The Government should stop selling food at a subsidised price through the PDS. Instead, it should limit its role to crediting subsidy directly to the accounts of beneficiaries
Since 2014, the Narendra Modi Government has weeded out close to 44 million bogus ration cards by using the Information Technology (IT) infrastructure viz. digitisation, seeding of Aadhaar on ration cards, electronic point of sale machines at retail shops and so on. However, this addresses only a small aspect of the problem and that, too, is unlikely to be rooted out completely with the use of technology alone. Besides, large-scale diversion and black marketing of grain, inclusion of the privileged among beneficiaries, a ballooning subsidy bill and so on will persist so long as the extant system of routing food subsidy through State agencies continues. What then is the way forward? The Government should stop selling food at a subsidised price. Instead, it should limit its role to crediting subsidy directly to the accounts of beneficiaries. When foodgrains at Rs 1/2/3 per kg are not available, these maladies will be automatically nipped in the bud.
Under the National Food Security Act (NFSA), the Union Government arranges for supply of wheat, rice and coarse cereals to the beneficiaries at Rs 2/3/1 per kg, which is a fraction of the cost of procurement, handling and distribution (eg. 1/15th in case of wheat). Every person whose name is mentioned on the ration card is eligible to receive five kg of rice or wheat per month. In addition, during April-June, to mitigate the impact of Covid-19, the PM Garib Kalyan Yojna added a “free” five kg of rice or wheat per person per month to all 815 million individual beneficiaries under the NFSA. Besides one kg of free pulses per month was provided to every family. These additional provisions were extended for a further five months till November.
The supplies are made by the Food Corporation of India (FCI) and other State agencies on behalf of the Central Government, which reimburses to the former the excess of the cost of purchase, handling and distribution over the price charged from the beneficiaries i.e. Rs 2/3/1 per kg on additional supplies (during the eight months of the current year, this is zero). This reimbursement or food subsidy is paid from the Central Budget. In recent years, food subsidy has increased to frightening levels. During 2019-20, it was Rs 2,19,000 crore. For 2020-21, prior to Covid-19, the likely spend was estimated to be Rs 2,53,000 crore. Including the impact of free food during April-November or about Rs 1,50,000 crore, this will scale up to Rs 4,03,000 crore. In case the free food scheme is extended further, the spend will be much higher.
The ballooning food subsidy is putting a huge stress on the Union Budget. Faced with a shortfall in tax collection in recent years and the overarching need to contain fiscal deficit, the Centre has been making short payments to the FCI, forcing the latter to borrow heavily to sustain its operations. The situation is so pathetic that since 2016-17, the FCI has been drawing funds from the National Small Savings Fund (NSSF). As on March 31, the cumulative borrowings from the NSSF were to the tune of Rs 3,30,000 crore.
The allocation for the current year being Rs 1,26,000 crore (Rs 1,16,000 crore provided in the Budget, plus Rs 10,000 crore in the first supplementary demands for grants) against the requirement of Rs 4,03,000 crore, the shortfall is Rs 2,77,000 crore. If no further supplementary authorisation comes, the FCI will have to borrow all of this from the NSSF, taking its borrowings to a gargantuan Rs 6,07,000 crore as of March 2021. Though staying on the FCI’s balance sheet, this mammoth debt is entirely the liability of the Union Government and will need to be serviced from the latter’s tax collections in the future. The core feature of this scheme, or supply of wheat or rice at a price almost close to zero, may be a boon for the beneficiaries but ends up being a bane for the economy. The availability of wheat at Rs 2 per kg through the Public Distribution System (PDS) under the NFSA, when the market price is a minimum Rs 30 per kg, is a huge allurement to all those involved in its implementation. No wonder, there is large-scale diversion of foodgrain from rake unloading points and godowns of the FCI. Trucks disappear on way to the retail sale points. Then there are millions of non-existent or fake beneficiaries.
There is a clamour for becoming beneficiaries under the scheme even as there are numerous instances of people selling their subsidised quota of foodgrain, say wheat bought at Rs 2 per kg, to dubious traders at Rs 12 per kg or more. Clearly, there are millions availing subsidised food despite being above the poverty line. The official word on the number of poor in India is no more than 25-30 per cent; yet the beneficiaries under NFSA are nearly over 66 per cent.
Further, since the handling and distribution cost, besides the Minimum Support Price (MSP) paid to farmers, is reimbursed to the FCI and other State agencies on “actual” as food subsidy, inefficiency and inflated cost claims (including bogus) are inevitable. The “loaders” getting away with monthly salary in lakhs easily pass muster under a cost-based mechanism. Reports of disappearance of food stocks in Punjab causing a loss of over Rs 20,000 crore to the exchequer in 2016 are still fresh in people’s memory. Such inefficiencies and irregularities have also been pointed out by the Comptroller and Auditor General (CAG) of India. Meanwhile, the most deserving (poorest of the poor) continue to be deprived of their full requirement. This is because supplies under the NFSA at five kg per person per month barely cover 50 per cent of the requirement of a person, which is 10 kg per month, as estimated by the National Sample Survey Organisation (NSSO). Having to buy the balance five kg at a very high price, say Rs 30 per kg in case of wheat, they are worse off.
Weeding out of 44 million bogus beneficiaries in itself may appear to be a big accomplishment. But seen in the broader perspective, this addresses only a small aspect of the problem and that, too, is unlikely to be rooted out completely with use of technology alone. Besides, other problems will persist so long as the system of routing food subsidy through State agencies continues.
In early 2015, a committee under Dr Shanta Kumar, a senior BJP leader, had recognised the need to deal with non-deserving beneficiaries and restricting subsidised food only to the very poor. It recommended a cut in the number of those eligible for subsidised food from 67 per cent to 40 per cent and restricting the benefit of Rs 1/2/3 per kg only to the poorest of poor people under the Antyodaya Anna Yojana, while increasing the supply to seven kg per person. Others should pay 50 per cent of the MSP paid to farmers.
Even as that report is lying in cold storage, its prescription is nowhere near addressing the flaws in the existing system. The way forward is to stop routing subsidy through the State agencies. In other words, the Government should not sell food at subsidised price; instead, it should limit its role to crediting subsidy directly to the beneficiary’s account. The Government can transfer Rs 280 per month (subsidy at the rate of Rs 28 per kg for 10 kg) to the beneficiary’s account to enable him/her to buy 10 kg from the market by paying Rs 300 (including Rs 20 from his/her pocket). This will strike at the very root of diversion, pilferage, black marketing. When, foodgrains at Rs 1/2/3 per kg are just not available, the very thought of making a quick buck will be nipped in the bud. As for the FCI et al, while they will still be involved in purchase, handling and distribution, they will operate like any other business entity and be compelled to operate efficiently and keep costs low.
With private entities, too, allowed to directly buy from farmers, stock farm produce sans any limit (courtesy, the three farm laws recently enacted by the Centre), there will be plenty of products available in the market ensuring fair amount of competition and enabling low price to consumers.
We will have a scenario whereby the market price of wheat could come down to say Rs 25 per kg or even less (from the existing minimum of Rs 30 per kg) giving relief to everyone. Ditto for other products. It will have a deflationary impact down the line as all of the processed food will cost less. There will be huge saving in subsidy, which will be restricted only to the poor or about 300 million (down from existing 800 million) even as the Government need not have to pay for any flab such as inflated cost, inefficiencies, subsidy to bogus beneficiaries and so on. This will rein in fiscal deficit and trim borrowings, thereby preventing an unsustainable burden on the future generation of taxpayers.
The outcome of this approach is very promising; however, its adoption will require political courage and a fundamental change in the mindset of our policymakers.
(The writer is a New Delhi-based policy analyst)
