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

Public sector supply chains across the developing world routinely experience diversion of subsidized goods for private gain. Governments are increasingly turning to digital technology interventions for better monitoring and planning of these supply chains but empirical evidence regarding their impact is mixed. In this paper, we evaluate the impact of using electronic point-of-sale (POS) devices enabled with biometric authentication 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) but half of those grains are diverted to the open market for private benefit. POS devices equipped with biometric authentication capabilities can reduce diversion by ensuring that grains are distributed only to genuine beneficiaries. In the first part of this paper, we estimate the impact of installing POS devices on reducing diversion in more than 3300 FPSs in the Indian state of Karnataka between 2013 and 2015 using a difference-in-differences approach. We find that the value of better monitoring enabled by POS devices is worth INR 36 million (≈ USD 0.55 million) per year. In the second part of the paper, we conduct an extensive simulation analysis to estimate additional value that can be unlocked through better planning by using the timely information captured by the POS devices. We find that this value of better planning can be substantially higher than that of better monitoring (up to four times) depending on the pre-intervention levels of diversion and demand from genuine beneficiaries