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Anumeha Yadav, Scroll.in

New Delhi, 21 August 2015

On Thursday, the Rajasthan government signed an agreement with Kishore Biyani's Future Group, best known for its retail chains Pantaloons and Big Bazaar, to launch the new Annapurna Bhandar Yojana. Chief minister Vasundhara Raje described the scheme aimed at an upgrade of ration shops as the beginning of a “new era of public private partnership in the public distribution system.” Raje had earlier in July announced that public schools and health centres will be handed over to private players under a PPP model.

Ration or fair price shops provide wheat, rice, sugar, kerosene, and, in some states, edible oil and pulses to beneficiaries at subsidised prices. On Thursday, Raje said the tie-up with the retail giant will improve the lives of villages as the “upgraded ration shop in villages will mean that beneficiaries can buy all goods at one store, like a shopping mall.”

While the government is yet to make the Memorandum of Understanding public, this is how the new scheme will work on the ground.

Will the ration shops be replaced?

No. The agreement does not mean ration or fair price shops in Rajasthan will be replaced by rural and peri-urban versions of Big Bazaar, or that the Future Group will now own or its staff manage ration shops in villages.

Subodh Agarwal, principal secretary, food and civil supplies department in Rajasthan, said that under the agreement, Future Consumer Enterprise Limited, a Future Group company, will be able to sell multi-brand consumer goods at ration shops. In the first phase of this experiment, Biyani's company will supply processed food items, home care and hygiene products to one-fifth, or 5,000, of Rajasthan's 25,000 ration shops in cities and villages. Ration shops will continue to be managed by existing ration dealers, Agarwal said. He added that the 5,000 shops had been selected on the basis of their existing capacity. In the next phase, more may be brought under this scheme.

Currently, 4.5 crore of the total 6.8 crore or 67% population buys subsidised wheat at Rs 2 per kg, sugar at Rs 13.5 per kg, and subsidised kerosene from ration shops. They will continue to get these at the same rates, while new products will be made available. It will be the Future Group's responsibility to stock and procure these through its own network, separate from the existing public distribution network, said officials.

What's in it for beneficiaries?

More availability and choice in consumer goods, at discounts.

As per the agreement signed on Thursday, Future Group will make available 146 items in 48 categories at the new Annapurna Bhandar or the selected ration shops at discounted prices. As per a government statement, the products that will be added to the ration shops will include oil, ghee, pulses, jaggery, spices, flour, other processed food such as noodles, wafers, biscuits, chocolate, “personal care products such as hair oil, shampoo, toothbrushes”, “home care products such as toilet cleaners, detergent bars, mosquito repellent", and stationery such as pens and notebooks. The company will be required to stock products of multiple brands instead of only procuring their own products, as per the agreement.

What will it do to retailers?

The entry of a large retailer with big pockets is expected to hit the existing small retailers. In several villages, farmers with small and medium size landholdings supplement their livelihood with self employment by running neighbourhood grocery stores or selling such items as soap and shampoo in small quantities. Their businesses may be affected, if not immediately, then over a period of three to five years.

Retail experts say the entry of Biyani's group may also have an effect on suppliers as any large retailer will prefer to transact with fewer large suppliers, rather than a high number of small suppliers.

Officials said that though the government had been in talks with several companies – including Reliance, Sahara and Metro – before the launch of this scheme, when an expression of interest was invited in January, only Future Group applied.

Retail experts said the move may open up a new market segment for the group. “By doing this, Biyani will be able to have critical mass in the market, build an understanding of the segment of the consumer serviced by this platform in Rajasthan, and potentially use this as a springboard for building a new company,” said Devangshu Dutta, the Chief Executive of Third Eyesight, a retail and management consultancy.

A retail expert working with a rival company, who did not wish to be named, said the experiment may or not work for Biyani since rural consumers prefer to buy in very small quantities, in the form of pouches, for instance, which is different from the Future Group's current consumer base. This may require the company to re-engineer its processes to a significant extent.

Is this a first?

NC Saxena, a retired Indian Administrative Service officer, said Kerala and Gujarat had already experimented with providing more consumer items at ration shops.

Ashok Khandelwal, an activist with the Right to Food Campaign in Rajasthan, cited the case of Punjab, which provides 18 consumer items such as candles and low price cloth through ration shops, to demand that Rajasthan also provide more items at controlled prices to consumers. “Between 2011 and 2013, 21 items were offered at a few ration shops run by ration dealers who procured and sold them,” Khandelwal said. “Some items such as tea and salt worked fine, and were made available to beneficiaries at lower prices, but in the case of pulses, there were problems. The prices of pulses at ration shops went up higher than market prices because of irregularities in procurement.”

At present, local entrepreneurs apply to get the dealership of running ration shops. In some villages, the Gram Sewa Sahkari Samiti, or village level cooperatives, manage the ration shops. This new scheme, Annapurna Bhandar Yojana, was started on a pilot basis last August in six ration shops. Biyani's company got the contract to run five ration shops in Jaipur, while the local cooperative Gram Sewa Sahkari Samiti has been operating one upgraded Annapurna Bhandar ration shop successfully in Udaipur.

Khandelwal argued that the government could have worked on smoothening the procurement and allowed existing local entrepreneurs, ration dealers, village cooperatives to procure and sell more items at the upgraded ration shops.

Amra Ram, a former MLA of the Communist Party of India (Marxist), said there was a risk that while the government might tightly control the prices of goods in the initial years, it will stop doing so later. "There is nothing to stop private players from charging higher prices in subsequent years to make more profits. The same pattern is visible in private hospitals and schools run on cheap land from the state," Amra Ram said.

(Published in Scroll.in.)