Digital Food Security Solution

Biometric authentication (BA) devices can help reduce diversion and improve inventory management in India's food security program, according to a recent study by ISB’s Sarang Deo and Sripad K. Devalkar.

India’s Public Distribution System (PDS) aims to provide subsidised grains to over 160 million households. Still, nearly half of these grains are diverted before reaching the vulnerable populations they’re intended for. Can digital technology help address this problem?

A recent study by ISB faculty Sarang Deo and Sripad K Devalkar, along with co-author Maya Ganesh, examines how integrating biometric authentication (BA) devices into PDS operations can reduce grain diversion at the Fair Price Shops (FPS), the last mile of the PDS supply chain. The study also shows the potential of BA devices to provide real-time sales and inventory data, which could be highly valuable in large and complex programmes like the PDS.

While BA technology has been commonly used in the PDS, a rigorous evaluation and quantification of its benefits had not been systematically undertaken before. This study fills that gap, providing the first comprehensive evaluation of BA’s effectiveness in reducing foodgrain diversion and improving resource management in the system.

The researchers analysed data from 3,300 FPS in Karnataka, where biometric devices were installed between 2013 and 2015. These BA devices could verify the identity of beneficiaries, ensuring that only eligible people received subsidised grains and reducing the risk of diversion.

The study took advantage of a phased installation of devices across these FPSs. Using a difference-in-differences strategy, they compared diversion levels before and after installation to determine the effectiveness of the BA devices.

Impact on diversion levels

The study finds that installation of the BA devices reduces grain diversion by up to 4% from previous levels. On average, this means a decrease in diversion of 36.3 kg per FPS per month. While this is a notable improvement, the researchers argue that the modest impact was due to FPS dealers using a workaround mechanism to circumvent the technology’s intended benefits.

Created for genuine technology failures such as sensor malfunctions, power failures, or worn-out biometrics, these workarounds were exploited by FPS dealers to bypass the BA devices and continue diversion for personal gains. The study acknowledges that workarounds, though necessary evils in situations with weak technological infrastructure, can undermine the overall effectiveness of new technology.

Key factors affecting diversion rates

While the average reduction in diversion was 4%, actual diversion levels varied across the sample. The study identifies several factors that influenced diversion rates:

• BA devices had a lower impact in areas with vulnerable households, such as low-income families or those less familiar with digital technology, due to lower bargaining power of the beneficiaries.
• FPSs near markets saw a lower impact because of better connectivity and lower diversion costs, allowing dealers to sell diverted grains in the open market more easily.
• Impact was low in periods when market prices were high, as dealers had stronger incentives to divert grains for higher profits.

Benefits beyond reduction in diversion

The study shows that the integration of digital technology into public welfare programs has dual benefits. In addition to the impact on monitoring and curbing diversion, the researchers argue that BA devices could also support the planning and management of food grains in the PDS.

Researchers show through simulations that real-time sales and inventory data from BA devices can improve planning, helping to reduce both overstocking and understocking. They estimate that these benefits of better planning could be up to six times the value of the reduction in diversion.

The researchers point out that while implementing technology incurs costs— for instance, Rs 66 million to equip 3,300 FPS locations—their estimates show that the financial returns outweigh the initial investment, with the government potentially recovering costs in under 21 months. 

Implications for policymakers 

While the study substantiates the impact of BA on grain diversion levels, their success depends on addressing weak infrastructure and social challenges. In such situations, BA devices alone may not be able to deliver their full potential. In economies with weak infrastructure, the misuse of workarounds can undermine the intended benefits of new technologies.

To address this, policymakers could require FPS dealers to document their reasons for using workarounds, creating a record that makes the system harder to exploit.

Beyond monitoring, policymakers should leverage BA devices for planning. Integrating BA data into broader supply chain and logistics systems can reduce inefficiencies, optimise distribution, and enhance the programme’s overall effectiveness.

Strategic deployment of BA devices is crucial. They should be prioritised in regions and periods of high market prices, where reliance on the welfare programme is greatest. Additionally, targeted audits should be conducted in high-risk areas, particularly rural regions or during price surges, to mitigate diversion risks.

Finally, implementing BA devices must be accompanied by well-structured publicity and awareness campaigns, especially for vulnerable communities, to bridge the digital divide and ensure effective adoption.

Author: ISB Editorial Team