In June, 1997, the Government of India launched the Targeted Public Distribution System (TPDS)with focus on the poor. Under the PDS, States were required to formulate and implement foolproof arrangements for identification of the poor for delivery of foodgrains and for its distribution in a transparent and accountable manner at the FPS level

The scheme, when introduced, was intended to benefit about 6 crore poor families for whom a quantity of about 72 lakh tonnes of food grains was earmarked annually. The identification of the poor under the scheme was done by the States as per State-wise poverty estimates of the Planning Commission for 1993-94 based on the methodology of the "Expert Group on estimation of proportion and number of poor” chaired by Late Prof Lakdawala. The allocation of food grains to the States/UTs was made on the basis of average consumption in the past i.e. average annual off-take of food grains under the PDS during the past ten years at the time of introduction of TPDS

The quantum of food grains in excess of the requirement of Below Poverty Line (BPL) families was provided to the State as ‘transitory allocation’ for which a quantum of 103 lakh tonnes of food grains was earmarked annually. Over and above the TPDS allocation, additional allocation to States was also given. The transitory allocation was intended for continuation of benefit of subsidized food grains to the population Above the Poverty Line (APL) as any sudden withdrawal of benefits existing under PDS from them was not considered desirable. The transitory allocation was issued at prices, which were subsidized but were higher than the prices for the BPL quota of food grains.

Keeping in view the consensus on increasing the allocation of food grains to BPL families, and to better target the food subsidy, Government of India increased the allocation to BPL families from 10 kg to 20 kg of food grains per family per month at 50% of the economic cost and allocation to APL families at economic cost w.e.f. 1.4.2000. The allocation of APL families was retained at the same level as at the time of introduction of TPDS but the Central Issue Prices (CIPs) for APL were fixed at 100% of economic cost from that date so that the entire consumer subsidy could be directed to the benefit of the BPL population. However, the CIPs fixed in July and December, 2000 for BPL & AAY respectively and in July, 2002 for APL were not revised upwards since then even though procurement cost have gone up considerably

The number of BPL families was increased w.e.f. 1.12.2000 by shifting the base to the population projections of the Registrar General as on 1.3.2000 instead of the earlier population projection of 1995. With this increase, the total number of BPL families came to 652.03 lakh as against 596.23 lakh families originally estimated when TPDS was introduced in June 1997.Under the TPDS, the end retail price was fixed by the States/UTs after taking into account margin for wholesalers/ retailers, transportation charges, levies local taxes etc. The States were earlier requested to issue food-grains at a difference of not more than 50 paise per kg over and above the CIP for BPL families. However, since 2001, flexibility was given to States/UTs in the matter of fixing the retail issue prices by removing the restriction of 50 paise per kg over and above the CIP for distribution of food grains under TPDS.