While politicians and high-level bureaucrats are a part of the government, they are not the ones that people of this country deal with on a regular basis. The people deal with low-level officials from clerks at the local transport authority—who won’t lift a finger without being bribed—to the shopkeepers running the public distribution system, throughout the country.

And the incentives of these individuals are not in line with the public interest. Hence, there is pilferage and the subsidies that are meant for the people of this country never reach them.

This leads to a lot of money being spent by the government getting wasted. It leads to the government having to incur a higher expenditure than it would have if things reached the people they were meant for.

It also leads to an active black economy, where everything that is stolen from the public distribution system is sold in the open market, at a higher price.

So what is the way around this? Should the government stop subsidising the people of this country and in the process save the money that gets wasted? Not really.



As Joshi writes:



“There is a crucial distinction to be made between on the one hand the state paying for goods and services and on the other hand the state producing goods and services. For example, ‘food security’ may be thought of in common usage as a ‘public good’. However, even if it is agreed that the state should pay for food security, it does not follow that the state should carry out the task of actually delivering food to people.”

The fact that the government tries to deliver rice, wheat, sugar, kerosene, cooking gas, etc., to people leads to the ‘principle-agent problem’ and all the corruption that follows. So what is the way out? As Joshi writes:

“The state could enable the poor to buy food in the market, at market prices, by transferring purchasing power to them directly in the form of cash or food vouchers. A system along these lines may be more effective in reaching poor people, and also less corrupt. This example is not chosen at random: it is highly relevant to the problems facing India’s public distribution system (PDS) for food delivery.”