i. Only 1.2 percent of ARDs earn profit with the current commission structure. This calls for an urgent action to improve the revenue, especially in light of commitment to TPDS reforms. Hence, viability of the ARD operations shall be a necessary pre-condition for the sustainability of the TPDS computerisation, making the dealers important participant driving the reforms process.
Increase the Commission rates (Double or triple of existing rates and assess the viability vs. cost to the state).
Maintain the existing commission structure and add base payment.
Maintain the existing commission structure and add incentives per transaction at various rates.
Combinations of above scenarios.
iii. A best suited viability threshold (monthly minimum profit earned by ARD to meet monthly financial needs) is equivalent to the semi-skilled nonagricultural daily wage rate that the ARD owner would have earned as opportunity cost, i.e.Rs.600 for urban areas and Rs.500 for rural areas. This translates into a monthly income of Rs.12,500 and Rs.15,000 for ARDs in rural and urban areas respectively.
iv. Despite several options and models for revenue, even at the best viability vs. cost scenario, ARDs operating with less than monthly 75 quintals of food grains (including sugar and fortified wheat flour) are not viable. This necessitated a separate analysis for the “ARDs handling >75 quintal” category alongside the analysis of all ARDs. It also therefore implies that the revenue models should be applied to ARDs handling monthly commodities more than 75 quintal and a separate strategy should be applied to the unviable ARDs. Detailed revenue options and comparative advantages are discussed in the report. The scenarios v. can be many, such as increased commission, providing base-payment, incentives linked to transactions to a combination of these options. The most economic scenario would be the “gap filling approach” of a base payment of Rs.11,000 and Rs.15,000 for rural and urban ARDs respectively combined with the existing commission structure. However, this may serve as a disincentive to those who operate with large number of cards and larger volumes of commodities. Other scenarios that offer promise are the ones with double commission rate, base payment of 50 percent of viability and incentive of `1 per transaction; and with existing commission rate, base payment of 70 percent of viability threshold and `3 per transaction (incentive
- Consider the re-distribution of beneficiaries to the shops: There are about 1000 ARDs handling commodities less than 50 quintals remaining perpetually unviable and other 65 ARDs handling commodities more than 250 quintals earning most of the profits. While equal distribution of cards to all ARDs may not be possible, a practical decision on permissible range (for example 75-200 quintal per month) with provisions for case-by-case deviation should offer better solution.
- Alternative means of earnings/ employment: If small shops are essential for beneficiary convenience, they clearly do not have a workload to justify wages for a month. In such cases, it is important to encourage other options such as sale of non-
TPDS food items, linking with other employment generation schemes and giving more flexibility by fixing days and hours of operations. ARD owners will have a positive attitude towards this as indicated through a few interactions. This option can be further explored and developed as a strategy for unviable shops as well.
- Alternate strategy for unviable shops: Rather than running unviable small shop in a difficult to reach area for all days of month, it is much more economical to have mobile shops visiting with certain frequency. This possibility can further be explored as a part of improved efficiency of supply chain.
d. Contextualising the ARD viability to NFSA: The scheduled launch of NFSA provides an opportunity to realign the ARD remuneration structure within the framework of NFSA.
- Reclassification of ARDs: As per the latest data from Census 2011, coverage areas of some ARDs would have been reclassified from rural to urban. Given the findings of the study that the operational costs of urban ARDs is higher as compared to rural ARDs. The reclassification will thus have additional cost implications on the proposed viability scenarios and revenue models.
Overall purpose of the study was to carry out viability analysis of– AWDs & ARDs – in the context of delivery of essential commodities within Kerala and to come up with options to make them economically viable. Study focused on understanding the role of government storage and distribution
network like Supplyco in the TPDS distribution network and the key factors in their viability.
The specific objective of the proposed study is to carryout viability analysis:
- To analyse the existing TPDS framework in the country and the secondary data supported by primary data and state level consultations of key stakeholders
- To analyse the impact of potential NFSA implementation on overall TPDS and its implications
on viability of private players in distribution network; and
- To develop options for ARDs and AWDs viability for GoK’s consideration / discussion that will help to formulate a strategy.