This paper examines the costs and benefits associated with the operation of the Public Distribution System (PDS) for foodgrains in India. It illustrates through counterfactual simulations how the benefit-cost ratio for the PDS increases when subsidies are targeted at the poor and indirect benefits are accounted for, even in a scenario where PDS grain is procured at market prices. However, administration of directly targeted PDS is difficult and can lead to the error of excluding the poor. The paper therefore examines the inefficiencies in the system, comparing costs of public storage and distribution operations with those of private agents and discusses how the rising government costs can be curtailed by making administration more efficient and relying on market forces for spatial distribution of grain. Finally, it discusses the issues involved in the targeting of PDS to the poor and examines the potential for geographic targeting.
