O. of the ULB (Urban Local Body) have to issue orders for
constituting RLAC for urban and rural area respectively.

B. FUNCTIONS OF THE RLAC:- The functions of the RLAC are:-

1. The Retailer Level Advisory Committee shall primarily be responsible for

ensuring that the retailer lifts the essential commodities allotted for the
retail centre that the stocks allotted are actually brought to the retail
centre and no part of the stocks allotted lapses or gets diverted for
unauthorized purpose.

2. It shall verify the ration card register of the FPS regularly and report to
the BDI/EO of ULB in the event of detection of fake/ghost /counterfeited
cards.

1. At least two non-official members of the Committee, to be decided by

the RLAC shall sign the Tally Register maintained by the retailer and
certify the receipt of essential commodities allotted to the retail centre
and their proper distribution. Allotment of subsequent months shall not
be released until such a certificate has been recorded in the Tally
Register of the Retailer.
 2. The RLAC will also monitor the quality and correct quantity of FPDS
commodities sold to the consumers.

3. The RLAC members will verify the use of certified weight and measures
by the retailers.

4. Arrival of PDS commodities will be certified by at least two members of

the RLAC (to be decided by the Committee) and the distribution of the
stock will commence only after verification of arrival by these members
who will then put their initials in the stock register of the retailer.

5. The RLAC will have the power to call for records of the retailer as and
when decided.

6. Tally / stocks / Sale Register and complaint book of Fair price Shop will
be place din every meeting of the RLAC

7. RLAC is required to meet at least once a month. The Convener i.e.

Councilor is required to convene the meetings, record proceedings and
to take follow-up action. Earlier to 31st July, 2006, Village Level
Committees and Ward Committees were constituted for the rural and
urban areas.

II. OBSERVATIONS

2.1 It was revealed that the retailers were appointed on the recommendations of
the Block Level Advisory Committees (BLAC) or Taluk Level Advisory
Committees (TLAC) which were also supposed to act as the Vigilance
Committees under the Orissa PDS Control Order.
2.2 It is relevant to point out that the fact that the Vigilance Committee are almost
defunct. This was admitted by the Government. Reference may be made to
circular No. 5022 dated 28/2/2008, the Commissioner- cum-Secretary, Food, of
the State which clearly stated that no meeting of the Vigilance Committee have
been convened even once in several districts which include the districts visited
by the Committee namely Cuttack, Angul, Sambhalpur, Bolangir and Kalahandi.

2.3 It was further discovered that these Committees do not perform any Vigilance
work and were only meeting when an appointment of the dealer was to be
made.

2.4 Giving a role to the vigilance Committees i.e. the BLAC and the TLAC in the
appointment of retailer’s results in a direct conflict of interest and such a
system must be abolished immediately. The very nature and composition of the
committees would show that it is based on an unworkable model and the best
vigilance would be if an end to end automated model is in place with real time
public access to the data.

2.5 The Committee found that there is a complete overlapping of functions in as

much as the same set of people (BLAC/TLAC) recommends persons for
appointment as dealers/retailers and also are entrusted with the task of
scrutinizing the performance of the said retail outlets. This completely erodes
the independence and impartiality of the vigilance committees.

2.6 The Committee’s in their present form are unwieldy and there is no system in
place in respect of how and when these Committee’s will meet. The Order
should provide that the Convener should fix a day, time and place for the
meetings every month or two months, as the case may be, so that there is no
requirement for sending intimations in respect of the same to the members. A
 Secretary of the Department of Food and Supply, Concerned District Magistrate
and concerned Block Development officer should respectively be responsible for
convening the meetings of the Vigilance Committees.

III. COMPLAINT MECHANISM

3.1 The grievance redressal mechanism is also virtually non-existent and even the
‘call centre’ was found to be inadequate in its operation and effectiveness. The
Committee found that the call center functioned from 8 am to 8pm on working
days. The call center had a toll free no-1800 3456760. Only way of redressal
was by informing the Civil Supply Officer of that particular District of which the
complaint had been made. The Committee was also informed that people who
filed complaints were not given a complaint number due to which following up
on a complaint was not possible at all. A proper and functional helpline is
suggested.

3.2 In order to ensure efficiency and optimise effectiveness of the Helpline

services, the following recommendations are made:

(a) The toll free telephone Helpline facility should preferably be operative twenty-
four hours a day and seven days a week.

(b). It shall be the responsibility of Ombudsman/ Regulator(whose role is being

discussed a little later in this report) to catalogue the complaints/grievances
received on the Helpline and to continuously monitor these
grievances/complaints to ensure their ultimate resolution.

(c) The consumer/user interface aspect of the Helpline should broadly have the
following basic features viz.:

(i) Providing information related services.

(ii) Registration of complaints.

 (iii) Issuance of a unique identification/token number to the caller upon
registration of complaints.

(iv) Mechanism to ascertain status of action taken on such registered

complaints.

(d) The Department, the FCI and the OSCSC will be obliged to inform the Helpline
as to when the particular FPS will get its stock. The OSCSC will also inform the
Helpline about the movement of trucks to the particular shop so that any caller
will be able to ascertain from the Helpline as to when stock would be available
at the shop.

3.3 In order to make the Helpline effective, it is necessary:

(a). To give adequate publicity of Public Distribution System service benchmarks.

(b). Adequate publicity should be given to this toll free Helpline and the category of
services that would be available to the consumers on this Helpline.

(c). Complaints received through the Helpline should be forwarded to the

concerned officer in the Department not later than 24 hours from the time of
receipt of the complaint.

(d). For the purposes of ensuring accountability of the official(s) who has/have been
entrusted with a given complaint, it is necessary that a time bound complaint
redressal mechanism is created and there should be an independent agency to
periodically monitor the working of the system. This aspect has been dealt with
in greater detail under a separate heading “Ombudsman/ Regulator”.

(e). In case of delay in redressal of complaints, the concerned official shall be

liable for action in case of dereliction of duty, including penalty, for each day of
such delay. This penalty would be paid by the State Government to the
 complainant at the first instance and thereafter, recovered from the concerned
official.

IV. OMBUDSMAN/ REGULATOR

4.1. The Ration Card holders have been given certain entitlements under Public
Distribution System. It is the responsibility of the state apparatus to ensure
that these beneficiaries enjoy access to these entitlements smoothly, without
let or hindrance. Public satisfaction in this field would strengthen the
democratic system and reinforce public confidence. Widespread discontent will
naturally provoke disruption and affect social stability adversely. Hence, it is
imperative to take urgent action for suitably strengthening the vigilance and
monitoring system in the existing Public Distribution System framework. This
can be done by the appointment of an independent Ombudsman/Regulator.

4.2 While the Central Vigilance Committee is of the considered view that an
independent monitoring mechanism for addressing consumer complaints along
with a host of other related issues needs to be set up on priority. Such
grievance redressal machinery would be in addition to the already existing legal
remedies that may be available to an aggrieved person under Clause 11 of the
Public Distribution System (Control) Order, 2001. This alternative mechanism
may be in the form of “Ombudsman/ Regulator” that may be created under
Para 6(1) of the Annexe to Clause 8 of the Public Distribution System (Control)
Order, 2001. Para 6(1) of the Annexe to Clause 8 of the Public Distribution
System (Control) Order, 2001 casts an obligation upon the State Government
to provide a proper system of monitoring FPS. This clause provides the
statutory basis for setting up an independent monitoring mechanism such as an
“Ombudsman/ Regulator”.

4.3 The objective of Ombudsman/ Regulator would be that he/she would act as
‘Watch Dog’ to ensure effective compliance of the PDS Control Order, 2001,
The Orissa PDS control order and applicable instructions. The Ombudsman/
 Regulator will also provide free, fair, independent mechanism for speedy
resolution of complaints with reference to the benchmark set out in the
governing statute, order and circulars by the authorities. Ombudsman/
Regulator should focus on investigating and resolving individual complaints and
also address systemic issues. The Ombudsman/ Regulator provides consumers
an easily accessible system, which would be just and speedy in redressal of
their complaints and grievances. This should not become a procedure bound
system or be driven by dilatory reports. Investigation will be resorted to
wherever considered necessary by the Ombudsman/ Regulator. The
Ombudsman/Regulator shall oversee the functioning of the Enforcement
Branch including the Anti Hoarding Cell.

4.4 Ombudsman/ Regulator should be appointed by the Governor of Orissai in

concurrence with the Chief Justice of The High Court. He or she will not be
eligible for re-appointment.

4.5 Eligibility conditions

A. The Ombudsman/Regulator should be a sitting/retired member of the Orissa

Higher Judicial Services who is or has been in the super time scale .

B. If the Ombudsman/Regulator is a retired member of the orissai Higher Judicial

Services, he/she will remain in office for a term of three years or upon reaching
the age of Sixty five, whichever is earlier.

4.6. Terms and conditions of service

The salary and allowances payable to the Ombudsman/ Regulator shall be the
same as payable to a member of the Orissa Higher Judicial Service in the super
time scale.

4.7 Removal and Resignation from office

 Whereas a sitting member of the Orissa Higher Judicial Services will be
governed by the service rules applicable to him. In the case of a retired
member of the Orissa Higher Judicial Services being appointed, the following
will apply: -

A. The Ombudsman/ Regulator may be removed from office by the Government

any time after appointment if Ombudsman/ Regulator has:

(i). Been adjudged an insolvent; or

(ii). Been convicted of an offence involving moral turpitude; or

(iii). Become physically or mentally incapable of acting as Ombudsman/

Regulator; or

(iv). Acquired such interest as is likely to prejudicially affect his functions as

Ombudsman/ Regulator; or

(v). So abused his position as to render his or her continuance in office

prejudicial to the public interest.

B. However, the removal on the grounds specified in clauses (iv) and (v) can be
done only in concurrence with the Chief Justice of the High Court, after
following the principles of natural justice.

4.8 Functions and Responsibilities of Ombudsman/ Regulator

A. Ombudsman/ Regulator would be that he/she would act as ‘Watch Dog’ to

ensure effective compliance of the PDS Control Order, 2001, The Orissa PDS
control order 2008 and applicable instructions. The Ombudsman/Regulator will
constantly monitor each facet of the distribution process detailed in the
governing control orders and circulars to ensure inter alia that the correct
quantities of SFAs reach the intented beneficiaries.
B. In addition the Ombusman/ Regulator will deal with Consumers’ complaints
and grievances which may broadly be classified into two groups:

 Basic

 Complex.

C. Basic complaints would mainly relate to non-provision of Public Distribution

System items benchmarked to quality/quantity, delays, harassment etc.
Complex complaints would relate to matters involving laws, enforcement
deficiencies and widespread discontent. Basic complaints may require summary
disposal without undertaking any detailed investigation. Complex complaints
may involve proper investigation.

Having regard to the class of complaints, whether basic or complex, the

functions and responsibilities of the Ombudsman/ Regulator will be as follows:

(i). To act as the repository of complaints/grievances received upon the

Helpline. Ombudsman/ Regulator shall also monitor the functioning of GPS
technology that may be used in the Transportation of Food grains and deal
with all matters relating to consumer complaints arising from deficiencies in
various stages of Public Distribution System operation;

(ii). To act as the monitoring authority in respect of functioning of the

Vigilance Committees and follow up action taken by the Department on the
reports/recommendations of the Vigilance Committees.

(ii). To investigate, where necessary in the judgment of the Ombudsman/

Regulator, complaints on case-by-case basis after seeking the perspectives of
parties involved and making an independent assessment of complaints;
(iii). To seek resolution of complaints through application of extant law, rules
and orders in complex cases based on his or her personal assessment of what
is reasonable and fair;

(iv). The Ombudsman/ Regulator will have jurisdiction to address and

investigate, where necessary, complaints about, inter-alia, the following
matters:

• non-observance of the PDS Control Order by FPS owner.

• short supply of Food grains/sugar/kerosene oil below entitlement;

• supply of poor quality Food grains not matching the sample on

display; and

• diversion of Food grains to shops other than FPS.

• the manner in which complaints received from the

consumers/complainants including those on the toll free Helpline,
have been dealt with by the concerned officials of the
Department.

• Action taken by officials of the Department on reports of

Vigilance Committees.

(v) It will be the responsibility of Ombudsman/ Regulator to devise and

implement communication strategy to educate consumers as well as FPS
owners about their rights and entitlements as well as various dos and don’ts of
Public Distribution System.

(vi) It is made clear that the remedy to approach the Ombudsman/ Regulator
would be in addition to and not in derogation of other remedies available in
law.
4.9 Powers of Ombudsman/ Regulator

The powers of the Ombudsman/ Regulator, inter-alia, would include:

A. Public functionaries in the Department/Orissa State Civil Supplies Corporation

Limited/Food Corporation of India, in charge of, or dealing with Public
Distribution System, must function with “due diligence”; that is, they must
ensure that within the framework of the system, the consumers’ entitlements
of Food grains etc., are made available to them on time through the
distribution network. Any deficiency or shortcoming on their part, with
reference to the benchmarks, will render the functionary personally liable to
action. The Ombudsman/Regulator will have the power to recommend and
monitor departmental action in respect of errant officers keeping in mind the
governing disciplinary rules. In cases of violation of any laws in the matter of
Public Distribution System, the Ombudsman/ Regulator can direct the
concerned authorities to take action against the person/party. There cannot be
any corruption in Public Distribution System unless there is complicity between
FPSs, Department Officials and the Transporter. While the FPS owner and the
Transporter can be prosecuted under Section 7 of the Essential Commodities
Act, 1955 for violation of the provisions of law including the Public Distribution
System (Control) Order, 2001, it is incongruous that the Department officials
who are fully involved in the crime should be proceeded against only
departmentally in the absence of sanction under Section 15A of the Essential
Commodities Act, 1955. The Committee therefore recommends that Section
15A be suitably amended by deleting clause (b), which deals with public
servants belonging to the State Governments. The Committee also
recommends that till the legislature makes such an amendment as proposed,
the State Government shall delegate the power of sanction for prosecution to
the Ombudsman/Regulator.

B. The Ombudsman/ Regulator can recommend payment of compensation to a

complainant upto a maximum amount of Rs. 5,000/-, and/or supply of goods
 and services as required for resolving the complaint or/and issue cease and
desist order. In case of complaints of a frivolous nature, the complainant will
also be liable for similar action. The amount mentioned above would be paid
by the Department to the beneficiary at the first instance and would be
recovered from the concerned officer.

C. The complaints received by the Ombudsman/ Regulator may be referred by

him for a report from the District Vigilance Committee or FPS Vigilance
Committee, as the case may be. It is clarified that this power of the
Ombudsman/ Regulator to make a reference shall be in addition to and not in
derogation of the powers of the Ombudsman/ Regulator to conduct an
independent enquiry into complaints. While, the reports so received, will assist
the Ombudsman/ Regulator in providing solution, these reports will not be
binding upon the Ombudsman/ Regulator.

D. The Ombudsman/ Regulator also may not entertain a complaint if the

complaint is more than 90 days old which can, however, be relaxed by
Ombudsman/ Regulator in his discretion in deserving cases and final resolution
of complaints will need to be prescribed for ensuring speedy and efficacious
handling of complaints.

E. Time limits for addressing complaints, various stages involved in completion of

investigation and final resolution of complaints will need to be prescribed by
the Ombudsman/ Regulator for ensuring speedy and efficacious handling of
complaints.

F. The Ombudsman/ Regulator will ensure that all codes/orders/regulations etc.,

are put on the website for the convenience of the consumers.

G. The Ombudsman/ Regulator will have authority to suggest/recommend

changes in operational matters to smoothen and simplify the operation of the
system.
4.10 Structure

The Ombudsman/ Regulator would need to be given a nucleus of staff to

examine issues from both reactive and pro-active approaches.

4.11 Funding

It will be the responsibility of the Government to provide funds for

implementation of the aforegoing recommendations including meeting
administrative and operational expenses of the office of Ombudsman/
Regulator including the staff thereof. In this context it is relevant to point out
that the Planning Commission provides funds under its plan programmes for
monitoring and improvement in the management of supplies.

V. OBSERVATIONS

5.1 The duty to convene Vigilance Committees in terms of the Order of Supreme
Court dated 8th May, 2002 is on the District Collector. However it was found
that there is uniform non adherence to the directions of the Hon’ble Supreme
Court. Responsibility has to be fix on District Collector that not only directions
given by Hon’ble Supreme Court are followed, various advisory Committee’s
formed under the Government Order constituting the Committee’s function
strictly in accordance with there it.

5.2 Various Committees constituted under the Consumer Proctection Act, 1986
could also be entrusted with the job of Vigilance in respect of PDS.

VI. ENFORCEMENT

6.1 Enforcement is in dismal state. Enforcement is virtually non-existent. In

spite of their being vast complaints against the FPS owners, not much action seems to
have been taken against the shopkeepers. It is stated by the State Government that
periodical checks are being made by the field functionaries of Civil Supplies
Department regarding regulating the sales and distribution of Essential Commodities
to the ration card holders as per their entitlement. It appears enforcement is
activated only in the year 2008 when it is stated that upto July 2008 1134 number of
cases detected and action suggested against the dealers for contravention of the
terms and condition of licences or of the Control Order issued under the Essential
Commodities Act 1955. It was stated that action had also been taken against the
officials for negligence of their duties. Apart from these statements no particulars
have been given by the State Government. No particulars of the action taken and
result thereof have been indicated by the State Government.

6.2 From the statement of pending cases under the Essential Commodities Act
1955 as furnished by the Hon’ble Orissa High Court we find the break-up of
the pending cases as on 31.10.2008 is as under:

Year No. of cases pending

1999 11

2000 16

2001 30

2002 58

2003 25

2004 48

2005 179

2006 187

2007 157

2008 45
6.3 The number of cases decided during the last 3 years is given as under:

Year No. of cases decided

2005 21

2006 19

2007 12

From the statement given by the High Court it would appear that the
Department is not taking much interest in the follow up action of the cases.

6.3 The Committee has been suggesting that as far as infraction of any provision
of law under the Essential Commodities Act 1955 is concerned, it should be a case of
zero tolerance. After examining the whole lot of cases those pending in the Court
and the action taken by the Department, the Committee is of the view that punitive
action taken by the State Government is ineffective and inadequate. Malpractices in
the PDS continue because of lack of effective enforcement system. The Supreme
Court issued direction by its Order dated 2.5.2003 to facilitate the supply of
foodgrains. But the Committee found during its visit that the directions were not
being followed. The directions given are as under:

A. Licensees who

• Do not keep their shops open through out the month during the
stipulated time.

• Fail to provide grain to BPL families strictly at BPL rates and no higher

• To keep the cards of BPL house holds with them

• Make false entries in the BPL cards,

 • Engage in black marketing or siphoning away of grains to the open
market and hand over such ration shops to such other
person/organizations

• Shall make themselves liable for cancellation of their licenses. The

concerned authorities/functionaries would not show any laxity on the
subject.

B. Permit the BPL household to buy the ration in instalments.

C. Wide publicity shall be given so as to make BPL families aware of their

entitlement of foodgrains.

Need of the hour is immediate setting up of enforcement mechanism.

A vigilant consumer or any vigilance set up can not succeed without a proper
enforcement mechanism. Section 7 of the Essential Commodities Act, 1955 provides
punishment for violations of the Control Orders issued under Section 3 of the Act.
These provisions are technical in nature and require specially trained personnel to
enforce them. The normal police have proved ineffective in enforcing these provisions.

It has also been observed that the cases filed under the Essential Commodities Act,
1955 keep on pending in courts indefinitely and a large majority of cases end up in
acquittal of the accused persons. It is necessary that special courts and specially
trained prosecutors are appointed for the trial of these cases.

The license granted to the dealers lay down certain conditions. The violation of these
conditions makes the license liable for cancellation of his license. The Supreme Court
has also ordered that a license would make himself liable for cancellation of his license
in the following cases.

That the licenses of those fair price shop owners

 • who do not keep their shops open throughout the month during the stipulated
period,

• fail to provide grain to BPL families strictly at BPL rates,

• keep the cards of BPL households with them,

• make false entries in the BPL cards,

• engage in black-marketing or siphoning away of grains to the open market,

and

• hand over such ration shops to such other person/organizations, will be liable
to be cancelled.

This order was passed on 2.5.2003 but no action has been taken by the states to
enforce this order. It is therefore necessary that the special squads consist of persons
drawn from the administration and the police and should be placed directly under the
District Magistrate. These squads should be responsible for launching criminal
prosecutions and also for recommending departmental action for suspension or
cancellation of license, or imposing penalties No action has been taken against any
official though it is admitted that no diversion of food grain is possible without the
connivance of the officials of the department. . It is also important that these squads
also have the powers to recommend action against officials in whose jurisdiction
violations are detected or who is found to be involved in diversion of food grain. The
Committee feels that there should be dedicated Special squads in every District for
enforcement of the penal provisions of the Essential Commodities Act, 1955. The
Committee has suggested Zero Tolerance in the matter of enforcement in the Public
Distribution System. Similarly a special squad should also be created at the State level
for surprise checks whenever there is complaint requiring such action. Prosecutors
should be specially trained for conducting cases under the Essential Commodities Act.
Special attention is also required to ensure speedy disposal of cases filed in courts.
Special Courts may have to be set up in consultation with the High Court to ensure
speedy disposal.
 CHAPTER 7

IDENTIFICATION OF BENEFICIARIES

1.1 A critical issue which has arisen in the course of the various visits by the
Committee to different States pertains to proper identification of BPL
beneficiaries. One of the critical factors which has resulted in the PDS not
functioning properly is what can be termed as ‘exclusion and inclusion errors’.
This issue is extremely pivotal in as much as till a rational criteria for the
identification is put in place for the identification of true beneficiaries and an
independent survey is conducted to ensure that the poorest of the poor are
infact covered under the BPL/AAY categories as the case may be, all other
measures being suggested by this Committee may be defeated as a faulty
beneficiary list would continue to erode the effectiveness of the system.

1.2 The subject of identification is being discussed in the State report on Orissa
although its relevance would be felt in every State report being submitted by
the Committee.

1.3 In Orissa the identification of BPL families is yet not completed and it was
observed that many people who are below poverty line have been excluded
from TPDS benefits.
1.4 The State of Orissa enacted Orissa PDS (Control) Order 2008 which provides
for the identification and review of beneficiaries. (Clause 21)

1.5 Clause 21 Orissa PDS ( Control) Order, 2008

A. Sub-Clause 1 provides that Identification of Beneficiaries under BPL, AAY and

Annapurna Scheme shall be made in accordance with the guidelines issued by
the Government.

B. Sub-Clause 2 requires a periodic review of Beneficiary List. The Gram Sabha in

Rural areas and Urban Local Bodies in Urban areas are required to review the
lists of Below Poverty Line, Antodaya Anna Yojana and Annapurna beneficiaries
every year for the purpose of deletion of ineligible families, addition of eligible
but left out families and elimination of bogus cards.

C. When the Committee held deliberations with the officers of the State of Orissa,
its Principal Secretary was specifically asked if the State Government had
formulated any guidelines for the purposes of identification of families living
below the Poverty Line (BPL), including the ANTODYA families as envisaged in
Para 1 of the Annexure to the PDS Control Order, 2001. He replied that no
such criteria had been formulated. He further stated on being asked if the State
Government had been getting the list of BPL and Antodaya families reviewed
every year for the purposes of deletion of ineligible families and inclusion of
eligible families as required in Para 2 of the Annexure to the PDS Control Order,
it was stated that no such review was done.

D. It was also revealed that the State Government had not prescribed any
Proforma to be filled on behalf of the head of the family while under taking the
exercise of identification of BPL families as required in Para 3 of the Annexure
to the PDS Control Order, 2001.
1.6 The Adverse aspects of the identification and how it drastically
impacts food Security

A. The surprise visit to a remote village Chamunda in the District Sambhalpur

revealed several lacunae. The inaccessible hilly terrain and dense forests has
lead to lack of development. There were several grievances amongst tribal and
poor population in the area. The Committee observed that most of the genuine
persons do not possess any card. There are many families in the village who
are very poor and living in very bad state having nothing to eat. This again
leads to the inevitable inference that exclusion/inclusion errors are one of the
major maladies afflicting the PDS.

B. Further in Kalahandi District, several lacunae on account of identification were

apparent. The real problem in this area was in respect of identification. The last
survey for the identification of BPL which has been accepted by the
Government was done in the year 1997.

C. The Committee was informed that because no survey had been conducted in
the area for many years, districts like Bolangir which are backward show 60 %
population as BPL where as other districts which are more advanced and
developed show 80% of their population as BPL. This itself shows that issue of
wrong identification is a serious problem in the context of food security.

D. It was therefore noticed that the process of identification in the State which is a
critical element for the success of the PDS was in total disarray. This led the
Committee to delve in some depth into the issues concerning identification of
beneficiaries which are detailed herein below.

II. IDENTIFICATION OF BPL FAMILIES

2.1 Background

A. In June 1997, The Government of India launched the Targeted Public

Distribution System (TPDS) with focus on the poor. Under the TPDS, States are
required to formulate and implement foolproof arrangements for identification
of the poor for delivery of foodgrains and for its distribution in a transparent
and accountable manner at the FPS level.

B. The Scheme, when introduced was intended to benefit about 6 crore poor
families for whom a quantity of about 72 lakh tones of foodgrains was
earmarked annually.

C. To work out the population below the poverty line under the TPDS, there was
a general consensus at the Food Ministers’ conference held in August 1996, for
adopting the methodology used by the Expert Group set up by the Planning
commission under the Chairman Ship of Late Prof. Lakadawala. Thus, the
identification of the poor under the scheme is done by the States as per State-
wise poverty estimates of the Planning Commission for 1993-94 based on the
methodology of the Expert Group on estimation of proportion and number of
poor chaired by Late Prof Lakadawala.

D. The number of BPL families has been increased w.e.f 1.12.2000 by shifting the
base to the population projections of the Registrar General as on 1.3.2000
instead of the earlier population projections of 1995. With this increase the
total number of BPL families is 652.03 lakhs as against 596.23 lakhs families
originally estimated when TPDS was introduced in June 1997.

E. The Antyodaya Anna yojna (AAY) was launched in December 2000 for the
estimated one crore poorest of the poor families among the BPL households.
 Later it has been expanded thrice to cover additional fifty lakh families every
time. By December 2007, 2.43 lakh AAY families have been identified and
ration cards issued to them. The Present monthly allocation of foodgrains
under AAY is around 8.49 lakh tones per month as on December, 2007.

F. The scale of issue under APL, BPL and AAY has been revised to 35 kg.per
family per month with effect from 1.4.2002 with a view to enhancing the food
security at household level and liquidating surplus stocks of foodgrains in the
Central Pool.

2.2 Annexe to the Public Distribution System Control Order, 2001

A. Identification of families living below the poverty line:

(1) State Governments shall formulate suitable guidelines for the purpose of
identification of families living Below the Poverty Line (BPL), including
the Antyodaya families, as per the estimates adopted by the Central
Government. Care will be taken to ensure that the families so identified
are really the poorest. The exercise of identification of BPL and
Antyodaya families, wherever it has not been done already, shall be
completed within three months of the issue of this Order.

(2) State Governments shall get the lists of BPL and Antyodaya families
reviewed every year for the purpose of deletion of ineligible families and
inclusion of eligible families.

(3) While undertaking the exercise of identification or review of BPL and

Antyodaya families, each State Government shall prescribe a suitable
proforma to be filled up by or on behalf of the head of a family.
 (4) The data provided in the prescribed proforma shall be verified by the
authority designated by the State Government for the purpose. The said
authority shall also certify the correctness of the information contained
in the proforma.

(5) Gram Sabhas shall finalise the list of beneficiaries belonging to BPL and
Antyodaya categories drawn up by the designated authority in respect of
the area under their respective jurisdictions.

(6) Where there are no Gram Sabhas, the local representative bodies shall
finalise the list of beneficiaries belonging to BPL and Antyodaya
categories within their respective jurisdictions.

(7) The designated authority of the State Government or the local

representative bodies including Gram Sabhas and Gram Panchayats
which have been entrusted with the task of identification of
beneficiaries, shall verify and certify the information in the prescribed
proforma for BPL and Antyodaya families.

2.3 Guidelines from Ministry of Civil Supplies and Consumer Affairs (Government
of India)

A. The Ministry of Civil Supplies, Consumer Affairs and Public Distribution issued
guidelines for the implementation of the TPDS to all states and Union
Territories . The said guidelines also provides for identification of Population
Below Poverty Line.

B. Guidelines in the year 1997

1. To work out the Population Below Poverty line BPL it is proposed to
adopt the provisional estimates arrived at by the Planning Commission
for the year 1993-94 adopting the methodology of “ Expert Group on
estimation of proportion and number of poor Constituted by the
Planning Commission under the Chairman ship of Late Prof. Lakadawala
(Expert Group). According to the official methodology so far adopted,
the number and percentage of Below Poverty Line population for 1993-
94 works out to 14.98crores persons and 16.82% respectively. As per
the Expert group methodology this worked out to 32.03 crores and
35.97%. The Expert Group methodology according to the Deputy
Chairman, Planning Commission gives “ poverty estimates closest to the
ground reality” and as such it is proposed to adopt them for the
Targeted PDS.

2. While these estimates give the number of persons and percentage of

BPL population at State Level, identification at the micro level of the
population Below Poverty Line can be done as indicated below:

i. The quinquennial surveys made by the Ministry of Rural Areas and

Employment for implementation of IRDP etc on household living Below
Poverty Line can be a basis. However, the overall number identified
should be limited within the population Below Poverty Line as fixed by
the Union Planning Commission adopting the methodology of Prof.
Lakdawala’s Expert group.

ii. Gram Panchayats and Gram Sabhas should be involved in the initial
identification of eligible families.

iii. Final identification should be made after verification of Doubtful cases.

 iv. As regards urban population, slum dwellers will generally qualify for
the BPL. Applications, if any, received from non-slum areas should be
verified to identify eligible beneficiaries.

v. The thrust will be to include only the really poor and vulnerable
sections of the society such as landless agricultural labours, marginal
farmers, rural artisans/craftsmen such as potters, tappers, weavers,
blacksmiths, carpenters, etc. in rural areas and slum dwellers and
persons earning their livelihood on a daily basis in the informal sector
like porters, coolies, rickshaw pullers and hand-cart pullers, fruit and
flower sellers on the payment etc.., in urban areas. The above criteria is
indicated only by way of illustration and is in no way an exhaustive list
of those who could be brought within the ambit of the Below Poverty
Line. The total number identified, however, should be within the limits of
BPL population indicated by the Planning Commission.

2.4 BPL census in India by MoRD

A. Ministry of Rural Development, GOI (MoRD) conducts BPL census in all the
rural areas of the country in the beginning of each Five Year Plan, through the
State Governments/ UT administrations fro identification of persons living
below the poverty line for targeting them under the Programmes of the
Ministry.

B. BPL census 1992 (8th Plan 1992-97):. In the BPL Census conducted by
MoRD during 1992, income was used for defining BPL households in contrast to
the expenditure route adopted by the Planning Commission for estimation of
Poverty. The census used self-reported household incomes to identify BPL
households. However, given the difficulties of measuring income, particularly
 when incomes come largely from self-employment in agriculture, the self-
reported income approach was abandoned in the 1997 BPL census.

C. BPL census 1997 (9th Plan 1997-2000): MoRD conducted 1997 Census
taking the view that poverty line should be estimated in terms of the
Expenditure of the households. The basic criteria defining a BPL household was
the monthly per capita expenditure of the household. If the per capita
household expenditure was less than the poverty line (the cut off limit of
income adopted by the Planning Commission), the household was defined as
poor. The reference period or recall adopted was the last 30 day’s. Such
households were considered to be poor and eligible for assistance during the
Ninth plan provided that the other basic conditions laid down n the guidelines
were met.

D. The BPL census schedule has two parts. Part A and Part B. In Part A a set of
five questions were asked of each and every household in the village for quick
assessment of the status of household .

(i) whether operated size of land was more than two hectares;

(ii) whether owned a ‘pucca house’ as defined in the Population Census;

(iii) whether annual income was more than Rs. 20,000;

(iv) whether owned any of the following consumer durables: television,

refrigerator, ceiling fan, motor cycle/scooter and three wheelers; and,

(v) whether owned farm equipment such as tractor, power-tiller, or

combined thresher/harvesters

E. If households answered in the affirmative to any one of the five questions,

they were declared to be visibly non-poor. This was done to differentiate the
 “visibly poor” from the “visibly non-poor” households in the village relatively
quickly and in an inexpensive manner.

F. In the case of those households that do not fulfill even one of the five criteria
laid down in Part A, would the surveyor proceed to gather information in Part B
of the Schedule covering sex , age, physical disability, educational status,
social Group, religion, occupation type of housing ( ownership) , etc.

2.5 The methodology of 1997 Census faced following Criticism:-

1. The exclusion criteria adopted for excluding visibly non-poor was not
appropriate, as possession of even a ceiling fan would categorize a
family as non-poor.

2. Non-availability of official poverty lines for all states/UTs; Estimates of

poverty lines were available only for 17 States and the estimate of
poverty line for the nearest State was applied for the remaining
States/UTs. This has reportedly been unfavourable to the States for
which poverty lines were not estimated separately.

3. Uniform criteria were adopted for all the rural areas throughout the
country, without allowing for inter-State variations particularly in respect
of hilly and remote areas.

4. Not allowing new households to be declared poor in the interim period

before the next survey is instituted. There was no provision for adding
to the BPL list, after finalization , by way of inclusion of persons who
have subsequently become poor.

2.6 BPL Census 2002 (10th Plan 2002-2007):-

A. The BPL Census 2002 was based on methodology of score based ranking or
rural households, for which 13 socio-economic parameters were used. The
state governments were directed to finalize survey by 31/3/2003.

B. As per the guidelines for the BPL Census 2002, whereas estimation of poverty
helped to assess the magnitude of poverty, identification of households below
BPL was necessary for targeting them under various poverty alleviation
programs. The improved design for the BPL census 2002 adopted a normative
approach for identification of the rural poor with score-based ranking of each
household based on quality of life, (not income or expenditure approach) which
included both economic and social indicators. The schedule for canvassing
information had 13 cardinal indicators for which scores had to be assigned on a
relative scale together with some non-scorable variables used for categorizing
households into very poor, poor, not so poor and non poor. For the BPL census
2002, the NSSO survey mentioned categorically that the total number of BPL
persons identified were not to exceed by more than 10% of the number of BPL
persons estimated by the Planning Commission for India’s rural sector in the
year 1999-2000.

C. The following States and UTs have finalized the BPL list based on the BPL
Census 2002

Name of the
S. No. Name of the State S. No.
State
1 Andhra Pradesh 12 Mizoram
2 Arunachal Pradesh 13 Nagaland
3 Assam 14 Punjab
4 Chhattisgarh 15 Rajasthan
5 Goa 16 Tamil Nadu
 6 Gujarat 17 Uttar Pradesh
7 Himachal Pradesh 18 Uttarakhand
8 Jharkhand 19 West Bengal
9 Karnataka 20 A & N Island
10 Madhya Pradesh

D. Commissioners of the Supreme Court [W P (Civil) No. 196 of 2001] critically

analyzed the 13 socio-economic indicators used for 2002 BPL Census
conducted by Ministry of Rural Development for identification of BPL (
beneficiaries) of its own schemes. The criteria for identifying BPL the house
hold should be of a directly verifiable and observable nature. Most of the 13
criteria, on the other hand, are not easily or clearly verifiable.

1. Land Holdings: If a land holdings-related question is to be used as a

question in BPL Census 2009 it should perhaps simply ask whether
the person has any land at all or not, i.e. whether the person is
landless or not. Such a question would obviate the difficulty of
investgating the issues of land quality and that of sources of
irrigation. The question of irrigation, non-irrigation or irrigation by
Private/ Public entity seems vague and unreasonable.

2. Type of House: Census criteria used by the Registrar General of

India enable us to clearly distinguish between a kutcha, semi-pucca
and pucca house. This question is reasonably clear cut.
3. Availability of Clothing: This question investigates whether a person
owns less than two pair of closing at a minimum, increasing up to
“more than 10 pair”. This question is flawed for several reasons.
First, in colder climates more clothing is required than in warmer
climates. Second, it is unclear from the question whether under
garments are counted among clothing or not. Answers to such
question are bound to lead to very unclear outcomes.

4. Food Security: This question is comparable to the NSS question on

“whether a family gets two square meals a day”. Even if all the
members of a household eat two meals per day there may be
serious problems with the quality of the meal, as reflected in the
calorie intake and protein intake per meal. Moreover, there is no way
the answer to the question will reveal how the food is being shared
between the man in the household on the one hand, and the women
& girls on the other.

5. Sanitation : This is a perverse question and encourages totally

perverse behavior. This kind of question would discourage families
from actually investing in a private latrine.

6. Ownership of Consumer Durables: possession of a TV requires a

much higher purchasing power than possession of an electric fan or
radio. Therefore simply counting, as the BPL Census questionnaire
does, whether the household has any such item or “all items” is not a
meaningful exercise. However, the expert group can consider using
possession of consumer durables (for example, a motorcycle, colour
 TV, Fridge) as exclusion criterion, as a criterion for excluding a house
hold from the BPL category.

7. Literacy status of highest literate: The lowest scoring category under

this criterion is “Illiterate” while the highest scoring category “Post
Graduate”. There is slight risk that this question will not yield very
meaningful answers for many reasons. First, even with a post
graduate degree the holder of the degree may still be unemployed.
An unemployed person may still be thus a head of poor house hold.
Second, what means will the investigator use to interrogate and then
confirm the educational status of the highest literate is also not clear.

8. Status of House hold labour: as formulated in the questionnaire, this

question does not address the problems that in most rural house
hold women and children work along side the adult male on the
family farm. In any case, it is unclear how the investigator will
ascertain that only the adult male in the house hold is working, while
the woman and children are not.

9. Means of livelihood: This question asks whether means of livelihood

is casual labour (zero points), or subsistence cultivation (1) or artisan
(2), or salary (3), or others (4). This question simply fails to
understand that the poor always have multiple sources of livelihood,
and members of a household are likely to be engaged in different
kinds of work, and even the same individual may engage in different
kinds of work and derive income from those sources at different
times of the year. In other word it is impossible for house hold,
 while answering the question, to merely tick one of the five listed
answers to the question.

10. Status of Children: This question investigates whether the children

are “not going to school and working”, or “going to school and
working”, or “going to school and not working”. The answer to this
question would be either perverse or not meaningful if it encourages
parents to force the child to not go to school and only work, simply
because it would entitle them to zero points and hence increase the
chances of the household being counted as BPL.

11. Type of Indebtedness: This question, of all questions among the 13

criteria, shows the least understanding of ground realities of the rural
indebtedness. The poorest people lack assets, which can be used as
collateral, and hence are unable to borrow. But this question gives
the highest score “4” to the household that is not indebted. In
another words, the poorest house hold might end up getting four
points and thus rule itself out of the BPL category.

12. Reason for Migration: This question gives the lowest score to the
house hold which has a member migrating for casual work, and gives
the score of 3 to non-migrants, and score of 4 to those migrating for
reasons other than casual work. Quite of apart from the fact that
this question does not distinguish households from which only one
member has migrated from those from which more than one
member might have migrated, it is entirely unclear why the reason
for migration should merit different scores for the purposes of
 determining whether a family is BPL or not. Not surprisingly, the
West Bengal Govt. excluded the criteria in its rural survey.

13. Preference of Assistance: This question is also among the most

meaningless among the all criteria. It does not attempt to establish
the current status of a household in respect of a particular tangible
attribute of well-being, but rather interrogates whether the
household would like to receive assistance in the form of wage
employment (zero) or self-employment (1) or training (2) or
housing (3), or loan more than rupees one lakh (4). Given that such
a question would yield answers that are less than meaningful when
comparing across categories of answers, the West Bengal
Government eliminated this criterion from its rural survey.

2.7 Comments, Suggestions and Criticism of the 2002 criteria by the Programme
Evaluation Organisation (PEO) of the Planning Commission:-

A. The report of the (PEO) dated March 2005 suggested following things:-

1. It would be appropriate to do away with the methodology of identifying poor

families on the basis of Income/expenditure criterion, as identifying sources of
income at the household level and measuring them with precision on such a
large scare are fraught with many problems.
2. The report further suggested that criteria for BPL identification should include
only easily observable qualitative criteria relating to occupations, assets or any
other qualitative criteria relating to occupations, assets or any other qualitative
indicators of economic insecurity.

3. The proportion of population with food insecurity need not necessarily be

identified with Planning Commission’s poverty ratio. Analysing the survey data
of NSSO and Planning commission’s poverty estimate tends to suggest that the
size of the population with food insecurity will be larger than the size indicated
by Planning Commission for many States. In some states like Haryana,
Himachal Pradesh and Punjab, it would be lower, though.

4. Those families who do not have a secure source of regular income, should be
netted into BPL category irrespective of their current income levels (i.e. those
with economic insecurity). As many daily wage earning families have been left
out of BPL category because their current income levels are above the Planning
commission’s Poverty Line.

5. The set of assets and their relative weights need to be specified with utmost
care and region-wise. The criterion should be widely pre-tested too.

6. Active and effective involvement of the PRIs should be built into the process of
identification of the poor.

7. Since the BPL identification survey is so critical to the success of TPDS, it is

appropriate that this be carried out in all the States, through a collaborative
 endeavour with reputed agencies such as the NSSO, NCAER and State level
research / survey institutions. The database so created may be computerized
for effective monitoring and regular updating.

B. Kinds of Identification Errors and their Implications as identified by the PEO

PEO report identified 5 types of errors of identification

1. Exclusion Errors ( EE)

2. Inclusion Errors (IE)

3. Double Counting errors (DE) i.e. the proportion excess

of ration cards over the number of households.

4. Missing Households Error (ME) i.e the proportion of

households who have been left out of the TPDS;

5. Shadow ownership Error (SE) i.e the proportion of BPL cards

being held by person other than the original owners.

C. It is observed in the Report citing Cornia and Stewart (1993), the exclusion
errors (EE) are indeed very high for most states in the TPDS regime. However,
in the States of Andhra Pradesh and Tamil Nadu, the EE is low and IE is high.
The EE in Karnataka could also have been low, had there not been a large
scale shadow ownership of BPL cards. The three Southern States exhibit a
different pattern from the rest because they have historically followed a policy
 of extending the benefit of subsidized food grain to a larger section of the
population. In fact, in Karnataka too, the exclusion errors arising out of APL-
BPL identification errors is as low as in Andra Pradesh. However, when the
exclusion of BPL households due to shadow ownership errors is included, the
EE for Karnataka assumes a very high value implying a major weakness in the
implementation of TPDS in the State.

2.8 Inclusion Errors - Three States viz, Andra Pradesh, Karnataka and Tamil Nadu
have exhibited very high inclusion errors. High inclusion error implies diversion
of PDS benefits to unintended beneficiaries and hence, raises cost of delivery
and burden of budgetary food subsidies.

2.9 Double Counting Errors - Gujarat Haryana, Karnataka, Kerala, Madhya Pradesh,
Rajasthan, Tamil Nadu and U.P have issued a large number of excess ration
cards over the number of households.

2.10 Missing Households Error- Assam, Bihar, Himachal Pradesh, Punjab and west
Bengal have exhibited high ME. Since no cards have been issued to these
households. M.E implies welfare loss to the extent the BPL households have
been left out of purview of TPDS.

2.11 Kerala

A. Kerala experimented with nine non-monetary indicators of poverty under Urban

Basic Services for the Poor (UBSP) in Alleppey Municipality in early 90’s and
 extended the same to Rural areas of Malappuram in 1995. These nine
indicators also known as risk indicators included kutcha house, no access to
safe drinking water, no sanitary latrines, illiterate adults in the family, not
having more than one earning member, not getting two square meals a day,
children below 5 years in the family, alcoholic or drug addict in the family and
family belonging to Scheduled Caste or Scheduled Tribe. Any family which
attracted 4 or more indicators was deemed to be at risk and included in the
BPL category.

B. Keeping in view the simplicity and community acceptance of the above

methodology, it was applied to Kudumbashree programme of Kerala.
Advantages of this methodology included – easy to understand, accepted by
the community itself, reduced patronage and arbitrariness, facilitated ranking
based on severity of poverty, enabled monitoring of progress, ensured
ownership of data, facilitated micro-level planning.

III. MoRD Expert Group for 2008 BPL Census

On 12th August 2008 Ministry of Rural Development constituted an Expert

Group under the Chairman ship of M.Shankar to advise the Ministry of Rural
Development on the methodology for conducting the Below Poverty Line
Census for 11th Five Year Plan. The expert group consists of 16 other members
including non official members.

For the purposes of completeness the creation and expansion of the AAY
category is briefly described below,
IV. ANTODAYA

4.1 AAY is a step in the direction of making TPDS aim at reducing hunger among
the poorest segments of the BPL population. A NSS Exercise points towards the
fact that about 5% of the total population in the country sleeps without two
square meals a day. In order to make TPDS more focused and targeted
towards this category of population, the “Antodaya Anna Yojana”(AAY).

4.2 Identification of the Antodaya Families and issuing of distinctive ration cards to
these families is the responsibility of the Concerned State governments.
Detailed guidelines were issued to the States/UTs for identification of the
Antyodaya families under the AAY and additional Antyodaya families under the
expanded AAY. Allocation of foodgrains under the scheme is being released to
the States/ UTs on the basis of issue of distinctive AAY Ration Cards to the
identified Antyodaya families. The present monthly allocation of foodgrains
under AAY is around 8.49 lakh tones per month as on December, 2007.

4.3 Presently, foodgrains are supplied at a rate Rs 2/- per kg for wheat and Rs. 3/-
per kg. for rice. The scale of issue that was initially 25kg. per family per month
has been increased to 35kg. per family per month with effect from 1 st April
2002.

4.4 First Expansion of AAY

The AAY scheme has been expanded in 2003-2004 by adding another 50 lakh
BPL households headed by widows or terminally ill persons or disabled persons
or persons aged 60 years or more with no assured means of subsistence or
societal support. With that increase 1.5crores(i.e. 23% of BPL ) families have
been covered under the AAY.
4.5 Second Expansion of AAY

From 3rd August 2004 AAY has been further expanded by another 50 lakh
BPL families. The guidelines stipulated the following criteria:-

A. Landless agriculture labourers, marginal farmers, rural artisans/craftsmen such

as potters, tanners, weavers, blacksmiths, carpenters, slum dwellers and
persons earning their livelihood on daily basis in the informal sector like
porters, collies, rickshaw
B. pullers, handcart pullers, fruit and flower sellers, handcart pullers, fruit and
flower sellers, snake charmers, rag pickers, cobblers, destitutes and other
similar categories irrespective of rural or urban areas.
C. Households headed by widows or terminally ill persons or disabled persons or
persons aged 60 years or more with now assured means of subsistence or
societal support.
D. Widows or terminally ill persons or disabled persons or persons aged 60 years
or more or single women or single men with no family or societal support or
assured means of subsistence.
E. All primitive tribal households

With this increase, the number of AAY families has been increased to 2 crores
(i.e. 30.66% of BPL families)

4.6 Third Expansion of AAY

 It was again announced in the Union Budget 2005-2006 , that AAY is to be
further expanded to Cover another 50 lakh BPL households thus increasing its
overage to 2.5 crore households. (i.e. 38% of BPL).

V. OBSERVATION

5.1 The Committee recognizes the fact that it is not an expert body to prescribe
identification guidelines and is therefore not venturing into any such task.
However, the Committee recognizing the critical nature and importance of
identification and the fact that exclusion and inclusion error are a very serious
malady afflicting the PDS, recommends that the expert body constituted by the
MORD in terms of the order of the Supreme Court dated 14 February 2006,
give its recommendations in a time bound manner and each State within a time
frame fixed by the Hon’ble Court prescribe transparent criteria of its own for
identification keeping in mind local conditions.

5.2 Once such guidelines are in place, as suggested in the Delhi report, a time-
bound door-to-door drive to identify genuine beneficiaries and eliminate
wrongful exclusions and bogus cards which is to be conducted by a reputed
independent agency. The agency will also simultaneously conduct a consumer
satisfaction survey, which will enable the department to bring in necessary
improvements to the system.

5.3 There would be an amnesty period of four weeks where persons holding bogus
cards could surrender them without liability. However on the expiry of this
period the above mentioned intensive door to door verification would be
conducted and during that verification if any bogus card is detected both the
holder as well as the officers who had recommended the bogus card would be
prosecuted under Section 7 and other Sections of the Essential Commodities
 Act, 1955 without exception. The Officers can be proceeded against
departmentally and severely punished. Widest possible publicity must be given
to the amnesty scheme.

5.4 There is a need to revisit income criterion prescribed for the BPL category. The
government/MORD committee may also consider using consumption criteria
that is to say calorie intake per person per day as an indicator of poverty as the
minimal objective to be achieved by TPDS is to ensure that every poor person
gets two square meals a day. This is recommended in as much as a purely
income based criteria may in certain circumstances be misleading in terms of
actual determination of persons below the poverty line. However the estimation
of poverty should not be made on a criteria which is less than the minimum
wage fixed by the state for agricultural labourers or the wage fixed by the
Central Government under Section 6 of the NREG Act 2005. It may not be out
of place to point out that several states the minimum wage for agricultural
labour is in the range of Rs 100 and even the NSSO in its estimate fixes the
estimate of expenditure at Rs 20 per capita per day which works out to Rs 100
per day per family (a family is taken as 5 members).

5.5 The above mentioned recommendations are required to be put in place on an

urgent basis in the State of Orissa in as much as no BPL survey has been

conducted since 1997. In the absence of a survey in spite of a specific mandate

under the PDS Control Order, has resulted in large exclusion errors leaving

several people who are in the need for food security out of the PDS. This is

especially seen in the poorest districts of Orissa called the KBK district.

5.6 The abovementioned Committee set up by the MORD is essentially to devise a

criteria for identifying the correct beneficiary in a rural setting. For the urban
scenario however a different criteria will have to be devised. The committee in
its report on Delhi had suggested that the basis for determination as to
 whether a person is BPL or not should be based on the minimum wage payable
to an unskilled workman in the area i.e. to say if the person is earning below
this amount he would be deemed to be below the poverty Line.

5.7 The Committee is also reiterating its suggestion/recommendation made in the

Delhi report that the concept of APL be abolished. Reference may be made to
the said report for a detailed analysis of the said recommendation and it may
be added that the committee in its visit state after state has found that the
Concept of APL is serving no useful purpose for food security but is instead
only a diversion tool. It may be added here that certain states for e.g.
Karnataka which is infact recognizing the same by giving the food grain under
this category to persons who are BPL but cannot get BPL cards owing to the
cap fixed by the planning commission under a category called EBPL (this aspect
is elaborated in the Karnataka state report).

5.8 It is however relevant to point out that State like Karnataka which have
adopted a system like EBPL must ensure that the BPL Quota is not expanded to
unrealistic levels for political considerations. In this context, it may be noticed
that the Central Government has warned State that it would cut Rice supply
under APL if the no. of BPL beneficiaries is not brought down.
 CHAPTER 8

COMPUTERISATION

1.1 In the State of Orissa, the computerization of PDS activities is almost non-
existent. As a sample, the District of Angul was studied in order to understand
the possibilities of introducing a automated end to end PDS system in the
State. The District of Angul is divided into 8 blocks, namely,

i. Angul block

ii. Athamallik block

iii. Banarpal block

iv. Chhendipada block

v. Kaniha block

vi. Kishorenagar block

vii. Pallhara block

viii. Talcher block

1.2 Angul block comprises of 32 gram panchahyat’s (GP’s) which in turn cover 219
villages. The District NIC centre is situated at Angul block and is equipped with
VSAT facility. It was further revealed that all Districts in Orissa are equipped
with VSAT facility and broad band connectivity has also been provided up to
the block level, provided by BSNL. For eg, in Angul District the farthest village
from the block head quarters at Angul is Tikarpada which is at a distance of 70
kms from Angul and is well connected by road. VSAT connectivity at the block
level was not satisfactory as the speed is slow. Broadband was however
working well.

1.3 The Committee was informed that in order to provide connectivity through
optical fiber up to the panchayat level a project called the OSWAN (Orissa State
Wide Area Network) is being implemented and the tender has been awarded to
SPANCO Delhi.

1.4 Efforts at automation have however been taken by the State in respect of
Land records and public access to such records have also been provided on the
internet at www.bhulekh.ori.nic.in. The system seems to be working well at the
Block Level and therefore a similar attempt at automating the PDS is not
difficult.

1.5 A detailed discussion on Compterizartion is being provided in a separate report

being submitted to the Hon’ble Supreme Court and the inferences there in may
be read as part and parcel of this report.

II. OBSERVATIONS:-
A. That broad band connectivity is available till the block level at present coupled
with the fact that connectivity through optic fiber is likely to link the panchayats
in the not too distant future is extremely encouraging as connectivity is one of
the major areas of concern when one is considering the implementation of the
smart card system coupled with the PoS device.

B. As has been highlighted earlier in this report, the primary and the most
essential step in the attempt to cure the ills of exclusion and inclusion errors
which plague the prevailing system is the carrying out of an independent and
comprehensive survey of the BPL population. The fact that land records have
been completely digitized and posted on the internet in Orissa, will make it
possible to cross-verify the possible land holdings in the name of each existing
BPL card holder and thereby eliminate people with substantial holdings who
although not falling within the BPL category, might still be holding BPL cards
and drawing ration using the same. This will cure the problem of inclusion
errors thereby plugging leakages.

C. The highlight of the study was that the possibilities of computerization exist at
the block level with broad band connectivity thereby making the online system
with or without smart cards a possibility. Further as indicated above the
existing land records computerization will also help in eliminating bogus
/ineligible card holders in the eventual survey that the committee would
recommend. Schemes like the NREG are already being implemented through a
web based system of uploading information were reviewed both in the Angul
Block as well as in the Talcher block offices. It would therefore not be difficult
to implement a dedicated PDS online-fully automated system in these areas.
CHAPTER 9

RECOMMENDATIONS
1. There is unholy nexus between the transporters, Storage agents, Fair Price
Shop owners, Officials of OSCSC and the Department of Food and Civil
Supply in large scale diversion of PDS food grains meant for the poor. PDS
is inefficient and corrupt. To stem the rot, the use of Information
Communication Technology (ICT) appears to be the only solution. By use
of modern technology, there would be less human intervention and
transparency will be brought in the system and in allotment of food stocks
to be sold at the shops.

2. For a FPS to earn a marginal profit there has to be minimum 500 cards.
Where the cards are less than that, FPS runs on loss. Study of the
Committee shows that merely increasing the commission will not result in
making the FPS a profitable proposition. It is a well documented fact that
the FPS owner is in business for the purpose of diversion or for political
influence or other influence that he can wield by being a FPS retailer. The
FPS dealer also gets a statuts of sorts in the locality. Any amount of
increase in commission will not stem the rot. FPS owners are deliberately
not ready to sell groceries other than PDS food grains. The reason is not far
to seek. By opening shops for two or three days and selling PDS food grain
in connivance with Government/Corporation officials is in itself a lucrative
and effortless proposition for him. When there is no profit or there is loss as
complained by FPS owner, the question that arises is then why is he
sticking to the shop. The concept of a stand alone FPS should be changed.
This way he can earn profit and shop will remain open throughout the
month. Moreover attached numbers of cards mean a set number of
customers in any case who may buy other grocery items from that shop.
3. Retail Licenses should be given to Kirana/Grocery shop owners, Women
Self-help groups having a proven track record and Panchayats. Since
running an FPS is not a profitable proposition, any scheme of allotting the
shop to unemployed graduates or the like has no meaning. It must be
understood that these shops have not to be licensed for the benefit of the
shopkeepers but for the benefit of the consumers.

4. There must be a clear demarcation of responsibilities amongst the different

entities involved in the PDS. No entity must have an overlapping function.
The prevailing system whereby all the entities involved in the PDS have
interwoven responsibilities must be immediately done away with. The
responsibility of identification of beneficiaries, issue of ration cards and the
appointment of FPS has to be with the Food and Civil supply Department.
Role of distribution would be the responsibility of the Corporation. Various
committees namely the Retail Level Advisory Committee, Taluk/Block Level
Advisory Committee, District level Advisory Committee and State Level
Advisory Committee should only deal with vigilance aspect.

5. The existing system of giving the abovementioned committees a role in

appointments of dealers which has resulted in a direct conflict of interest
must be done away with immediately. The Government should frame/
amend rules regarding allotment of license in a transparent manner. Any
vacancy for the FPS should be properly advertised. The applications
received can be scrutinized by the officials to ensure that they comply with
the eligibility conditions. Names of the applicants can be made public and
objections invited from the public bodies responsible for vigilance. Spot
verification can be done by the officials of the department. There can be a
committee to take final decisions.
6. PDS operation should be based on the principle of zero tolerance. Any
infraction of the rules and regulations or instructions should invite strict
action not only against the FPS owner but also the concerned official. It is
the Inspector or his higher officers who should be held accountable.
Unfortunately, there is no accountability and there is no monitoring. If a
bogus card is found not only the FPS owner but the Inspector and other
concerned officials as well should be prosecuted for offences under the
Essential Commodities Act, 1955, Prevention of Corruption Act, 1988 and
also Indian Penal Code. It is a known fact that bogus cards are in
abundance and it is another source of diversion of PDS food-grains. The
State Government must devise a scheme to eliminate bogus cards.

7. The system of storage agents (storage agency) is one of the main sources
of diversion of PDS food-grains. This system should end forthwith.
State/Corporation has adequate storage facilities and sufficient resources to
man the same. Some of the godowns which are owned by the Corporation
have been let out to storage agents. Panchayat Raj Department has 6000
godowns of 50 MT capacity and 300 godowns of 1000 MT capacity.
Panchayat Raj Department and also the Urban Development Department
have offered to construct more godowns, if so required by the Corporation.

8. Chairman of the Corporation should not be a political/private person. His

appointment should be transparent. Corporation should be run strictly on a
professional basis. The earlier practice of appointing the Secretary of the
Food and Supplies Department was better and should be restored.
9. A Complaint Redressal mechanism should be set up, with a twenty four
hour Help line as suggested in report on Delhi. A post of
Ombudsman/Regulator should also be created for the purpose of ensuring
the transparent functioning of the system.

10. PDS food-grains should be transported only in tamper-proof bags like HDPE
bags instead of jute bags and PDS commodities should be supplied to the
beneficiary in small packages of 5 & 10 kgs.

11. Mobile vans for distribution of PDS food grain have proved their utility.
Number of mobile vans be increased.

12. As of today, there is no enforcement worth the name and no vigilance.

Vigilance Committees are non functional. Vigilance Committees must meet
on a fixed venue on a particular date and time, e.g. the District level
Vigilance Committee should meet in the Office of the District Collector every
second month on the second Friday at 4.00 P.M.

13. The State Government should fix the responsibly of the officials of the
administrative machinery to convene the meetings and ensure the presence
of the members. Rules can provide that any member who does not attend
two consecutive meetings would be replaced. The Secretary of the
Department of Food and Supply should be responsible for convening the
meetings at the State level, the District Magistrate should be responsible for
the District level Committee, Block Development Officer should be
responsible for the block and FPS level committees.
14. Since one of the reasons for the failure of the system has been wrong
identification of beneficiaries, urgent steps need to be taken for proper
identification so as to ensure there are no inclusion or exclusion errors. It
may not be out of place to mention that the State Government has not
furnished a BPL list based on the 2002 criteria.

15. There is a need to revisit income criterion prescribed for the BPL category.
The government/MORD committee may also consider using consumption
criteria that is to say calorie intake per person per day as an indicator of
poverty as the minimal objective to be achieved by TPDS is to ensure that
every poor person gets two square meals a day. This is recommended in as
much as a purely income based criteria may in certain circumstances be
misleading in terms of actual determination of persons below the poverty
line. However the estimation of poverty should not be made on criteria
which are less than the minimum wage fixed by the state for agricultural
labourers or the wage fixed by the Central Government under Section 6 of
the NREG Act 2005. It may not be out of place to point out that several
states the minimum wage for agricultural labour is in the range of Rs 100
and even the NSSO in its estimate fixes the estimate of expenditure at Rs
20 per capita per day which works out to Rs 100 per day per family (a
family is taken as 5 members).

16. The abovementioned Committee set up by the MORD is essentially to

devise criteria for identifying the correct beneficiary in a rural setting. For
the urban scenario however a different criteria will have to be devised. The
committee in its report on Delhi had suggested that the basis for
 determination as to whether a person is BPL or not should be based on the
minimum wage payable to an unskilled workman in the area i.e. to say if
the person is earning below this amount he would be deemed to be below
the poverty Line. The same criteria for the State of Orissa should be
adopted for the State of Orissa.

17. The Committee is also reiterating its suggestion/recommendation made in

the Delhi report that the Concept of APL be abolished. The Committee is
aware of the fact that there is going to be a great deal of opposition from
the fair price shop dealers and other vested groups against the abolition of
the APL category. If the Court is of the view that it may not be possible or
desirable to abolish the APL category altogether, it may consider limiting the
APL category to households whose annual income is Rs. One lakh. This is
based on the fact that a class IV employee of the Central Government in
Delhi gets a consolidated salary of about Rs. 8000/- per month making it
Rs. 96,000/- annually. This category may be called “Marginally above
Poverty Line (MAPL)”. This limit may however be revised as and when
required on a rational basis by the government. Reference may be made to
the said report for a detailed analysis of the said recommendation and it
may be added that the Committee in its visit to state after State has found
that the concept of APL is serving no useful purpose for food security but is
instead only a diversion tool.

18. Since August 2008, the State has formulated a scheme of giving rice to BPL
and AAY category at the rate of Rs.2 per Kg. Government has fixed days at
which the rice should be distributed. This has increased the demand for
BPL cards. There must be careful monitoring of this scheme to ensure that
Extra BPL cards should not result in depriving the real beneficiaries who are
 to be targeted under the TPDS. Similar schemes are being introduced by
various States. These schemes which seemed to be driven by political
motivation rather than any desire to ensure food security need to be
carefully monitored. Increasing the BPL population to unrealistic level is not
only a drain on the resources of the State but may also act as a serious
disincentive to hard work on part of the population of the State.

19. The Committee has given a comprehensive report on computerization and

recommends that the same be acted upon. In the report the Committee has
suggested the whole process of computerization of the Public Distribution
System which includes using electronic weighing systems and integrating
the same with automated allocation and delivery systems.