Impacts of PDS on household spending

Source: The post Impacts of PDS on household spending has been created, based on the article “The PDS impact on household expenditure” published in “The Hindu” on 13th July 2024

UPSC Syllabus Topic: GS Paper3- Economy-Public Distribution System objectives, functioning, limitations, revamping; issues of buffer stocks and food security.

Context: The article discusses the impact of receiving free food items from India’s Public Distribution System (PDS) on household spending. It details how this arrangement allows families to spend more on other essential items, enhancing their overall consumption and well-being. The data from the National Sample Survey Office (NSSO) helps analyze these effects, especially among the poorest households.

For detailed information on All India Household Consumption Expenditure Survey 2022-23 read this article here

How does the PDS impact household food consumption diversity?

1. Subsidized Foodgrains: The PDS provides subsidized foodgrains to eligible households, which allows them to allocate more financial resources to other food items. This system supports up to 75% of rural and 50% of urban populations under the National Food Security Act (NFSA), 2013.
2. Household Savings and Diversification: By reducing the expenditure on staple foodgrains, families can spend more on diverse foods like vegetables, milk, pulses, and meat, potentially improving their overall nutrition and dietary variety.

How does the NSSO handle the imputation of free items’ values?

1. Imputation Methods: The NSSO uses two sets of values for imputing the cost of free items received by households: the modal unit price and the 25th percentile unit price. This approach is applied to both food and non-food items received without charge.
2. Focus on Free Items: The NSSO specifically imputes values for items received for free. This is distinct from items purchased at subsidized prices, which are not subject to imputation.
3. Impact on Consumption Metrics: By imputing the value of free items, NSSO calculates the Monthly Per Capita Consumption Expenditure (MPCE) that includes these free items, providing a clearer picture of a household’s consumption and economic status.

What are the key findings of the Household Consumption Expenditure Survey (HCES) 2022-23?

1. High Consumption of Free Foodgrains: The HCES 2022-23 found that food items, particularly foodgrains received for free through the PDS, dominate the imputed value of all items. In rural areas, 94% and in urban areas, 95% of the imputed value of all free items is from food.
2. Monetary Value of Free Items: The survey reports an imputed value for food of ₹82 in rural areas and ₹59 in urban areas. This indicates a significant benefit from free food items, contributing to household consumption.
3. Movement Between Consumption Classes: The survey data reveals that the provision of free items helps some households move up to higher consumption classes. For example, 20% of those in the bottom end of the rural distribution (approximately 86 lakh individuals) move to the next higher consumption class.

What are the implications for poverty measurement?

1. Redefining the Poverty Line: The latest findings from the Household Consumption Expenditure Survey (HCES) suggest a need for a broader discussion on where to set the poverty line, incorporating the value of free items consumed.
2. Inclusion of Free Items in Assessments: Estimating the number of poor households should consider both direct expenditures and the value of free items, such as foodgrains from the PDS. This approach provides a more comprehensive measure of household consumption and well-being.
3. Impact of In-kind Transfers: In-kind social transfers, like those from the PDS, substantially boost the consumption capacity of poorer households, implying that poverty measurements must account for these benefits to reflect true economic status.

Question for practice:

Discuss how the Public Distribution System (PDS) impacts household food consumption diversity.