Context: Food Subsidy system in India:
The Economic Survey, rightly flagged the issue of a growing food subsidy bill, which, in the words of the government, “is becoming unmanageably large”.
The reason is not far to seek. Food subsidy, coupled with the drawl of food grains by States from the central pool under various schemes, has been on a perpetual growth trajectory.
During 2016-17 to 2019-20, the subsidy amount, clubbed with loans taken by the Food Corporation of India (FCI) under the National Small Savings Fund (NSSF) towards food subsidy, was in the range of Rs.1.65-lakh crore to Rs.2.2-lakh crore.
In future, the annual subsidy bill of the Centre is expected to be about ₹2.5-lakh crore.
Even the Economic Survey 2020-21 has made important recommendations to improve the Public Distribution System.
Food Subsidy in India: Implementation:
Food Security of beneficiaries is ensured by distributing food grains at subsidized prices through the Targeted Public Distribution System (TPDS). It protects them from price volatility due to inflation.
Over the years, while the spending on food subsidy has increased, the ratio of people below the poverty line has decreased.
The Ministry of Consumer Affairs, Food, and Public Distribution is the nodal ministry for the implementation of food subsidy. This Ministry has 2 Departments which are given below
- Department of Food and Public Distribution
- Department of Consumer Affairs
98% of this Ministry’s budget is allocated to the Department of Food and Public Distribution.
Challenges to Food Security in India:
- Beneficiaries have complained of receiving poor quality food grains.
- Farmers receive Minimum Support Price (MSP) from the Government for crops such as wheat, paddy, and sugarcane.
- The MSP is higher than the market price. There is very minimum procurement of other crops by the Government at MSP.
- Due to this factor farmers do not have the incentive to produce other crops such as pulses. This puts immense pressure on the water table as the above crops are highly water-intensive.
- Due to the possibility of increasing nutritional imbalance in food grains, the Government must expand subsidies and include other protein-rich food items.
- Under the National Food Security Act, the identification of beneficiaries is to be completed by State Governments.
- As per the findings of the Comptroller and Auditor General in 2016, a massive 49 % of the beneficiaries were yet to be identified by the State Governments.
- The available storage capacity in states was inadequate for the allocated quantity of food grains as per the report of the Comptroller and Auditor General (CAG).
Quantity of Food grains: High drawal rate by the states:
- During the three years, the quantity of food grains drawn by States (annually) hovered around 60 million tonnes to 66 million tonnes. Compared to the allocation, the rate of drawal was 91% to 95%.
- As the National Food Security Act (NFSA), which came into force in July 2013, enhanced entitlements (covering two-thirds of the country’s population), this naturally pushed up the States’ drawal.
- Based on an improved version of the targeted Public Distribution System (PDS), the law requires the authorities to provide to each beneficiary 5 kg of rice or wheat per month.
- For this financial year (2020-21) which is an extraordinary year on account of the COVID-19 pandemic, the revised estimate of the subsidy has been put at about ₹4.23-lakh crore, excluding the extra budgetary resource allocation of ₹84,636 crore.
- Till December 2020, the Centre set apart 94.35 million tonnes to the States under different schemes including the NFSA and additional allocation, meant for distribution among the poor free of cost.
- Importantly, the government has decided to abandon the practice of extra budgetary resource allocation and include in the food subsidy amount itself, arrears in loans outstanding of the FCI drawn through the NSSF.
Problem of Allocating funds: Increase in the Food Subsidy Bill:
The food subsidy bill has increased from 1.2 lakh crores in 2014-15 to 3.8 lakh crores in 2020-21.
In order to pay the food subsidy bill, the Government has been borrowing from National Small savings Fund (NSSF) through the issuance of special G-Secs.
However, this practice of borrowing from NSSF has been discontinued from this year as announced in the Union Budget 2021-22.
Food subsidy comprises of:
- Subsidy provided to FCI for procurement and distribution of wheat and rice under NFSA and other welfare schemes and for maintaining the strategic reserve of food grains and
- Subsidy provided to States for undertaking decentralized procurement. The Food subsidy bill is calculated as the difference between Economic cost of Food grains and Central Issue price (CIP).
Way Forward: Recast the food subsidy system is the need of the hour:
- In this context, it is time the Centre had a relook at the overall food subsidy system including the pricing mechanism.
- It should revisit NFSA norms and coverage. An official committee in January 2015 called for decreasing the quantum of coverage under the law, from the present 67% to around 40%.
- For all ration cardholders drawing food grains, a “give-up” option, as done in the case of cooking gas cylinders, can be made available.
- Even though States have been allowed to frame criteria for the identification of PHH cardholders, the Centre can nudge them into pruning the number of such beneficiaries.
- As for the prices, the existing arrangement of flat rates should be replaced with a slab system.
- Barring the needy, other beneficiaries can be made to pay a little more for a higher quantum of food grains.
- The rates at which these beneficiaries have to be charged can be arrived at by the Centre and the States through consultations.
- These measures, if properly implemented, can have a salutary effect on retail prices in the open market.
There are no two opinions about reforms implemented in the PDS through various steps, including end-to-end computerisation of operations, digitisation of data of ration cardholders, seeding of Aadhaar, and automation of fair price shops.
Yet, diversion of food grains and other chronic problems do exist. It is nobody’s case that the PDS should be dismantled or in-kind provision of food subsidy be discontinued.
After all, the Centre itself did not see any great virtue in the Direct Benefit Transfer (DBT) mode at the time of giving additional food grains free of cost to the States during April-November last year (as part of relief measures during the pandemic).
A revamped, need-based PDS is required not just for cutting down the subsidy bill but also for reducing the scope for leakages. Political will should not be found wanting.