This paper proposes a three-phase optimization approach aimed at enhancing cost efficiency and infrastructure planning within the Indian Public Distribution System (PDS). The initial phase formulates a transportation cost minimization model that identifies the most economical distribution of food grain between surplus and consuming states. The second stage introduces a capacity augmentation model wherein optimal storage expansion is established without exceeding the baseline transportation cost from the initial phase. The third step combines transportation and capacity planning decisions in order to minimize the overall system cost, including both grain movement and infrastructure utilization. Moreover, findings reveal that the integrated Model III consistently outperforms the lexicographic Model II, which only tries to minimize additional capacity, achieving lower overall system costs while still satisfying all constraints. Results indicate that while transportation consistently constitutes a major share of system expenditures, capacity expansion contributes a significant and sometimes dominant portion, underscoring its importance in policy and planning. The presented models offer a systematic decision-support mechanism for the Food Corporation of India (FCI) to formulate balanced, cost-efficient policies for national food security.