The 80 crore people the Govt currently targets for giving subsidised foodgrain under the Food Security Act includes millions of higher-income beneficiaries who don’t deserve it
The Finance Minister, Ms Nirmala Sitharaman, announced a Rs 1,70,000 crore package under the PM-Gareeb Kalyan Scheme (PMGKS) to address the plight of tens of millions of workers in the “informal” sector affected by CoviD-19, on March 26. The most crucial component of this package was giving five kg of rice/wheat per person per month for “free” to around 80 crore people through the public distribution system (PDS), plus one kg of preferred and region-specific choice of pulse per household for three months. To understand the full implications of the relief — estimated to cost about Rs 40,000 crore — let us capture the basics of the food security system in India. Under the National Food Security Act (NFSA), 2013, a quota of five kg of cereals per person per month is made available at a subsidised price of Rs 3 per kg rice, Rs 2 per kg wheat and Rs 1 per kg coarse cereals to 67 per cent of India’s population or over 80 crore people. It is a matter of shame that even decades after Independence, when the NFSA was enacted, our rulers still felt that more than 80 crore people were so poor that they needed to be given food at a throwaway price. The belief as embedded in this law (in fact, the prices were mentioned in the Act and were to remain valid for a period of three years from the date of its commencement) also mocks at the official claim that India has achieved big success in bringing a large number of people above the poverty line; that the number of poor people is just about 25 per cent of the population
Be that as it may, the Government continues to believe that the interest of the poor can be fully safeguarded by not allowing any increase in the price. This is abundantly clear from a statement by Union Minister for Consumer Affairs, Food and Public Distribution, Ram Vilas Paswan in 2017 that, “The Government will not affect any increase in issue prices for foodgrains under the NFSA.” This was made at a time when even the Act didn’t prevent a hike. True to that commitment, till date, the price remains unchanged. But has this safeguarded the poor? The answer lies in taking cognisance of a vital fact which often gets ignored.
The supplies under NFSA barely cover 50 per cent of a person’s requirement which is 10 kg per month, as estimated by the National Sample Survey Organisation (NSSO). This forces him/her to buy the balance quantity from the market at a much higher price. Being linked to the cost of procurement, handling and distribution (in case of rice, at least Rs 35 per kg), the market price is more than 10 times the subsidised price.
As a consequence, whatever benefit the Government gives by keeping the price low on sale of certain quantity, that is more than offset by their having to pay many times more on purchase of the balance five kg from the market. Thus, for buying 10 kg — being his/her requirement for a month — they have to spend a total of Rs 190. The effective price paid by him/her is Rs 19 per kg instead of Rs 3 per kg — a sense one gets by a plain reading of the NFSA. The underprivileged are also getting hit in another way.
All along, the Government has taken recourse to increasing the Minimum Support Price (MSP). While this is meant to incentivise farmers produce more, this leads to a collateral damage. The increase in MSP leads to increase in the cost of supplying food, which triggers a hike in the market price, implying that the poor will need to spend more on the quantity bought from the market. The decision of the Government to give five kg of rice/wheat per person per month to 80 crore people for “free” over and above the five kg they are already getting under the NFSA can help remove this anomaly. Having got all of 10 kg at an effective price of Rs 1.5 per kg, s/he need not buy any from the market. But this is a mere coincidence (an offshoot of the Corona-crisis); it was never intended as a conscious policy move. In any case, the additional five kg for free is available for three months only. Thereafter, it will be back to square one.
Can the Government consider giving 10 kg per person per month at the subsidised price of Rs 1/2/3 per kg? In case it is given to all the 80 crore people, this will be at a huge cost, as then the food subsidy (excess of the cost of supply over the issue price multiplied by total quantum of sale under the NFSA) will increase sharply from an already whopping Rs 2,19,000 crore during 2019-20 to Rs 2,53,000 crore expected during 2020-21. This is unconscionable.
How can the food requirement of the needy be met in full without entailing additional burden on the exchequer? How can the two objectives be reconciled? What is the way forward?
To get there, we need to recognise that the 80 crore people — the Government currently targets for giving subsidised foodgrain under the NFSA — includes millions of higher-income beneficiaries who don’t deserve it. This was duly accepted in early 2015, when a committee headed by Shanta Kumar, senior BJP leader, recommended a reduction in coverage under the NFSA from the existing 67 per cent to 40 per cent, restricting the eligibility of subsidised food at Rs 1/2/3 per kg only to the poorest of the poor under the Antyodaya Anna Yojna (AAY), plus increasing their entitlement from five kg to seven kg per month and making the rest pay 50 per cent of the MSP paid to farmers. Reduction in coverage by 27 per cent can remove 35 crore people from the scheme. That will release 175 crore kg per month, which can be used to give an additional five kg per month to those under the AAY. The number of families under the AAY being 2.5 crore or 12.5 crore people (five per family), five kg extra for each will consume 62.5 crore kg per month. Even after this, there will be a monthly surplus of 112.5 crore kg or 1.125 million tonnes. In other words, the Government need not undertake distribution of 13.5 million tonnes of grain annually, which will result in corresponding saving in subsidy or Rs 43,000 crore annually.
Likewise, an increase in issue price to beneficiaries, other than those under the AAY or 32.5 crore from the existing Rs 3 per kg to 50 per cent of the MSP paid to farmers or Rs 14 per kg rice, can help reduce subsidy. The savings will be about Rs 1,800 crore per month or Rs 21,600 crore per annum.
Yet, the Government has not acted upon the recommendations of the panel. Meanwhile, the country continues to be saddled with millions of under-fed poor; unsustainable high subsidy; inefficiency in handling and distribution by State agencies; misuse of subsidy and subsidised food being cornered by millions of undeserving people.
These maladies are germane to the existing dispensation of controls on almost every aspect of the food supply chain. When subsidised food is available at a fraction of the market price, there is huge incentive for dubious operators to siphon off. When handling and distribution cost (besides MSP paid to farmers) is reimbursed to agencies on “actual” as food subsidy, inefficiency and inflated cost claims (including bogus) are inevitable. When millions of the rich/better-off are also made beneficiaries under the NFSA, subsidy is bound to balloon.
The implementation of the committee’s package could have made some headway in addressing these maladies but still it would be far from eliminating them as it does not alter the fundamentals of the existing dispensation.
To achieve drastic outcome in terms of higher efficiency and lower cost in handling operations, prevention of misuse and saving in subsidy, there is an urgent need to remove all controls, allow participation of private entities in procurement and distribution and make way for competitive markets. The subsidy should be restricted only to the poor (about 25 per cent of the population) and given directly to the beneficiaries using the Direct Benefit Transfer (DBT) mechanism.
Will the Corona crisis wake the political class from its deep slumber into implementing this reform? Only time will tell.
(The writer is a New Delhi-based policy analyst)
