PDS Combined Report Cal2cal

G O V E R N M E N T O F I N D I A

M I N I S T R Y O F F I N A N C E

&

T H E W O R L D B A N K

FEASIBILITY STUDY REPORT

FOR PILOT OF

SMART CARD PUBLIC DISTRIBUTION SYSTEM

AT

THANE DISTRICT (MAHARASHTRA)

AND

ANAND DISTRICT (GUJARAT)

P r e s e n t e d B y

J a n u a r y 2 00 8

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PDS Smart Card Feasibility Study Report 1 April 2008 Page 2 of 38

Table of Contents

1 INTRODUCTION .......................................................................................................................................4

1.1 INTRODUCTION TO PDS ............................................................................................................................4

1.2 PROBLEMS WITH EXISTING PDS ...............................................................................................................4

2 OBJECTIVE OF THE STUDY..................................................................................................................6

2.1 SURVEY METHODOLOGY AND CONDUCT ..................................................................................................6

2.2 RESULTS OF THE SURVEYS........................................................................................................................7

2.2.1 PROFILES OF RESPONDENTS .................................................................................................................7

2.2.2 OFF TAKES AND ALLOTMENTS .............................................................................................................7

2.2.3 PREFERENCE FOR SMART CARD BASED SYSTEM OF PDS.....................................................................8

2.2.3.1 FPS OWNERS...................................................................................................................................8

2.2.3.2 CONSUMERS’ PREFERENCE..............................................................................................................8

2.2.3.3 RESPONSES OF OTHER STAKEHOLDERS ...........................................................................................8

2.2.4 COSTS AND PROFITABILITY ................................................................................................................11

2.2.5 STATE OF EXISTING IT INFRASTRUCTURE ..........................................................................................12

3 SOLUTION ALTERNATIVES................................................................................................................14

3.1 TECHNOLOGY ALTERNATIVES ................................................................................................................14

3.2 RECOMMENDED SOLUTION OPTIONS ......................................................................................................15

3.2.1 A FULLY ONLINE SMART CARD SYSTEM ...........................................................................................15

3.2.2 A SEMI-AUTOMATED SMART CARD SYSTEM .....................................................................................18

3.2.3 A PARADIGM SHIFT: THE PPP MODEL IN PDS SCHEME.....................................................................20

3.3 INITIAL ENROLMENT AND CARD PERSONALISATION...............................................................................22

3.3.1 INITIAL ENROLMENT FOR A SMART CARD BASED SYSTEM ................................................................23

3.3.2 PERSONALISATION DETAILS...............................................................................................................23

4 IMPLEMENTATION SCENARIOS, REQUIREMENTS & SCHEDULE .........................................26

4.1 PILOT IMPLEMENTATION SCENARIOS......................................................................................................26

4.2 HARDWARE REQUIREMENTS AND COST ESTIMATION .............................................................................28

4.3 COST ESTIMATION ..................................................................................................................................28

4.4 A PROPOSED IMPLEMENTATION SCHEDULE ............................................................................................30

5 ECONOMIC BENEFITS OF SMART CARD BASED PDS.................................................................31

5.1 SUBSIDY CALCULATIONS ........................................................................................................................31

5.2 BENEFITS TO COSTS RATIO AND BREAK-EVEN POINTS...........................................................................31

5.2.1 BENEFITS TO COSTS RATIO ................................................................................................................31

5.2.2 BREAK-EVEN POINTS .........................................................................................................................34

5.3 MONITORING AGENCY SET UP ................................................................................................................34

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6 SUGGESTED RECOMMENDATIONS .................................................................................................37

6.1 OPTION I .................................................................................................................................................37

6.2 OPTION II ................................................................................................................................................38

LIST OF PHOTOGRAPHS & FIGURES

Photograph 1: Clockwise from top: 1 – Focus group meeting at Anand, 2, 3 & 4 - Field

survey in the villages of Anand and Thane using CALDSG and PDAs.................................. 7

Figure 1: Smart Card Preference of Beneficiaries in Rural and Urban Areas of Anand .......... 9

Figure 2: Smart Card Preference of Beneficiaries in APL/BPL/AAY Category in Anand.... 10

Figure 3: Smart Card Preference of Beneficiaries in APL/BPL/AAY Category in Thane .... 10

Figure 4: Smart Card Preference of Beneficiaries in Rural and Urban Areas of Thane......... 11

Figure 5: Profit-Margin Percentage (Rate of Return) for Rice, Wheat, Sugar, Edible Oil in

Ahmadabad and Mumbai........................................................................................................ 11

Figure 6: Average Profit-Margin Percentage (Rate of Return) for Sample FPS shop in ....... 12

Figure 7: Smart Card Process flow Depicting Ration Drawing Process ................................ 16

Figure 8: Reclamation Process............................................................................................... 17

Figure 9: POS terminal .......................................................................................................... 18

Figure 10: Ration Issue Process and Data Maintenance........................................................ 19

Figure 11: Reclamation Process.............................................................................................. 20

Figure 12: Business Process in the PPP Model ...................................................................... 21

Figure 13: Card Personalisation Process................................................................................. 24

LIST OF TABLES

Table 1: Requirement of Smart Cards .................................................................................... 28

Table 2: Requirement of Hardware/Software/Smart Cards and Costs ................................... 29

Table 3: Time Estimates for Implementation of Pilot in different modules. .......................... 30

Table 4: Subsidy Calculation for Kerosene Anand District.................................................... 31

Table 5: Subsidy Calculation for Rice, Wheat in Anand District and Thane District ............ 32

Table 6: Subsidy Calculation for Sugar and Kerosene in Thane District ............................... 33

Table 7: Subsidy Calculation for Sugar and Edible Oil in Anand District ............................. 33

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1 Introduction

1.1 Introduction to PDS

The Public Distribution System (PDS) is a mature system of distribution network operative

in India, since the 1950s, through which the Government of India provides food (ration) and

non-food items at highly subsidized rates to the poor and vulnerable sections of the

population. A chain of shops called ration shops or fair price shops (FPS) are set up all over

the country to distribute rations to three category of households holding ration cards; Above

Poverty Line (APL), Below Poverty Line (BPL) and Antyodaya Anna Yojna (AAY). With

about 4.5 lakhs Fair-Price Shops (FPS) distributing food and non-food items to about 16

crore families, the government spends about Rs 25,000 crore on subsidies.

The PDS is run jointly by central and state governments. While the responsibility of the

central government, through Food Corporation of India (FCI), is to procure, store and

transport grains from purchase points to central godowns (warehouses) across the country,

the responsibility of state governments is to transport these commodities from central

godowns and distribute them to consumers through the network of state owned godowns to

the fair-price shops.

Fair-price shops are owned privately or cooperatively and make profits from the commission

on sales. They are licensed by state governments and principally distribute food items

(wheat, rice, sugar, and edible oil) to customers at fixed prices. A shop covers about 2000

people. Any eligible person with a designated residential address, rich or poor, urban or rural,

can draw supplies from these shops. The grains distributed in these shops are of fair-to-

average quality.

1.2 Problems with Existing PDS

Different studies have shown that the PDS and Targeted PDS (TPDS) schemes and the whole

supply chains are fraught with various problems and leakages. These include diversion of

commodities from ration shops to open markets, flawed list of BPL and AAY consumers,

and poor quality of items supplied etc. In addition, the difficulties associated with poor

purchasing power of the consumers who cannot afford bulk buying of rations and have to fall

back upon open markets for obtaining their required consumption basket and are, therefore,

forced to pay market prices, thus making them more pauperized. The summarized issues are

as follows:

(a) Decline in off take and Allotments: The off take of rationed articles has come down

considerably since the introduction of targeted PDS. Off take of food grains among

those in the APL category is almost nil because of the price parity with local markets

and availability of better quality food grains.

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(b) Targeting and BPL/AAY Identification: The main flaw in the system is that families

who are not eligible are in the approved list of BPL/AAY families (targeted

beneficiaries) whereas many eligible beneficiaries find themselves in the APL

category.

(c) Entitlement to Food Grains: Under the earlier policy, ration scales were in fixed

quantities per person or unit, whereas now, irrespective of size and need, each

household is entitled to 35 kg per month.

(d) Quality Issue: In the matter of quality, the grains released from FCI pass its quality

control test (which, among other things, limits moisture content and the proportion of

broken rice). Amongst the imported wheat, the red Canadian wheat is perceived to be

of lower quality compared to those imported from Australia.

(e) Monitoring by Civic/Local Bodies and Their Involvement: In areas where there is

healthy participation by local bodies and nongovernmental organizations, the system

has been extremely beneficial for the targeted population because it makes its

operations more transparent and accountable; thereby reducing leakages and

corruption.

(f) Cardholder Awareness: In many cases, the beneficiaries are not aware of their

entitlement or price. Because allotments come irregularly and are often inadequate,

and cardholders are misinformed about the sufficiency of allotments, the ration

dealers often dictate the price and the quantity dispensed.

(g) TPDS has unilaterally increased the price of food grains and other essential

commodities for the poor as well as the non-poor. Those who depend solely on the

system have been most seriously affected vis-à-vis those who are better off

economically.

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2 Objective of the Study

The objective of the study was to determine the feasibility of a pilot project for implementing

technology based alternatives (smart cards) to the current PDS. Besides this, the government

also wishes to assess the PPP (Public Private Partnership) model for delivery of services for

the TPDS. The Indian Government and The World Bank engaged CAL2CAL Corporation to

carry out the feasibility study. CAL2CAL Corporation, after interactions with the Ministry of

Finance, Ministry of Agriculture, Consumer affairs and Public Distribution and The World

Bank Officials embarked upon a survey at the Districts of Anand (Gujarat) and Thane

(Maharashtra) and collected data from more than a thousand beneficiaries and more than

forty fair price shop owners with the help of handheld computers (Palmtop PDAs).

2.1 Survey Methodology and Conduct

Sample surveys were conducted among FPS Consumers and FPS/Non-FPS owners in Anand

district of Gujarat and Thane district of Maharashtra. The sampling procedure used was

Stratified Random Sampling Procedure. Sample households, who are beneficiaries of Public

Distribution System (PDS) ration shops, were selected and these sample households were

stratified according BPL, APL and AAY categories. Further, sample households from

separate occupation groups, who purchase food and non-food articles from Public

Distribution System (PDS) and Non- Public Distribution System (Non-PDS) shops, were

selected. Information was also obtained through interviews, from sample FPS shops

randomly selected in the area and also from sample Non-PDS operators in Thane district in

Maharashtra and Anand district in Gujarat. Focus Group workshops were also organized for

all stake holders in the district to directly interact with them and assess their reactions on a

paradigm shift in the PDS, if implemented.

The field study was carried out with the help of a survey, besides interaction with people.

The survey conducted was an “e-survey” where the enumerators collected the answers to

structured questionnaire on hand-held computers using CALDSG©

, a product developed by

CAL2CAL Corporation. CALDSG is a RapidFormsDesigner / DynamicSoftwareGenerator

software that can be used to create forms/questionnaire for collecting data in the field using a

mobile device. Data collection forms and survey questionnaires are quickly and intuitively

designed on a desktop PC and downloaded to mobile devices for field deployment and

response capture. The data collected on mobile devices are transmitted back to a desktop PC

for analysis and report generation. This process eliminates many of the shortcomings like

data entry errors etc that are associated with the traditional paper based/rendered survey. Of

course, it helps the environment by reducing the use of paper.

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Source: Photographs taken by CAL2CAL

Photograph 1: Clockwise from top: 1 – Focus group meeting at Anand, 2, 3 & 4 - Field

survey in the villages of Anand and Thane using CALDSG and PDAs.

2.2 Results of the Surveys

2.2.1 Profiles of Respondents

There are targeting errors in the classification of AAY, BPL and APL households as evident

from the beneficiary responses of two surveyed districts. The error is lesser in Anand as

compared to Thane. For the Thane sample, 7.39 % of BPL households and about 5.24% of

AAY households are found to have more than Rs. 120,000 as their annual income, which

indicates faulty AAY/BPL list preparation by local authorities. For beneficiaries, AAY is the

most attractive group to be in, due to the prices at which rations are distributed to them. The

AAY beneficiaries list, which is prepared on a numbers quota based system, suffers from the

maximum targeting errors.

2.2.2 Off takes and Allotments

While the allotment of rations to the FPS is 100% of their allotted quota, the off take by

beneficiaries shown on records are also 100%. This fact is, however, not corroborated from

the data gathered from the beneficiaries. The ratio of actual off takes by consumers from the

FPS sources to their requirements show that a sizable proportion of sample consumers do get

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only up to 75% of their required amount from FPS and non-FPS shops for kerosene, wheat,

rice, edible oil and sugar. A large percentage of BPL and AAY categories of beneficiaries

could satisfy only up to 25% of their A/R ratio from suppliers through ration shops for most

of these commodities. Also, most States and in turn the FPS are allotted up to 80% of their

authorized quota of rations which is dependent on the card strength at each FPS. This fact

also provides for avenues for leakages.

2.2.3 Preference for Smart Card Based System of PDS

2.2.3.1 FPS Owners

While 50% of the FPS owners in the Anand and Thane samples indicate preference for the

introduction of Smart Card system, most of them would like computers/POS (Point of Sales)

terminals to be provided by the Government. A sizable section of FPS owners said that they

could not afford to buy computers/POS terminals on their own. About 83.33% and 72.73% of

sample FPS owners in Anand and Thane respectively indicated that they would benefit from

the introduction of such system. Many of them, however, indicate that Government should

facilitate training to operate a POS terminal with Smart Card system. They also feel that

these would simplify their operations effectively.

2.2.3.2 Consumers’ Preference

From the sample respondents in Anand and Thane ( presented in Figures 1 to 4), it is clear

that benefits of smart-card based PDS operations are welcomed by majority of consumers,

who belong to BPL and AAY Category of card-holders; while shift to new system is

welcomed by a small percentage of APL consumers in the sample. This is perhaps due to the

fact that the non-leakage benefit in the new smartcard PDS system would go more to the BPL

and AAY consumers than to the APL category of cardholders. APL consumers do not

receive much of their required supplies from the ration shops and the benefits of diverted

commodities from the ration shops perhaps go to these consumers with higher purchasing

powers at the cost of disadvantaged groups of BPL and AAY consumers. The preference for

Smart Card based PDS operations are found to be slightly higher amongst the consumers in

Anand compared to those in Thane .One possible explanation of such high percentage of

BPL and AAY consumers opting for the new system is that they are so harassed and

inconvenienced with the existing PDS system that they prefer transition to a new system with

the hope that perhaps better service would be available to them.

2.2.3.3 Responses of Other Stakeholders

The Focus Group Meetings at Anand and Thane, prior to CAL2CAL’s conduct of surveys

among sample consumers and FPS owners, point to the views of other stake holders in the

public distribution system regarding introduction of Smart Card system of networking in

PDS operations. These are presented below:

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(a) Banks: For the State Bank of India, having both rural and urban branches, the Smart Card

system is operational in many other activities and introduction of such Smart Card based

PDS operations would not be a problem for them to make payments and disbursal of

subsidies. For other commercial banks, who are networked, there is no problem of

switching to such a system, except that many of them do not have branches all over

Maharashtra and Anand in both rural and urban areas;

Smart Card Preference by Respondent

Beneficiaries in Anand (Rural in %age)

77.74

12.72

9.54

Yes

No

Do not know


Beneficiaries in Anand (Urban in %age)

37.42

53.37

9.2

Yes

No

Do not know

Figure 1: Smart Card Preference of Beneficiaries in Rural and Urban Areas of Anand Source: Survey Data collected by CAL2CAL.

(b) FCI and Others: For the FCI and other sources of supplies of PDS items of food and

non-food, there is no specific preference or difficulties associated with the introduction of

such a system .Only the government has to make the necessary infrastructure available,

including computer terminals, network access and electricity etc.;

(c) State Governments: For the government in Gujarat, the extent of network coverage and

data-base preparation is sufficiently advanced, and all the Talukas and godowns could be

easily networked with the Smart Card Based PDS system. For the government of

Maharashtra, the progress in extending the network is very slow and not widespread, so

that additional expenditure on infrastructure build up for purpose of introduction of Smart

Card PDS operations would take much more time than in Gujarat, and there is a specific

problems of electricity supply shortage in many of the parts of rural and urban

Maharashtra, which acts as a serious constraint to the introduction and operation of such

a system;

(d) Private Traders: The private traders dealing with supply of essential food and non-food

items in the open market are not necessarily networked, nor do they operate their

transactions on Smart Card system. However, the big supply chains, who are networked,

could switch to Smart Card Based system of transactions. But their coverage is limited

mostly in urban areas, and whether they can extend their operations to other parts

depends on political questions of whether retail chains would be allowed to operate on a

large scale, in view of objections organized in different states by political parties.

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Beneficiaries in Anand (APL in %age)

70.77

21.54

7.69

Yes

No

Do not know


Beneficiaries in Anand (BPL in %age)

63.16

27.37

9.47

Yes

No

Do not know


Beneficiaries in Anand (AAY in %age)

59.16

30.53

10.47

Yes

No

Do not know

Figure 2: Smart Card Preference of Beneficiaries in APL/BPL/AAY Category in Anand Source: Survey Data collected by CAL2CAL

Smart Card Preferences by Respondent

Beneficiaries in Thane District (BPL in %age)

68.09

9.34

20.23

Yes

No

Do not know

Smart Card Preferences by Respondent

Beneficiaries in Thane District

(AAY in %age)

67.34

9.27

19.76

Yes

No

Do not know

Figure 3: Smart Card Preference of Beneficiaries in APL/BPL/AAY Category in Thane Source: Survey Data collected by CAL2CAL

71.79

20.44

7.77

Yes No Do not know

Smart Card Preference by Respondent Beneficiaries in Thane (APL in %age)

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(Rural in %age)

67.62

8.62

19.92

Yes

No

Do not know



(Urban in %age)

68.75

10.71

19.64

Yes

No

Do not know

Figure 4: Smart Card Preference of Beneficiaries in Rural and Urban Areas of Thane Source: Survey Data collected by CAL2CAL.

(e) Specialised Service Providers: There are specialized international organizations like

Accor/ Sodexho who have vast experience in similar operations worldwide. They have

envisaged keen interest in providing necessary services. They would be able to provide

necessary back-office support and provide services as explained in the PPP model, later

in this document.

2.2.4 Costs and Profitability

Profitability of operation is indicated by the price-cost margin or the profit margin. When this

margin is expressed as a percentage of unit revenue, one finds the rate of return. The price-

cost margin in private retail trade in food far exceeds that in FPS trade for two main reasons:

sales prices as are market determined are much higher than the PDS shop’s sales price, which

is administered by the government, and secondly, because of scale effect, the per unit costs of

food and non-food items are less in private trader’s shops.

Profit Margin for Commodities in %age for

Ahmedabad

8%10.56%

19.43%

12.64%

0%

5%

10%

15%

20%

25%

1

RICE

WHEAT

SUGAR

EDIBLE OIL

Profit Margin for Commodities in %age for

Mumbai

10.91%13.33%

27.13%

13.19%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

1

RICE

WHEAT

SUGAR

EDIBLE OIL

Figure 5: Profit-Margin Percentage (Rate of Return) for Rice, Wheat, Sugar, Edible Oil

in Ahmedabad and Mumbai Source: Survey Data collected by CAL2CAL.

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Average Profit-Margin Percentage (Rate of

Return) for Food and Non Food Items in

ANAND

1.14%

65.65%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

1

Food Item

Non-food Item

Average Profit-Margin Percentage (Rate of

Return) for Food and Non Food Items in

THANE

17.30%

46.11%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

1

Food Item

Non-food Item

Figure 6: Average Profit-Margin Percentage (Rate of Return) for Sample FPS shop in

Anand and Thane Source: Survey Data collected by CAL2CAL.

When one compares the rates of return for food and other items in the open market vis-à-vis

those earned by the government-designated FPS owners, one finds that, as indicated in

Figures 5 & 6, the rates of return in retail trade is much higher compared to average profit

margin in FPS shops in the sample . The price-cost margin as a ratio of unit price for Non-

Food item Kerosene is much higher than the food margin. The commission to total cost ratio,

which is an indicator of the profitability of these FPS shops is also very low although at

Thane the ratio seems better compared to at Anand (5.10% in Anand as opposed to 6.37% in

Thane). If the private traders are provided with supplies from the FCI godowns at

government rates, their rates of return from trade in food grains and non-food items would

turn out to be much higher. In both Anand and Thane, the FPS owners as well as private

shopkeepers indicated that a commission of at least one rupee per unit (Kg/lit), would make

the operations viable and provide lesser incentive for leakages. This one rupee commission

will also cater for their operational costs of transporting, loading/unloading, and other

associated costs as hitherto fore.

2.2.5 State of Existing IT Infrastructure

The State of Gujarat is quite advanced in terms of its existing network infrastructure and

other e-governance facilities. The Gujarat State WAN (GSWAN) is purported to be the

second largest network in the world. In Maharashtra, all district HQs are connected to the

State HQs, but connectivity in the organization chain below does not exist. Based on the

existing infrastructure, it is evident that an online system can be implemented in Anand and

an off-line system can be implemented in Thane. The details of the existing state of

infrastructure in the two states are as follows:

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(a) Gujarat:

i. All the district HQs are connected with the state HQs with dedicated 6 Mbps leased

line IP connectivity

ii. The Talukas are connected with the district HQs with a 2 Mbps leased line IP

Connectivity

iii. All the gram panchayats are scheduled to be connected with leased lines/radio links

by March 2008

iv. There are several e-governance initiatives for citizen services like e-Gram, e-Dhara,

Talim Rojgar etc

v. The GSM/CDMA network in Gujarat is extensive and well connected

vi. The power situation in the state of Gujarat is very good with little or no power

failure and very stable electricity supply.

(b) Maharashtra:

i. All the districts are connected to the state HQs with leased line connectivity

ii. Specific details of e-governance initiatives of the state government could not be

ascertained. Information given in the state government’s website is dated

iii. The GSM/CDMA network coverage in the state is not as extensive and many hilly

areas are not so well covered

iv. The power situation in the state is neither stable nor adequate. Many interior parts

of the district face power outages of 12 hours or more on regular basis

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3 Solution Alternatives

3.1 Technology Alternatives

Feasibility of several technologies like food coupons, magnetic stripe cards and smart cards

were studied. The details of the technology based alternatives are:

(a) Food Coupons/Vouchers: Food Coupons/Vouchers are food ticket provided by the

government to the targeted population to provide food. This is another method to provide

food security to the required citizens of a country. Food coupons are usually paper based

vouchers issued to beneficiaries for redemption at FPS or at other affiliated stores. Each

of these coupons has a value associated with it. Food coupons are being tried out by the

government in Bihar and some other local governments in India are also thinking of

implementing this. These are used extensively around the world for example Brazil’s

voucher programme reaches nearly 9 million workers. However, due to its inherent

perceived problems, associated stigma and the advance in technology it is slowly making

way to the electronic card based vouchers. The card-based system could be magnetic

stripe type or the smart card type.

(b) Magnetic Stripe Card System: Magnetic strip cards are the credit card type cards with a

magnetic stripe at one side which contains all the information. The information capacity

of a magnetic stripe on such cards is about 226 bytes. This amount of data is highly

insufficient for use by beneficiaries that will have recordings of fingerprints, family and

other demographic details. Therefore, these are not suitable for the application envisaged

for the PDS.

(c) Smart Card System: These cards are also the same size as a credit card, have a memory

and/or a processor chip, and can store up to 64 Kilo Bytes (KB) of information (data).

The entry level cards that are available today are with 16 KB of data storage capacity.

Cards of 8 KB and below will be expensive as they are now out of mass production.

Higher capacity cards up to 1 Mega Bytes are also available but are much more

expensive. A 16 KB card with security features will be typically available for about Rs

100/- (on bulk production) Biometric information per finger requires typically about half

KB, therefore for 4 or 5 finger prints about 2.5 KB of information would be required. To

store transactions and other details a 16 KB smart card would be the most suitable. The

envisaged application for the smart card based PDS is independent of the operating

system (OS) used for smart card system and hence is not specified here. There are several

technology vendors offering their different solutions of operating systems. Some of the

details may be obtained from The World Bank white paper titled “A Technology White

Paper on Improving the Efficiency of Social Safety Net Program Delivery in Low

Income Countries: An Introduction to Available and Emerging Mobile Technologies”

available at http://siteresources.worldbank.org/SOCIALPROTECTION/Resources/SP-

Discussion-papers/Safety-Nets-DP/0522.pdf. It is, however, understood that the

Government of India, recommends the use of Smart Card Operating System for Transport

Application (SCOSTA) standards, which was developed at the behest of the Transport

Ministry, Government of India. SCOSTA is based on ISO 7816 standards and therefore

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comply with any international standards and is generic for use for any other application.

Please refer to http://www.scosta.gov.in/ for further details.

Out of the three technologies, as is evident from the facts given above, the most suitable

option for implementation in the changed scenario is the smart card option

3.2 Recommended Solution Options

The state of existing IT infrastructure and the ground conditions in terms of accessibility,

distance from main commercial hubs, and other infrastructural conditions are not the same in

the two districts studied. Also within a bigger district like Thane, the conditions differ from

one region to another. In such circumstances, a single solution may not be a good fit for all

regions/districts. These options could be either a fully automated and online system or an

offline but semi-automated system as described in section 3.2.1 and 3.2.2 respectively. The

entire system could also be implemented in a PPP Model using any of the two models as

outlined in section 3.2.3.

3.2.1 A Fully Online Smart Card System

A fully online system is possible to implement where the IT network is well established and

it is possible to connect all the POS terminals at the FPS to the network. In such a scenario all

the Talukas, concerned banks and the godowns are connected to the network as well. The

data flow will take place over the network. The summary of the proposed solution is:

(a) All FPS are issued with POS terminals with inbuilt biometric scanner and sales

receipt printer. All Talukas, godowns and concerned banks are provided with a

computer terminal duly interconnected and with necessary software and smart card

reader and finger print scanner.

(b) All transactions at the FPS should be only smart card based from a cut-off date as

decided by the authorities.

(c) All sales are carried out only after the beneficiary smart cards are presented by the

beneficiaries and duly authenticated with their fingerprints for each transaction at the

POS terminal.

(d) All sales, sales summary, stock balance are uploaded to the Taluka Server at the day

end, with necessary unique identifier of the FPS.

(e) At the Taluka, all records are kept based on the data received from the FPS under

their jurisdiction. The Taluka office calculates the entitlement of food grains for each

of the FPS and intimates the FPS owners of the amount of money required to be

deposited at the bank for the allotted rations. The allotment of rations is based on the

stock details received online from the FPS. This automatically will stop manipulation

of stock demand that FPS owners could have otherwise indulged in

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Figure 7: Smart Card Process flow Depicting Ration Drawing Process

(f) From the Taluka the intimation regarding money amount to be deposited by each FPS

is given to the bank, and the stock entitlements to the concerned godown. The FPS

owner carries his smart card to the bank, identifies and authenticates himself/herself

by presenting the card to the bank and deposits the money in the bank. The bank, in

turn, will intimate the Taluka and the godown of the money receipt with particulars of

FPS and other relevant details.

(g) The FPS owner goes to the godown directly, identifies himself and lifts the allotted

stock.

(h) Once the stock is lifted, the stock detail is written on the FPS owner’s smart card and

the Taluka office is duly intimated.

(i) For Regular Operation there area kiosks available at every cluster of 3 villages along

with an operator who helps citizens with the following:

i. All ration card related activities like application for new ration card, change of

demographics, change of address, cancellation of ration cards etc.

ii. The beneficiaries are intimated of the time and place where they go and give the

electronic data about the family’s thumb print, photograph etc

iii. The beneficiaries are intimated the date on which they can collect the smart card

from the Taluka office.

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iv. Once the individual collects the smart card, the affiliate FPS updates its database

through the “First Use” information embedded either in the smart card or by going

online when the smart card is first presented.

v. Thereafter, the beneficiaries get their entitled rations with effect from the next

month when the FPS owner draws their quota of allotted rations for additions to

their FPS.

5). Issue of Permit specifying the

quantity of each to be lifted.

Figure 8: Reclamation Process

(j) Hardware requirements at a FPS is a FPS owner smart card and an integrated POS

terminal (shown in Figure 9) having the following:

i. An integrated POS terminal with Biometric reader

ii. Beneficiary smart card reader

iii. SAM smart card slot

iv. Communication ports

v. GSM/GPRS facility

vi. Inbuilt battery with charger with up to 300 hrs standby.

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Figure 9: POS terminal

Disclaimer: CAL2CAL has no particular preference for any type of hardware or hardware manufacturer or any service provider

3.2.2 A Semi-Automated Smart Card System

A semi-automated smart card based system will be implemented where the IT network and

the GSM/CDMA network coverage is not extensive. In these cases mostly connectivity; as

far as the local government is concerned; exists up to the district level only. Therefore, not all

POS terminals at the FPS can be connected to the network and so is the case for other

organizations as well. Therefore, all the Talukas, concerned banks and the godowns are not

connected to each other and all data flow has to be offline and physically transported in smart

cards. The summary of the solution is:

(a) The beneficiaries present their cards and are authenticated at the POS terminal and

thereafter necessary sales are made.

(b) All sales, sales summary, stock balance will be available at the POS Terminal and the

summary of these are available in the SAM /Service card of the FPS owner.

(c) The FPS owner may even carry his POS terminal to the Taluka office once a month to

upload all his data to the Taluka office. Alternately, existing GSM/CDMA

connectivity can be used to upload data at a predetermined periodicity. The FPS

owner carries the FPS the SAM/Service card, which has all the transaction and stock

details card to the Taluka office.

(d) At the Taluka, all records from each FPS under their jurisdiction are maintained. The

Taluka, office software calculates the entitlement of food grains for each of the FPS

(based on the data received from the FPS smart card), Based on these calculations the

FPS owners are intimated the amount they have to deposit in the bank and the

information is also written in the FPS owner’s smart card.

(e) The FPS owner takes the card to the bank and identifies himself and after due

authentication he makes the necessary payment to the bank. This information is

recorded in the FPS owner smart card.

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Figure 10: Ration Issue Process and Data Maintenance

(f) For Regular Operations:

i. The existing process of issue and all other ration card related activities carries on.

The only difference being that the beneficiaries are intimated of the time and

place to go and give the electronic data about the family’s thumb print,

photograph etc

ii. Card personalization and printing are done at the Taluka office.

iii. The beneficiaries are intimated of the date on which he has to collect the smart

card from the Taluka office.

iv. Once the individual collects the smart card, the affiliate FPS updates its database

through the “First Use” information embedded in the smart card.

v. Thereafter, the beneficiary get their entitled rations with effect from the next

month when the FPS owner draws the quota of rations based on additions and

deletions of affiliated beneficiaries.

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Figure 11: Reclamation Process

3.2.3 A Paradigm Shift: The PPP Model in PDS Scheme

This model works on the assumption that the system of FCI and state food corporations are

not servicing the TPDS. Therefore the management of grain and subsidy distribution is

vested with some service provider, contracted by the government.

The way this system works is described below:

(a) A service provider is identified and given the responsibility of providing the

necessary services. The pre-calculated subsidy amount is transferred to the service

provider’s bank.

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Figure 12: Business Process in the PPP Model

(b) The service provider enrols affiliates (shops) and/or the existing FPS, who purchase

food grains from the open market (duly controlled and monitored by some designated

monitoring agency). The quality of grains for the beneficiaries is pre-defined and

monitored by this monitoring agency, the role and functions of which is defined later

in this document).

(c) The beneficiaries purchase the food grains and other authorised essentials using the

smart card issued to them. This smart card is used for this purpose and only in the

affiliated shops/FPS shop. Their purchase price is fixed as per the existing government

norms/rates.

(d) The beneficiaries can buy other quality grains but the price differential is paid by

them.

(e) The affiliates/FPS shops can also sell to non-beneficiaries (at the market price). They

do not get any benefits for this.

(f) The transaction details related to authorised beneficiaries are captured in the POS

terminal for “end-of-day” transmission to the service providers back office.

(g) The service provider’s back-office checks the validity of all such transactions and

requests release of valid payment to affiliate’s/FPS bankers.

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(h) The affiliates/FPS are reimbursed only the value of subsidy based on the transactions

that have occurred on cards (purchase price – subsidised sell price + subsidy amount +

agreed margin); margin rate could vary and can be used to encourage currently non-

viable FPS (see report of planning commission audit of TPDS).

(i) The payment to the affiliates takes place through the service provider’s bankers who

are requested to release payment to the affiliate’s/FPS’s bankers.

3.3 PPP Implementation Models

As already stated above, there are many possible PPP models, including joint ventures,

strategic partnerships to make better uses of government assets, Design-Build-Operate and

Design-Build-Finance-Operate. The PPP model can be implemented in two ways. The

venture could be totally be set up and services provided by a service provider, for which it

gets some “x” amount of money or alternatively, a service provider can only be asked to

operate and manage the system with necessary infrastructure being provided by the

government. The service provider in this case would get “y” amount of money. Obviously,

“x” will be more than “y”. Proper oversight mechanism has to be in place for the success of

such initiatives. A rough estimate for the above two models are:

Srl

No

Area/District Cost of infrastructure, operation and

management (per annum)

Cost of operation and maintenance

only by private operators (per annum)

1 Anand Rs 7.47 crore (Rs 15/beneficiary/month) 1.82 crore (Rs 5/beneficiary/month)

2 Rest of Thane Rs 11.63 crore (Rs 15/beneficiary/month) 3.88 crore (Rs 5/beneficiary/month)

3 Thane

Rationing

Area

Rs 19.66 crore (Rs 15/beneficiary/month) 6.55 crore (Rs 5/beneficiary/month)

4 All areas

together

Rs 26 crore (Rs 10/beneficiary/month) 9.80 crore (Rs 4/beneficiary/month)

3.4 Initial Enrolment and Card Personalisation

Enrolment of beneficiaries will be a major activity at the start of the pilot. Once the initial

enrolment is done, the intensity of activity in this regard will reduce considerably. Therefore,

the initial enrolment is best done through an outsourcing model. The agency so selected

would be the service provider for these services. Their main functions will be:

(a) Verify and ascertain that no duplicity of beneficiaries is there (at the district level).

(b) Card personalization, printing and issue of cards.

(c) Organise initial enrolment camps at each village/panchayat, where the equipment are

taken to the villages for enrolling and for capturing electronic data of beneficiaries.

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An enrolment camp kit consisting of a laptop, a digital camera and a finger print scanner with

adequate battery backup is needed. The service provider goes to villages and capture

necessary data. A pre-intimated schedule for each village/area would facilitate the process of

data capture. The details of initial enrolment and personalization are provided in section

3.3.1 and 3.3.2.

3.4.1 Initial Enrolment for a Smart Card Based System

Any smart card based system requires enrolment of beneficiaries into the system at the

outset. For the enrolment the data may be extracted from the existing data available at the

Taluka level for Anand/Gujarat and the recent data collected at Thane/Mumbai (in

anticipation of computerization of PDS in Maharashtra). For enrollment and capturing of

fingerprints, photograph and verifying personal details enrolment camps are recommended to

be setup at the FPS. The concerned/authorised officials from the monitoring agency and

Taluka may be present for validating the activities.

The following procedure may be adopted for the initial enrolment:

(a) The acquired data is uploaded to the central server at the end of every day. The

system performs elementary checks on this data for flagging of possible duplicates.

The data is then verified by the designated officers.

(b) To perform foolproof duplicity checks an automated 1: N fingerprint check for the

data acquired is done. This will eliminate bogus ration cards (smart cards). Since, this

is done at a district level initially; this detection would be limited to such frauds

happening at the district levels only. As and when the scope of implementation is

increased, the fraud detection for a larger geographical area also becomes feasible.

(c) The verified data is then uploaded to the personalisation center.

(d) Smart Cards is personalized both physically i.e. permanent data printed on plastic

portion of the card, and electronically i.e. Household details, details of units,

fingerprint and other details written to the chip of the card.

(e) FPS owners are issued Smart cards. These cards are printed with FPS owner’s

Personal Details, Shop Number and Location details. The Chip contains the FPS

Owner’s details and is updated with the transactions.

3.4.2 Personalisation Details

As mentioned earlier the smart card personalization consists of two distinct activities, the

physical personalization and the electronic personalization. The same is depicted in the

diagram at figure 13.

(a) Physical Personalisation: Physical personalisation is the details to be printed on the

smart card. The details of the front and back side of the card to be printed are given in

a tabular format below:

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Details on the front side of the card Details on the back side of the card:

Ration Card no. Family Member’s Name

Name of head of the Family Date of Birth

Photograph of the head of the family Photographs the family members ( up to a maximum

of four photographs)

Signature of the head of the family Thumb print of the head of the family (optional)

Date of Birth Name and number of the FPS shop affiliated to

(optional)

Gender FPS shop originally affiliated to

Address

Electrified/Non Electrified

LPG Cylinder

Total No. of Members

Date of issue

Date of Expiry

Figure 13: Card Personalisation Process

(b) Electronic Personalisation: Electronic personalisation consists of embedding those

details that are stored in the chip. Some of the indicative details that are stored on the

chip of the smart card are:

i. Ration Card Number

ii. Name of head of the Family

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iii. Shop ID

iv. Date of Birth and Gender of each member of family

v. Fingerprints of the specified members (up to 4 members with two finger prints of

the head of the family – total of 5 finger prints)

vi. Date of Issue

vii. Date of Expiry

viii. No. of units

ix. Type of card ( APL/BPL/AAY)

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4 Implementation Scenarios, Requirements & Schedule

4.1 Pilot Implementation Scenarios

The decision to implement a particular model will depend on local conditions of IT

infrastructure, existing system in place and state of other infrastructure like electricity, roads,

terrain conditions etc. In the present instance, the choices for implementation are to whether

to implement such a system in the existing system or in a PPP model or try out combinations

of these models. Therefore the options for implementation are:

(a) Implement the fully automated/semi automated system on the existing PDS chain.

The advantage for such an arrangement are:

i. Can be easily implemented.

ii. Will be more acceptable by the present stakeholders.

iii. Net effort/costs will be less.

iv. Reduced subsidy.

v. Increased accountability etc.

(b) Implement these systems/models in the PPP model without any government

intervention. These systems will be either a fully or semi automated smart card based

system(s). In the PPP model adequate Service Level Agreements (SLA) can be built

in so that the selected service provider provides necessary level of service to the

consumers. The advantage of this are:

i. Enhanced consumer satisfaction,

ii. Better quality of grain distribution

iii. Reduced subsidy outlay

(c) Implement a mixed mode solution where the FPS system remain being fed by the FCI

supply chain system and in addition private dealers using private supply chain can

enroll themselves for distribution of grains to the TPDS beneficiaries. The private

dealers will have to be managed and enrolled possibly through a private agency

which will also manage the back-office and subsidy distribution as specified in the

PPP model at section 3.2.3. The advantages in this system are:

i. Enhanced consumer satisfaction.

ii. Direct competition by private players will motivate the legacy system to perform

better.

iii. Reduced subsidy outlay

iv. Increased accountability of legacy stake holders.

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v. Gradual introduction of technology solution in existing framework and therefore

easier acceptance.

Based on the options available the different types of implementation scenarios available for

the pilot are:

(a) Scenario A: Fully online smart card system to be implemented at Anand: This

retains the existing PDS chain and aims at improving the efficiency of delivery,

enhance accountability, improve reporting system, and reduce leakages with the

ultimate aim of improving customer satisfaction and reducing subsidy outlay.

Capacity building in terms of training the FPS owners and all other stakeholders

would be required.

(b) Scenario B: Semi automated smart card system to be implemented at Rest of Thane Area (with Capex by Government and Operation by Private Parties): This system

also retains the existing PDS system and is an offline system, in that instead of the

information going online travels on the tamper proof smart cards of the FPS owners.

All necessary information, instead of being paper based (as in the existing system) is

updated on the smart card itself, including the stock details when the FPS owner

collects the stocks from the godowns. Capacity building in terms of training the FPS

owners and all other stakeholders would be required. This system once installed is

outsourced to private agencies for operation and management of the facilities.

(c) Scenario C: Smart card based PPP model for Thane Rationing Area: This systems

advocates a paradigm shift from the present system. This system removes the existing

supply chain and is based on the idea of outsourcing the subsidy administration and

implementation through an agency, which enrolls FPS and other affiliates. These

shops/affiliates procure specified grains from the grain markets at market price and

sell it to the identified and authenticated beneficiaries at subsidized prices. The

subsidy amount becomes payable to them after verification of such transactions

through the outsourced agency’s back-office establishment and affiliated banks.

Capacity building responsibility in this case would not lie with the government and

would be that of the outsourced agency.

(d) Scenario D: PPP Model with no Government Intervention: In this model a

paradigm shift in rendering TPDS will take place. This model operates as depicted in

figure 12 in section 3.2.3. The government delegates responsibility of distributing

food grains to the beneficiaries to a private agency (with necessary regulatory

authorities in place, like the monitoring agency as described later in this report). The

private agency enrolls affiliate shops (and the existing FPS also participates in this

programme). The affiliates/FPS procures the necessary food grains, of laid down

quality, from the local wholesale market and the beneficiaries purchases them at the

government specified rates. The balance (subsidy) amount is transferred to the

affiliates through the service providers bankers after due verification. Oversight

responsibilities lie with the monitoring agency.

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4.2 Hardware Requirements and Cost Estimation

Based on the implementation options/scenarios described in the preceding section, the

hardware, software requirements and smart card requirements and the cost and the time

estimates are as given in table 1 and table 2 below.

Table 1: Requirement of Smart Cards

Area No of Taluka

Offices

No of

Godowns

No of

FPS

No of

Card

Holders

No Other

offices/

Banks

Total

Cards

Anand 8 4 695 414,824 5 415536

Thane

Rationing

Area

4 ( rationing

offices – 7)

3 1231 1092271

19 1093528

Rest of

Thane

14 14 1602 645855

15 647500

Total 26 21 3528 2152950 39 2156564

Source: Data received from respective district authorities

The details of the hardware required in each of the implementation scenarios A to C are listed

at Table 2. For implementation scenario D, the hardware and all other infrastructural

requirements are provided by the service provider. It is assumed that the backbone network

facilities of the state WAN will be available for use and configuration. The entire Bill of

Material (BOM) has not been listed and only the major hardware and software required has

been listed. The list takes into all the major materials/hardware required. No networking

hardware/elements have been catered for. The list of materials required is based on current

requirements. The existing hardware at all the Taluka Offices (TO) and Rationing Offices

(RO) have been taken into account while calculating the hardware requirements.

4.3 Cost Estimation

The cost of the infrastructure for a smart card based pilots are shown in table 2. The costs as

worked out for four scenarios are:

(a) A fully online smart card system which may be implemented at Anand at a cost of Rs

9,06,13,824/-(Rupees Nine crore six lakh thirteen thousand eight hundred twenty four)

(b) A semi automated smart card system with Capex by government and operations and

management by private agencies may be implemented at Rest of Thane Area at a cost

of Rs 17,98,52,484/- (Rupees seventeen crore ninety eight lakh fifty two thousand,

four hundred and eighty four) as capital expenditure and Rs 3,87,51,300/- (Rupees

Three crore eighty seven lakh fifty one thousand three hundred) for operating expenses

(c) A smart card based PPP model for Thane rationing Area at a cost of Rs.

19,66,08,780/- (Rupees nineteen crore sixty six lakhs eight thousand seven hundred

and eighty), say Rs. 19.66 crore.)

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Table 2: Requirement of Hardware/Software/Smart Cards and Costs

Anand District Rest of Thane Area Thane Rationing Area

Numbers Cost (Rs) Numbers Cost (Rs) Numbers Cost (Rs)

Servers 9 (TO, Dist) 22,50,000 12 (TO, RO,

Dist)

30,00,000 15 (TO + RO) 37,50,000

PCs** 20 (TO, Godown,

Dist, Banks) 500,000 22 (TO, RO,

Godown, Dist)

5,50,000 29 (TO +

Godowns + RO)

7,25,000

Biometric scanners and

Smart card readers

17 (TO, Godown,

Dist, 7 - Banks) 2,55,000 22 (TO, RO,

Godown, Dist, 7

- Banks)

3,30,000 43 (TO +

Godowns + RO

+ Banks)

6,45,000

POS Terminals with

Software

695 (FPS) 1,73,75,000 1238 (FPS,

Associations)

3,09,50,000 1602 4,00,50,000

Printers 13 (PCs) 1,30,000 22 (PCs + RO) 2,20,000 14 1,40,000

Enrolment Camp Kits 8 4,00,000 7 3,50,000 14 7,00,000

Personalisation Kits 8 24,00,000 7 21,00,000 14 42,00,000

Software Application 50,00,000 25,00,000 25,00,000

Enrolment Data Capture,

Data Digitisation, Data

verification, Duplication

Check & Services

- 1,09,35,280 - 1,09,35,280 - 64,75,000

Smart Cards 415536 4,15,53,600 1093528 10,93,52,800 647500 6,47,50,000

Consultancy 50,00,000 1,00,00,000 75,00,000

Training 5,00,000 10,00,000 7,50,000

Total 8,62,98,880

17,12,88,080 13,21,85,000

Miscellaneous (@5% of

above)

- 43,14,944

- 85,64,404

66,09,250

Grand Total 9,06,13,824 17,98,52,484 13,87,94,250

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The total capital expenditure required for implementing the smart card based pilot in the

two districts is detailed above and is Rs 40,92,60,559/- or Rupees 41 crore approximately.

(d) In the PPP model with no government investment/intervention the infrastructure

required for a smart card based system is built by the service provider. The costs

estimates in such a scenario is Rs 10/- per card per month. In this case the annual cost

of operation and management, excluding the cost of grain procurement, handling and

distribution works out to be Rs. 25,83,54,000/- (21,52,950 beneficiaries x Rs 10 per

month x 12 months) (say 26 crore). Some private service providers (like Accor

Services, Sodexho) have envisaged interest in operating PDS for minimum period of

5 years or more per zone/area. The services would include complete back-office

operation, procurement and issue of smart cards, maintenance, and all software

requirements as well and provide for all required hardware as well.

4.4 A Proposed Implementation Schedule

A possible implementation schedule of pilots is as given in table 3 below (same colours

indicate simultaneous activity, though may not start at the same time. Each month is

considered to be of 22 working days). Risks of time slippages and due to other dependencies

like availability of all hardware, accurate and fast initial enrolment of beneficiaries etc exist

and may impact the project.

Table 3: Time Estimates for Implementation of Pilot in different modules.

Ser

No

Activity Fully

Automatic

Model at

Anand

Semi

Automatic

Model at Rest

of Thane

PPP Model at

Thane Rationing

Area

PPP Model (Without

Government

Intervention)

1 Project Initiation 1 month 1 month 1 month 2 months

2 Requirements gathering

and system design

3 months 3 months 3 months 4 months

3 Hardware order and

receipt


4 Data collection and data

cleaning


5 Beneficiary enrolment 3 months 3 months 6 months (including

affiliate enrolment)

6 months (including

affiliate enrolment)

6 Card Personalisation and

Issue


7 Installation of hardware 1.5 months 3 months 2 months 2 months

8 Capacity Building 2 months 2 months 2 months 2 months

9 Software development

and Beta Testing


10 Fielding of Pilot 6 month 6 month 6 month 6 month

11 Testing of Pilot and

Training of Stakeholders


12 Program Evaluation 1 month 1 month 1 month 3 month

13 Elapsed Time 22 months 23 months 25 months 29 months

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5 Economic Benefits of Smart Card Based PDS

5.1 Subsidy Calculations

In the two pilot districts of Anand and Thane, the subsidy per annum on different items of

food, viz., rice, wheat, edible oil and sugar and on non-food item of Kerosene, is huge. This

is excluding the leakages due to non-inclusion and exclusion errors of targeted beneficiaries

and inefficient operation of FCI and other godowns which provide the supplies to the FPS

owners. If one compares the ration price and average market prices of these items in both

Anand and Thane, and estimates the monthly subsidy due to be paid to total card holders in

the two pilot districts, then the following picture emerges as provided in the estimates given

in tables 4 to table 7.

Table 4: Subsidy Calculation for Kerosene Anand District

Allotment Kerosene

Place Card

Type

No. of

Cards

Kerosene PDS

Sale

Rate

Market

Price

Subsidy

Amount

Total

Subsidy

APL 258557 5 9.2 20 10.8 13962078

BPL 123807 5 9.2 20 10.8 66,85,578

AAY 32460 5 9.2 20 10.8 1752840

Anand

Total 2,24,00,496

Source: Data received from respective district authorities and data collected by CAL2CAL

5.2 Benefits to Costs Ratio and Break-Even Points

5.2.1 Benefits to Costs Ratio

The advantage of switching from the existing PDS, to the PPP model through implemented

through smart card mechanism is that it results in efficiency in handling the stocks of food

grain/kerosene etc. as there will be scale effect which is not confined to ration card holders

only. In the Smart card based PDS system a considerable amount of subsidy leakage through

diversion of ration quantities to open markets would be plugged.

The total annual subsidy on food plus non-food items in the two pilot districts of Anand and

Thane is estimated to be Rs 840,57,52,251/- ( Rupees Eight hundred forty crore fifty seven

lakh fifty two thousand two hundred fifty one only). If we postulate a 30% subsidy saved

scenario, then the total subsidy leakage plugged would be Rs 252,17,25,675/- (Rupees Two

hundred fifty two crore seventeen lakh twenty five thousand six hundred and seventy five

only), whereas in case of the postulated 35% leakage saved the total subsidy leakage plugged

would be Rs 294,20,13,288/- (Rupees Two hundred ninety four crore twenty lakh thirteen

thousand two hundred and eighty eight only).

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Table 5: Subsidy Calculation for Rice, Wheat in Anand District and Thane District

Allotment Rice Wheat

Place Card

Type

No. of

Cards

Rice Wheat PDS

Sale

Rate

Market

Price

Subsidy

Amount

Total

Subsidy

PDS

Sale

Rate

Market

Price

Subsidy

Amount

Total

Subsidy

APL 351272 25 10 9.5 14 4.5 3,95,18,100 7 14 7 2,45,89,040

BPL 162993 25 10 6 14 8 3,25,98,600 5 14 9 1,46,69,370

AAY 131590 25 10 3 14 11 3,61,87,250 2 14 12 1,57,90,800

Rest of

Thane

Total

Subsidy

10,83,03,950 Total

Subsidy

5,50,49,210

APL 1059802 25 10 9.5 14 4.5 11,92,27,725 7 14 7 7,41,86,140

BPL 20639 25 10 6 14 8 41,27,800 5 14 9 18,57,510

AAY 11830 25 10 3 14 11 32,53,250 2 14 12 14,19,600

Thane

Rationing

Area

Total

Subsidy

12,66,08,775 Total

Subsidy

7,74,63,250

APL 258557 16 19 10 14 4 1,65,47,648 7 14 7 3,43,88,081

BPL 123807 16 19 3 14 11 2,17,90,032 5 14 9 2,11,70,997

AAY 32460 5 10 3 14 11 17,85,300 2 14 12 38,95,200

Anand

Total

Subsidy

4,01,22,980 Total

Subsidy

5,94,54,278


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Table 6: Subsidy Calculation for Sugar and Kerosene in Thane District

Allotment Sugar Kerosene

Place Card

Type

No. of

Cards

Sugar Kerosene PDS

Sale

Rate

Market

Price

Subsidy

Amount

Total

Subsidy

PDS

Sale

Rate

Market

Price

Subsidy

Amount

Total

Subsidy

APL 351272 10 5 15 18 3 10,538,160 10 20 10 1,75,63,600

BPL 162993 6 8 14 18 4 39,11,832 10 20 10 1,30,39,440

AAY 131590 2 10 13 18 5 13,15,900 10 20 10 1,31,59,000

Rest of

Thane

Total

Subsidy

1,57,65,892 Total

Subsidy

4,37,62,040

APL 1059802 10 5 15 18 3 3,17,94,060 10 20 10 5,29,90,100

BPL 20639 6 8 14 18 4 4,95,336 10 20 10 16,51,120

AAY 11830 2 10 13 18 5 1,18,300 10 20 10 11,83,000

Thane

Rationing

Area

Total

Subsidy

3,24,07,696 Total

Subsidy

5,58,24,220


Table 7: Subsidy Calculation for Sugar and Edible Oil in Anand District

Allotment Sugar Edible Oil

Place Card

Type

No. of

Cards

Sugar Edible

Oil

PDS

Sale

Rate

Market

Price

Subsidy

Amount

Total

Subsidy

PDS

Sale

Rate

Market

Price

Subsidy

Amount

Total

Subsidy

APL 258557 5 5 13.5 18 4.5 58,17,532.5 40 80 40 5,17,11,400

BPL 123807 5 5 13.5 18 4.5 27,85,657.5 40 80 40 2,47,61,400

AAY 32460 5 5 13.5 18 4.5 7,30,350 40 80 40 64,92,000

Anand

Total

Subsidy

93,33,540 Total

Subsidy

7,64,72,800


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The total cost of implementing the Smart Card based PDS system in Anand and

Thane as estimated in the Technical report is around Rs. 41 crores, the benefit – cost

ratio of the introduction of the Smart Card Based PDS in Anand and Thane would be:

(a) Scenario I ( 30% saving in subsidy) : 6.15

(b) Scenario II (35% saving in subsidy) : 7.07

In the PPP model when the service provider sets up the infrastructure the benefit cost

ratio turns out to be:

(a) Scenario III (30% leakages in subsidy) : 9.69

(b) Scenario IV (35% leakages in subsidy): 11.31

5.2.2 Break-Even Points

The breakeven percentages for the costs involved are as follows:

(a) Scenario I – 16.27% - This implies that a savings of only 16.27% in the

leakages (assumed to be 30%) would be the breakeven point to cover the cost

of smart card implementation.

(b) Scenario II – 13.95% - The implications in this case is that a savings of only

13.95% in the leakages (assumed to be 35%) would be enough to cover the

costs of implementation of the smart card system.

(c) Scenario III – 10.32% - This is the percentage savings in the leakages (of

30%) that will cover the costs when the PDS is implemented in the PPP model

and the service provider setting p the infrastructure.

(d) Scenario IV – 8.84% - This implies that a savings of only 8.84% in the

leakages will cover for the costs of smart card PDS implemented in the PPP

model.

The benefits costs ratio and the breakeven points justify the introduction of the smart

card PDS implemented in either the existing set-up or through the PPP model.

5.3 Monitoring Agency Set up

Information-based operations of public distribution of food and non-food items to

targeted groups would warrant that all the information are not only networked

between partners in the distribution chain, but are used to monitor the operations and

to check quality of goods, and made payments against verified records via the banks.

This would require the ability of the handler of information – all collected through

Smart Card based operations – to use all the information in an efficient manner so as

to achieve the desired results of plugging the diversion of commodities in the open

market and cover the targeted beneficiaries effectively. If a part of the information is

not obtained and / or used to estimate the required stocks to be released to the seller,

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then the problem of diversion of goods to the open market cannot be controlled and

the system developed with the help of modern technology would remain underutilized

and the problem continued. For the effective use of Smart Card based operations in

PDS, it is required to have efficient use of all information and control and monitor the

flow of supply distribution as per the information received and processed to the

targeted group of population covered by the TPDS.

This requires an integrated management and monitoring authority for public

distribution to function and monitor the working and distribution of articles to the

targeted group. Such a monitoring authority will not be another Government

department plagued with numerous loopholes and non-performing activities (like

corruption, dilatory practices, excuses for non-performance etc), but is vested with

authority to regulate, disseminate and evaluate and monitor the entire operations.

If the pilot is implemented on the existing system then the FCI and the state

departments of civil supplies are in charge of procurement of articles, then the

proposed new regulatory authority could be in charge of supply allotments. The rest

of the supply chain would remain as it is, the only difference being that they are now

smart card enabled. Therefore no manipulation of data in the smart card is possible.

Reduction of subsidy outgo through smart card based network would reduce the

scope for its seepage to non-targeted groups/open market, provided the baseline

information (BPL list etc), consumer information and allotment figures are correct,

transparent and up to date.

Establishment of such a new authority would warrant expansion of employment

opportunities for computer trained manpower and thus would perhaps more than

compensate for the layoff of workers at FPS unit level that switch to Smart card based

technology system would result. Moreover, some of the existing manpower of FCI

and state food corporations may be inducted into the proposed monitoring authority.

It is imperative to point out why the establishment of such an independent body

parallel to the state civil supplies department is required. In other words, we need to

point to the reasons why the proposed functions of the regulatory body could not be

undertaken by the department of Civil Supplies and Food of the respective State

governments. The reasons are given below:

(a) The department of food and civil supplies of the state governments are not

equipped with IT enabled services, and are likely not to use the networked

information for management of the distribution of stocks from source of supply to

the distribution outlets. Reliance on traditional book entries, incomplete

information based decision and other unlawful practices usually followed in

many such government departments would stand in the way of effective plugging

the diversion of ration designated quantities to the open market;

(b) The manpower engaged in the concerned government departments including the

rationing inspectors often have developed vested interests in the perpetuation of

such diversion of rationed commodities , and it is very unlikely that they would

take effective steps to plug the seepage due to diversion from FPS owners to

marketers in the open market;

(c) Training of erstwhile employees of the state civil supplies and food department

used to old system of administration to the new IT networking Smart card Based

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Operations and management would seem costly, time consuming and ineffective

in tackling this problem of diversion.

If the pilot is decided to be the PPP model, then the monitoring agency will monitor

that the private shops and enrolled FPS are selling the right quality of grains to the

beneficiaries at the right price. This monitoring agency will have other oversight

responsibilities over the private service providers. The details of the formation of

such a monitoring agency, its duties and sphere of influence and its authority,

organizational extent and details is not within the ambit of this study and a separate

study may be undertaken for the same.

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6 Suggested Recommendations

Given the diversity of infrastructure, state of development and governance parameters

across the different states of India, it is not possible to apply a single homogeneous

mode of intervention to meet the requirements which vary from one region to another.

Different models/modes are to be comprehended and pilots of different models be

tried to assess the efficacy of these alternative models, before extending them to other

regions. It would be prudent to try out different pilots and see which model suits the

best and has the maximum ROI. Therefore are two options available:

6.1 Option I

In this option it is suggested that pilots of three different types be implemented as

follows:-

(a) A fully online smart card system to be implemented at Anand: This retains

the existing PDS chain and aims at improving the efficiency of delivery,

enhance accountability, improve reporting system, and reduce leakages with

the ultimate aim of improving customer satisfaction and reducing subsidy

outlay. The reasons for this recommendation is primarily the state of existing

infrastructure at Anand, availability of power, government’s e-governance

initiatives and future plans. Capacity building in terms of training the FPS

owners and all other stakeholders would be required. The time taken for this

pilot implementation is 22 working months and the cost of this portion of

implementation is Rs 9,06,13,824/- (Rupees Nine crore six lakhs thirteen

thousand eight hundred and twenty four) say Rs 9.06 crore.

(b) A semi automated smart card system to be implemented at Rest of Thane Area (with Capex by Government and Operation by Private Parties): This

system also retains the existing PDS system and is an offline system, in that

instead of the information going online travels on the tamper proof smart

cards of the FPS owners. All necessary information, instead of being made on

paper (as in the existing system) is updated on the smart card itself, including

the stock details when the FPS owner collects the stocks from the godowns. In

the “Rest of Thane” area, the semi-automatic smart card based solution is

recommended. Lack of infrastructure, lack of regular and stable power supply,

lack of extensive GSM/CDMA coverage prompts for this solution to be

piloted in the “Rest of Thane Area”. Capacity building in terms of training the

FPS owners and all other stakeholders would be required. The estimated time

taken for this project is 23 months. The capital expenditure by Government to

implement this part is Rs. 17,98,52,484/- (Rupees seventeen crore ninety eight

lakhs fifty two thousand, four hundred and eighty four) say Rs. 18 crore. The

expenses for operating and managing the infrastructure by a Private Party is

Rs 3,87,51,300/- (6,45,855 beneficiaries x Rs 5 per month x 12 months) say

Rs 3.88 crore per annum.

(c) A smart card based PPP model for Thane rationing Area: This systems

advocates a paradigm shift from the present system. This system removes the

existing supply chain and is based on the idea of outsourcing the subsidy

administration and implementation through an agency, which enrolls FPS and

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other affiliates. These shops/affiliates procure specified grains from the grain

markets at market price and sell it to the identified and authenticated

beneficiaries at subsidized prices. This mode operates as depicted in figure 12

in section 3.2.3. The government delegates responsibility of distributing food

grains to the beneficiaries to a private agency (with necessary

regulatory/monitoring authorities in place). The subsidy amount becomes

payable to them after verification of such transactions through the outsourced

agency’s back-office establishment and affiliated banks. Capacity building

responsibility in this case would not lie with the government and would be

that of the outsourced agency’s. Oversight responsibilities lie with the

monitoring agency. The implementation time is 25 months for this model at

Thane Rationing Area and estimated cost is Rs. 19,66,08,780/- (Rupees

nineteen crore sixty six lakhs eight thousand seven hundred and eighty), say

Rs. 19.66 crore. The basis for calculation is - 10,92,271 beneficiaries x Rs 15

per month x 12 months)

6.2 Option II In this option it is suggested that the PPP model without any government intervention

may be tried out as pilot for the two districts. In this model (with no government

intervention) the infrastructure required for a smart card based system is provided and

operated by the service provider. The costs estimates in such a scenario is Rs 10/- per

card per month. In this case the annual cost of operation and management, excluding

the cost of grain procurement, handling and distribution works out to be Rs.

25,83,54,000/- (21,52,950 beneficiaries x Rs 10 per month x 12 months) (say 26

crore). The estimated time for this type of implementation is 29 months.

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