Leveraging Digital Technology to Improve Monitoring and Planning in Public Sector Supply Chains: Evidence from India’s Food Security Program

Abstract

Governments across the developing world are adopting digital technologies to improve performance of public sector supply chains. However, empirical evidence regarding the impact of these technologies on performance is mixed. In this paper, we evaluate the impact of using Biometric Authentication (BA) devices on the performance of India’s food security program. The program aims to deliver subsidized food grains to nearly 160 million low-income households through approximately 500,000 Fair Price Shops (FPSs). Nearly half of those grains do not reach the beneficiaries and are diverted to the open market for private benefit. In this paper, we estimate the impact of installing BA devices on reducing diversion in more than 3,300 FPSs in the Indian state of Karnataka between 2013 and 2015 using a difference-in-differences approach. We find that BA devices are able to reduce up to 4% of the current diversion at the last mile by ensuring that grains are distributed only to genuine beneficiaries. We argue that this relatively low impact is due to the presence of a work around mechanism which results in imperfect monitoring and validate the decrease in diversion mechanism by estimating differential impact of BA devices on different types of FPSs. We complement the empirical analysis with an extensive simulation exercise to estimate additional value that can be unlocked by using the BA devices. We find that the value of better replenishment planning using sales and inventory information captured by BA devices can be significant. The value of better planning can be as high as four times the value from reduction in diversion,

Keywords: Food security program, Public distribution system, Value of information, Value of monitoring