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What it takes to feed two-thirds of India’s population

Posted on by MSC

India’s National Food Security Act (NSFA), which came into effect in 2013, declared that the poor in urban and rural areas of the country had a constitutional right to food. The NFSA provides monthly food subsidies to roughly 800 million poor individuals in all 36 Indian states and union territories in the country. The subsidy is in the form of 5 kilograms of rice, wheat, or a combination of both. This system of delivering subsidies is known popularly as the Targeted Public Distribution System (TPDS).

TPDS is a complex process of grain procurement from farmers, grain storage at warehouses or depots, grain allocation and distribution, and delivery to beneficiaries through licensed food distribution shops called fair price shops (FPS). These FPSs distribute food grains to NFSA beneficiaries every month. The TPDS chain encompasses around 2,000 depots—storage centers used to store procured grains safely—besides over 8,000 warehouses and a network of more than 500,000 FPS to facilitate movement and distribution of grains from farmgate to poor households.

The central and state governments co-manage the entire operation of moving grains from the farm gate to the NFSA beneficiary. The Food Corporation of India (FCI) manages the process of moving grains on behalf of the central government to the FCI warehouses after procuring them from farmers. The state governments and union territories handle the movement of the grains from the FCI warehouses to state-owned warehouses and then on to FPS dealers. The central government provides financial assistance for transportation and handling to states to ensure the delivery of food grains to each FPS. This financial assistance is capped at INR 100 (USD 1.4) per quintal (100 kg) to northeastern states and INR 65 (USD 1) per quintal to other states.

FCI has played a significant role in transforming India’s food subsidy delivery system to one that is stable and dependable. FCI procures food grains at the minimum support price from farmers in grains-surplus states—ones that produce more grain than they consume. It then distributes the grains to grain-deficit states and union territories. This daunting and massive task requires the movement of more than 4.1 million tons of food grains every month. It involves multiple steps, procedures, stakeholders, checks, and expenses that require on-the-ground daily management to ensure TPDS functions smoothly.

Vulnerabilities in the system

The complexity and scale of TPDS, however, introduce the scope for vulnerabilities in the system. The TPDS supply chain is notorious for operational lapses and leakages that range between 40 to 50 percent. The primary reason is that in the process of grain movement, food grains change hands or ownership multiple times through private transporters and warehouse employees who are hired through tenders. This leaves room for fraud and malpractice as the states’ capacities to monitor and check operational lapses regularly are limited.

Further, state food grain warehouses are often rented out. The renting entities are usually the state civil supply cooperatives, agriculture marketing cooperatives, or state warehousing cooperatives, none of which falls under the state food departments’ supervision. Additionally, the absence of automated protocols for quantity and quality checks makes the system vulnerable during the movement of grains.

“End-to-end computerization” of TPDS

The central government introduced “end-to-end computerization” (E2EC) of TPDS operations in 2012 to address the key logistical challenges of TPDS and improve food grain distribution across the country. The E2EC initiative had the following features:

• Complete digitization of the NFSA beneficiary database in all states and union territories;
• Online allocation of grains to states;
• Computerization of supply-chain;
• Transparency portal implemented in all states and union territories

E2EC works to revamp and strengthen TPDS and make the system more transparent, efficient, and accountable by making use of electronic solutions. A key initiative under the E2EC scheme is the Food & Essential-commodities Assurance & Security Target (FEAST). The FEAST module helps to automate and digitize stock inventory management, allocation policies, online generation of allocation orders, stock release orders, stock movement receipts, and delivery orders. Concurrent with the implementation of the FEAST module, other innovations have significantly improved the monitoring of grain movement and the availability of real-time grain inventory. These innovations include automated tracking of commodity movement using geo-positioning systems, digitization of grain weighing machines at warehouses, computerization of state-owned warehouses, and automation of FPS. Each FPS employs an electronic point of sale machines to record transactions and authenticates beneficiaries at the shop level.

We at MSC intended to gauge the efficiency in grain movement, flow of information, and sufficiency of the financial assistance given to states for transportation for the benefit of the Indian government. We conducted a comprehensive assessment of the TPDS supply chain in five states—Haryana, Tamil Nadu, Telangana, Assam, and Uttar Pradesh. Results from the assessment led us to conclude that these states continue to use the resources available to accommodate the newer systems and replace manual processes that have defined their operations for years. However, the states face hurdles, as one supply chain system cannot be adapted to the disparate systems across the entire country.

The TPDS supply chain is mammoth, in terms of both geographic spread and population coverage. As a result, many factors including terrain, stakeholders, ground-level facilities, resources, and infrastructure affect the way the program runs. Automation requires not only buy-in from all stakeholders but robust IT infrastructure and network connectivity, all of which are either not available or are beset with challenges in India.

MSC observed that different states have been able to implement these changes in varying degrees. Telangana and Tamil Nadu were far more advanced with near-complete digitization of their supply chain on a real-time basis. Both states found success in establishing their state supply chain management (SCM) system and even track the grain procurement process efficiently. Similarly, Telangana and Uttar Pradesh adopted advanced technologies like GPS and geo-fencing, and have an impressive command center to track trucks carrying food grains. Other states like Assam and Haryana use an SCM designed by the central government, FEAST.

Adopting this system in Assam, however, required several tweaks and customizations. For example, FEAST was incapable of accommodating state-specific needs, which include:

• Multiple stakeholders that operate the state warehouses and consequently require multiple logins;
• Different modes of transportation, such as carts, animals, and boats used to transport food grains in hilly and riverine geographies.

The situation is also unique for states, such as Uttar Pradesh, where the government runs its own mobile-based application to track food grains dispatched from warehouses as adequate IT infrastructure does not yet exist. In Haryana, warehouse digitization has presented difficulties as warehouses are owned by unrelated entities and stock positions continue to be maintained manually. FEAST required customization in Haryana to track grain movements and subsequently generate release orders accurately.

The future of food security in India

Over the next 10 years, TPDS will undergo drastic changes to include:

One Nation One Ration Card: In TPDS, each eligible beneficiary household has a ration card tagged to their home state with which they visit the FPS and pick up the food grains they are entitled to. With the “One Nation One Ration” card initiative, the government intends to introduce an inter-state portability feature through which any NFSA beneficiary can pick-up their ration entitlement from any state regardless of where they reside. This is particularly helpful for migrant populations who leave their home states to earn livelihoods elsewhere. Currently, inter-state portability is active in two sets of states—namely Andhra Pradesh & Telangana and Gujarat & Maharashtra. The government plans a pan-India implementation by June, 2020.

To ensure portability on such a large scale, states will require an automated system that captures demand requirements at every FPS dealers’ location to determine monthly grain allocations. Existing SCMs are not designed to plan for demand based on the uptake at FPS. The states manage the changes to allocations at the shop level manually, based on demand from FPS dealers. This results in a lag in demand and allocation. In the case of Haryana, the state handles demand due to portability through increased allocation to all FPS dealers by 10%. A data-driven system of grain allocation that can manage “one nation one ration card”, therefore, would require significant improvements to the current hardware and software capabilities of state SCMs.

Fortification: The Indian government has been gradually moving from food security toward nutritional security. The government plans to provide fortified rice and wheat that is enriched with essential vitamins and minerals to poor households under the National Food Security Act (NFSA). This requires many changes to the existing TPDS process. Fortification of rice and wheat introduces another step in transportation to the supply chain, where grains would need to move to and from fortification mills, which necessitates additional man-power, cost and time.

Some governments have been experimenting with fortification on a small scale. In 2015, the Haryana State Cooperative Supply & Marketing Federation Limited (HAFED) started a wheat flour fortification program in two blocks of the Ambala district. Under this program, the government provided fortified wheat flour to TPDS beneficiaries instead of wheat kernels to address deficiencies of vitamin B12, folic acid, and iron. For a national-level fortification program to succeed, the existing TPDS would require a re-engineering of processes and systems to absorb the additional requirements of time and resources (labor and cost).

Providing choice to beneficiaries: The Indian government has been experimenting with various models for the transfer of food subsidies. The mode of transfer is either in cash, as in the case of Direct Benefit Transfers in Puducherry, Dadra & Nagar Haveli, and Chandigarh, or in-kind, as with the physical distribution of grains throughout the rest of India. It appears that policymakers prefer the physical distribution of food grains due to existing challenges related to financial inclusion and the unavailability of markets in rural India.

However, MSC believes that beneficiary choice will characterize the future of TPDS. Maharashtra launched a pilot under which NFSA beneficiaries have the option to choose the mode of subsidy transfer, that is, cash or in-kind with an option to revert to the original choice if they are not happy. At the national level, this would demand the management of dynamic data of more than 200 million poor NFSA households on a monthly basis. MSC does not believe TPDS in its current avatar is capable of this feat.

Next steps

The future of TPDS in India is gradually transitioning from one characterized by food security to one of “nutrition security”, which means that the poor will not only have access to food, but essential micronutrients to improve their overall health and nutritional standards. The Indian government has started to take steps to improve the nutritional efficiency of PDS through fortification and through diversification of the food basket. To achieve this and ultimately place more choice in the hands of beneficiaries will require further strengthening and automation of the supply chain, as well as close coordination between states.

A greater emphasis on technology and the development of systems is essential to ensure that states are able to move away from archaic manual processes. Unfortunately, a one-size-fits-all approach to the automation of TPDS is yet to come to a country as diverse as India.

CICO Economics in Indonesia

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Cash is ubiquitous in Indonesia. Here, easy and reliable ways to conduct cash-in/cash-out (CICO) transactions are critical to a growing digital economy and are often the first steps to financial inclusion. The backbone of an inclusive financial system comprises banks and e-money agents. Indonesia has made great strides in creating access to agent networks. More than a million bank and non-bank agents currently operate in the country and the numbers continue to grow. Despite such massive growth, transactions are limited and both individual agents and providers find the economics of sustaining agent networks to be unviable.

With support from the Bill and Melinda Gates Foundation (BMGF), Boston Consulting Group (BCG) collaborated with MicroSave Consulting (MSC) to conduct a study on the economics of CICO agent networks in Indonesia. The study is part of the Foundation’s global initiative on agent networks that works to generate actionable insights on building more sustainable CICO networks. The objective of the study was to provide insights into the economics of existing and potential CICO networks in Indonesia. Through this study, we outlined opportunities to enhance CICO model economics and increase reach to underserved populations, especially in rural geographies. The study also provided valuable and actionable insights to providers and policymakers for them to enhance the viability of CICO networks in Indonesia.

Download the full report here

The Public Distribution System and Food Fortification: A missed opportunity?

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An adequate nutritional diet is imperative for people to lead an active, healthy life. As per The State of Food Security and Nutrition in the World 2018 report, almost 195.9 million people in the country (comprising 14.8% of India’s population) are undernourished.

What’s worse, malnourishment among women and girls in the reproductive age triggers a cycle of malnutrition going down generations via the reproduction of unhealthy babies. Moreover, malnourishment among children leads to a higher risk of death from common childhood ailments such as pneumonia, malaria, and diarrhea. Furthermore, by restricting physical growth, it causes mental retardation, blindness, spinal, and brain birth defects.

Nutritional Inefficiency of India’s PDS

The nation spends nearly 1% of its GDP on implementing the Food Security Act and provisioning of food grains (rice and wheat) through the Public Distribution System (PDS). Therefore, the above efforts should have led to improved nutritional outcomes in India. But empirical studies have failed to provide conclusive evidence in this regard.

Much of this can be attributed to a nutrition-deficient diet among a large number of Indian households, due to lack of or minimal consumption of fruits, vegetables, meat, and eggs, which are considered as rich sources of vitamins and minerals. The prevalence of nutritional anemia among India’s women (53.1%) and men (22.7%) can be attributed to the deficiency of micronutrients, primarily iron and others like folic acid and vitamin B12.

The Shift towards Food Fortification

The history of food fortification in India goes back to the 1950s when vanaspati was fortified with vitamin A. Thereafter, in 1986, there was universal iodization of salt. In recent years, some states such as Punjab, Haryana, Gujarat, and Rajasthan distributed fortified wheat under various social security schemes as an experiment.  In order to resolve the issue of micronutrient malnutrition, ‘food fortification’ has been identified as an effective means by the World Health Organization, the Copenhagen Consensus, and the Food and Agriculture Organization. This is a method of adding vitamins and minerals to commonly consumed foods to potentially address the faltering nutritional public health indicators.

In 2016, the Food Safety Standards Authority of India (FSSAI) led multiple stakeholders and issued a joint declaration whereby they noted food fortification to be a ‘realistic and sustainable complementary strategy’ for dietary diversification and food supplementation to eliminate micronutrient deficiencies in India. In February this year, the Government of India approved the Centrally Sponsored Pilot Scheme on ‘Fortification of rice and its distribution under PDS’ in 15 districts, for a period of three years.

An Answer to Malnutrition?

In understanding the usefulness and effectiveness of single or multiple micronutrient (MMN) food fortification in India, a literature review analyzed 47 published studies conducted across 13 Indian states. Of the total publications reviewed in the above paper, 76.9% of them had reported an improvement in one or more biological markers, and an improvement was illustrated by 91.3% of the papers that were specifically on MMN fortification. Food fortification is a globally proven intervention to address the much prevalent micronutrient deficiencies in the population.

Though the Government of India is moving towards fortifying food via various pilot programs, especially through PDS in some districts, it is insufficient. Since PDS is one of the world’s largest food security programs, the non-provision of fortified food under it appears to be a missed opportunity.

In potentially targeting 100 million children aged between 0 and 6 years of age, of which 48 million would be girls – and an overall total of 800 million people at the household level across India – interventions such as the provision of fortified food grains, instead of non-fortified ones, should be pursued actively through the ongoing PDS program. This will further lead to potential long-term benefits by reducing the percentage of malnourishment among households in India, particularly women and children. A nation of healthy people will ensure better outcomes in all walks of life even as India strives to join the comity of fully-developed countries.

The blog was earlier published on Financial Express on 3rd of December, 2019

Deepening financial inclusion through cash transfers: The case of PKH in Indonesia

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In 2017, the Government of Indonesia (GoI) began digitizing social benefit transfers to improve delivery efficiency and achieve sustainable financial inclusion. Program Keluarga Harapan (PKH), a conditional cash transfer (CCT) program, was the first major social assistance payment program (G2P) digitized by the government. It provides incentives for the following:

  • Pregnant and lactating mothers, infants, elderly people, and people with disabilities to access and utilize health care services at the primary health clinics of the government;
  • Children old enough for schools and pre-schools to complete 12 years of basic education.

The program targets 10 million families in the bottom 15th percentile[1] of the unified beneficiary database of the lowest income population maintained by the Ministry of Social Affairs (MoSA). The benefits are distributed quarterly and range from IDR 362,000 (USD 26) to IDR 2,625,000 (USD 178). The benefits are transferred to the bank account of the beneficiaries linked to Kartu Keluarga Sejahtera (KKS), a specially designed debit card. Beneficiaries can choose between ATMs, bank agents, or other bank payment points to withdraw their benefits. MSC assessed the PKH program and found that digitization has improved the efficiency of the program and increased the convenience and satisfaction of the beneficiaries. However, the impact on financial inclusion has been mixed. This blog highlights some of the key issues faced in driving meaningful financial inclusion through the PKH CCT program.

Digitization has led to a significant jump in new bank accounts but the use of these accounts remains low. 86% of beneficiaries stated that the KKS account was their first bank account, which translates to 8.6 million new accounts. However, usage of the account for non-G2P payments remains low as only 17% of the beneficiaries use their accounts for other financial needs. 82% of all beneficiaries withdrew their entire social assistance amount in one transaction. This implies that unless the beneficiaries make other deposits into their KKS accounts, their financial transactions for the quarter are limited to a single withdrawal of social benefit. The various reasons for the low usage are discussed below:

• Poor program or product communication has impacted the success of the program. 39% of the beneficiaries were unaware that the KKS card was linked to a basic savings account, while another 31% mentioned that they did not know how to transact. 21% of the beneficiaries revealed that the front line staff, such as PKH facilitators, bank staff, or bank agents encouraged them to withdraw their benefits as soon as possible. This was due to a prevailing misconception that the government would take the money back if the accounts had any balance left.

• Poor digital literacy was another issue as the beneficiaries depended on family members, PKH facilitators, and bank agents to conduct the transactions. They worried that if they went to the withdrawal point alone, they would push the wrong button, enter the incorrect Personal Identification Number (PIN), or the card would get stuck in the ATM. This fear and uncertainty were one of the reasons that caused them to withdraw the entire amount at once.

• No use cases for debit card transactions in rural areas. Beneficiaries primarily depend on cash to transact on a daily basis. This is especially true for those living in rural or remote areas. Money sitting in an account has little to no use when the immediate ecosystem is not debit-card-friendly.

Low usage of bank agents and dependence on ATMs was another interesting behavior that was observed among the beneficiaries. Almost 82% of the funds were withdrawn through ATMs. Laku Pandai agents or branchless banking agents were rarely used to withdraw the funds. This behavior was largely driven by the absence of bank agents located in the rural and remote areas. The 2017 Agent Network Accelerator (ANA) Indonesia study of MSC revealed that most agents operated within a 15-minute distance from the bank branches. Other reasons behind the low usage were the inability of the agents to handle larger liquidity requirements and the additional charges they levied on the beneficiaries to withdraw their funds.

Little incentive for banks to invest in agent networks to improve their quality. Banks typically incur significant costs to manage the agent networks. They give commissions to the agents for transactions, pay the rental fees for the specialized Electronic Data Capture (EDC) machines to conduct G2P payments, monitor the agents, and manage agent liquidity, etc. Currently, the GoI does not pay the banks to distribute G2P payments. As an incentive for the banks, the GoI transfers the total amount of social benefit from the treasury 30 days in advance of disbursement to the participating banks, which allows them to earn interest on the float. However, the banks are not satisfied since they are unable to recoup the costs associated with beneficiary disbursement. As a result, they do not invest in their agent networks to manage agent liquidity in a more proactive manner, or train agents to improve product communication. This hampers the quality of service on which the beneficiaries depend.

It is interesting to note that these challenges reflect many of those seen by MSC in India.

What can be done?

MSC’s experience in other markets shows that a robust and viable last-mile CICO network is a foundational step to create a trusted and successful digital ecosystem for beneficiaries to use and transact. Below, we explain in brief the key measures that can be considered by GOI in the short to medium term to improve the last-mile distribution network.

Use Family Development Sessions (FDS) to improve the digital and financial capability of PKH beneficiaries. PKH beneficiaries receive monthly FDS sessions from the PKH facilitators. These sessions typically educate the beneficiaries on family health and well-being and are a prerequisite for them to receive the benefit. The FDS could include information or modules on the benefits and use of the KKS account and card. PKH facilitators could also use a combination of audio, video, and gaming elements to make the sessions more engaging. The Citi Foundation helped create similar modules for CCT beneficiaries in the rural areas of Colombia with positive results.

Allow third party agent network managers to address the rural use cases and access of agents. The burgeoning FinTech and eCommerce space comprises 5 million FinTech agents that operate across Indonesia. All the major FinTech and eCommerce actors like GoPay, OVO, Bukalapak, and Tokopedia have agent networks that provide a wide range of services in rural areas, such as bill payments for utilities, grocery purchases, marketplaces to purchase goods, etc. These players have the potential to become Agent Network Managers (ANMs) for the banks. For the beneficiaries, such arrangements could strengthen the use cases for digital transactions and encourage them to keep the benefits in their KKS accounts. ANMs could also reduce the economic burden on the banks to set up, hire, and manage the agent networks including liquidity management at the agent outlets.

Create an enabling environment for financial institutions to conduct G2P payments. The Government of Indonesia and the financial regulators play a significant role in creating a conducive environment for G2P payments to achieve sustainable financial inclusion. Currently, the banking and financial services sector faces two key issues that prevent the effective and efficient delivery of G2P payments. The first is a lack of incentives for the banks and the private sector to make G2P payments. The second is the lack of an interoperable payments system. In the section below, we look at ways to mitigate these two issues.

• Ensure that the banks and the private sector receive appropriate incentives to make G2P payments. The government needs to formulate appropriate incentives for the banks and financial service providers to distribute G2P payments. To determine the incentives, the government should consider the savings realized and the full range of costs incurred by the banks to distribute the social benefits digitally. Governments all over the world have recognized the importance of offering incentives to participants in the G2P ecosystem. Financial service providers are paid transaction fees between 1-3% for G2P disbursements in countries like Pakistan, India, Kenya, and Philippines.

• Build an inclusive and interoperable national payment system. The National Payment Gateway (NPG) presents an opportunity to create a low-cost interoperable payments settlement system ideal for G2P payments. NPG has made bank-issued card transactions interoperable on all EDC machines in Indonesia. If other financial service providers like non-bank payment service providers are allowed to tap into the NPG, it could facilitate their entry into the G2P payments space and significantly increase the choice for beneficiaries. A national interoperable electronic payments system could also facilitate the seamless movement of money across payment instruments. For example, the transfer of money from a bank account to an e-wallet. This would foster innovation and new use-cases for beneficiaries to transact digitally.

The PKH program offers a great opportunity to fast-track meaningful financial inclusion in Indonesia. While it has helped bring the unbanked population into the formal financial system, the beneficiaries need improved product communication, more choices in terms of payment providers and payment instruments, and innovative use-cases to transact through their accounts. To create an enabling environment, the Government of Indonesia and the regulators must allow a broader range of financial players to participate, relax the rules to foster innovative partnerships and products, and introduce incentives that encourage sustainable participation of the private sector.

[1] Indonesia calculates the percentile score for each family based on a combination of socio-economic indicators that include household consumption expenditure, household assets, family occupation, size of the family, etc.

 

Digital readiness assessment and preparedness for governments payments

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According to World Bank Findex, 39% of Government to Person (G2P) payments, across the world in 2017, were made to beneficiaries through digital means. This indicates a continuous push from various programs towards digitizing social payments. As countries, institutions and programs digitize their operations to increase efficiency and promote financial inclusion, the need to assess the bottlenecks to digitization and chart out a path to seamless payments assume increased importance. In addition, an effective approach to digitizing government payments for social benefits increases the chances of a distribution model becoming successful and efficient. This video highlights the opportunities and impacts we have seen from digital readiness assessments in different social benefit initiatives across Africa and Asia.

First insights: Landscape of Climate and Disaster Risk Insurance (CDRI) in Asia and the Pacific

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MSC, supported by Insuresilience Global Partnership, GIZ RFPI Asia and the MEFIN network, has undertaken a landscape study of Climate and Disaster Risk Insurance in Asia-Pacific. The study of 22 countries in the region reveals that these countries have put in place climate and disaster risk management frameworks, though insurance has only recently begun to be recognized as a key disaster risk financing tool. Sovereign risk transfers and other insurance mechanisms in the region cover, directly or indirectly, over 212 million lives, that still leaves more than 91 % of the region without any cover disaster risks. This document presents the first findings of the study and the full report will publicly available in Q1 of 2020.