The government on Wednesday asked the Nandan Nilekani headed panel on direct transfer of subsidies to suggest measures for modernising the public distribution system (PDS), which has been plagued by large scale leakages.

"It has been decided to extend the terms of reference of the task force (under UIDAI Nilekani) to the reforms of PDS," Finance Ministry said in a statement.

The task force was set up to suggest an implementable solution for direct transfer of subsidies on kerosene, LPG and fertiliser to intended beneficiaries with the use of Aadhaar numbers (Unique Identification numbers). It had submitted an interim report on July 5.

Extending its terms of reference, the government has now asked it to identify and suggest required changes in the existing systems, processes and procedures, IT frameworks and supply chain management of PDS.

To evolve a better delivery mechanism, it has also been directed to recommend institutional mechanisms to implement the IT strategy for PDS and submit report by August 31.

Essential commodities like wheat, rice, sugar and kerosene are distributed to a large number of people through a network of about 4.99 lakh fair price shops (FPS). This is perhaps the largest distribution network of its type in the world.

Finance Minister Pranab Mukherjee in the Budget speech this year had said that a significant portion of subsidies on fuel does not reach the targetted beneficiaries and there is large scale diversion of subsidised kerosene oil.