Financial burden to implement the national food security law has clearly become a major burden for the Government

Recently, the Supreme Court in a petition has directed the Union Government to increase coverage under the National Food Security Act, 2013, (NFSA) so that “more and more needy persons and citizens get the benefit”. Under the NFSA, the Centre directs the Food Corporation of India (FCI) and other state agencies to procure food from the farmer at MSP (minimum support price) and organize its distribution to a population of around 820 million people (50 per cent in urban areas and 75 per cent in rural parts) through a network of fair price shops (FPS) at the subsidized price (call it ‘issue price’) of `2, `3 and `1 per kg for wheat, rice, and coarse cereals respectively. Each person is eligible to receive five kg of cereals per month.

As part of the Antyodaya Anna Yojana (AAY), the poorest of the poor households get 35 kg of food grains per family (@ 7 kg per person in a family of five) each month. Launched in December, 2000, initially AAY covered 10 million households; currently, their number is around 24 million, which translates to 120 million persons. Thus, out of a total of 820 million beneficiaries, 120 million get 7 kg per month, whereas the rest 700 million get 5 kg per month.

The present coverage is based on the 2011 Census estimates. The SC wants this to be increased by taking into account the population during 2021, which is expected to add another 100 million to the list of beneficiaries, taking the grand total to 920 million.

Under the Integrated Child Development Services (ICDS) and Mid-Day Meal (MDM), children between the ages of 6 months and 14 years, pregnant women, and nursing mother are entitled to meals that adhere to specified nutritional standards. This is not all.

The Centre has also been running the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY). Under it, five kg of rice or wheat per person per month is given “free” to all the 820 million beneficiaries under the NFSA plus one kg of pulses per family. Launched in March 2020, the objective was to mitigate the hardship of people due to disruption in economic activity and loss of jobs and income in the wake of the pandemic.

As per the original plan, the scheme should have ended on June 30, 2020. But it got two extensions during FY 2020-21; two more during FY 2021-22. During the current FY, already it has got extension till September 30, 2022 and there is a strong possibility of it being continued till the year end.

In view of the waning effect of Covid, and resurrection of economic activity from FY 2021-22 onward, continuation of PMGKAY beyond FY 2020-21 was totally unjustified. Yet, it has stayed and is unlikely to go away at least till the end of FY 2023-24.

All stakeholder who matter in policy making on food viz. the Central government, lawmake`and even the judiciary are quick to marshall arguments such as make food available to the poor at an affordable price, provide nutritional security, protect the right to life (Article 21); immunity from disaster such as Covid, and so on to justify ever expanding coverage under the NFSA.

What about the cost of funding it?

The excess of the MSP plus handling and distribution cost (H&DC) over `2/3/1 per kg for wheat/rice/coarse cereals under the regular NFSA multiplied by the quantity is given as ‘food subsidy’. Additionally, under PMGKAY, wherein food distribution is free, the entire cost, i.e., MSP plus H&DC multiplied by the quantity is given as subsidy. The expenses incurred on schemes such as ICDS and MDM further bloat the subsidy budget.

All along, in the past, increasing food subsidies has given pain to our budget makers. In recent years, however, figures under this head have broken all records as has been the case in 2019-20: `219,000 crore; 2020-21: `525,000 crore; 2021-22: `286,000 crore; 2022-23: `207,000 crore (BE). The actual for current FY is expected to be much higher in view of the extension of PMGKAY till the end of year.

Since 2016-17, the budgetary position has been so tight that FCI was once forced to borrow from the National Small Savings Fund (NSSF) to make up for what the Centre couldn’t pay. At the end of 2019-20, FCI owed over `300,000 crore to NSSF. It was only in 2020-21, that the Centre made a hefty provision to enable the former to clear all its pending dues to the latter, besides meeting that year’s needs.

During 2022-23, a similar situation has arisen with FCI having to borrow, as the budget allocation is much short of what is needed.

Already, the Centre’s debt is 60 per cent of GDP against a medium-term target of 40 per cent. The interest payments are more than a quarter of the budget and consume half of its net tax revenue.

The present coverage at 820 million (likely to go up to 920 million as per SC order) is absurd. Does India have such a gargantuan population which needs to be given food virtually for free?

The answer is an emphatic ‘no’ as the Shanta Kumar committee (2015) recommended that the number of people eligible for subsidized food under NFSA should be cut from existing 67 per cent to 40 per cent.

Even the Niti (2021) wanted the beneficiaries to be cut: urban population from 50 per cent to 40 per cent; rural population from 75 per cent to 60 per cent.

As per Shanta Kumar recommendation, denying subsidy to 27 per cent or around 380 million will result in saving of about `64,000 crore annually (28x5x380x12). This is based on a person taking all of her 5 kg monthly quota as wheat and subsidy @ `28 per kg [(MSP: 20 + HDC: 10) – issue price: 2].

Out of the remaining 440 million (820-380), the committee felt that only persons under AAY i.e. 120 million should be eligible to pay `2/3/1 per kg. It wanted that othe`or 320 million (440-120) should pay 50 percent of the MSP or `10 per kg of wheat. This would yield an annual saving of about `15,000 crore (8x5x320x12). Asking them to pay MSP or `20 per kg can yield `35,000 crore.

The current issue price of `2/3/1 per kg wheat/rice/coarse cereals was specified in the NFSA legislation. The law enacted in 2013 had frozen these rates for three years. Since 2016 thus, there is no legal bar on not increasing the price. An increase in price by ` 1 per kg can yield savings of `5000 crore annually.

Besides, there is a huge scope for savings by curbing pilferage. The way forward is to discontinue delivering food at `3/2/1 per kg (given that wheat can sell for `30 in the market, even the most honest FPS owner will be tempted to divert), and instead transfer subsidy to the account of the beneficiary.

(The author is a policy analyst)