Most of its actions in implementing the food subsidy scheme are out of sync with the changing times and lead to leakages and corruption

The NITI Aayog has invited bids for a Central Coordinating Agency that can study the effectiveness of its National Food Security Subsidy scheme. The Agency will hold the mandate to suggest ways to better the scheme. It will also suggest ‘whether, and how, the scheme can be rationalised or closed’. However, the government’s move to continue the supply of free food grains under the National Food Security Act (NFSA) beyond the current FY gives the contrary signal. In fact, most of its actions in implementing the food subsidy scheme are out of sync with the thought process of the Think Tank.

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 organise its distribution to around 820 million people through a network of fair price shops (FPS) at the subsidized price (call it ‘issue price’) of Rs 2/3/1 per kg for wheat, rice, and coarse cereals respectively.

There are two types of beneficiaries. 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. The number of families under AAY is 24 million, and the persons getting 7 kg cereals per month @ Rs 2/3/1 per kg are 120 million. The rest 700 million persons are eligible to receive five kg of cereals per month at the same price.

The excess of MSP paid to farmers and handling and distribution costs (HDC) over the issue price is reimbursed as a subsidy to the FCI and other state agencies. The money comes from the Union Budget’s allocation for ‘food subsidy’. The expenditure incurred by the Centre during the last four years under this head was 2020-21: Rs 529,000 crore; 2021-22: Rs 372,000 crore; 2022-23: Rs 287,000 crore; 2023-24: Rs 197,000 crore (budget estimate).

This adds up to a total of Rs 1385,000 crore. It includes Rs 390,000 crore spent on running the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY). Launched in April 2020 to deal with the unprecedented situation triggered by the Covid-19 pandemic, PMGKAY provided 5 kg of rice or wheat per person per month for “free” via the FPS, as well as 1 kg of pulses per family per month to around 164 million families covered under NFSA.

Run for three months initially, the scheme got six extensions till December 31, 2022. On December 23, 2022, Consumer Affairs, Food and Public Distribution Minister Piyush Goyal announced the merger of the free part of PMGKAY with the regular food security schemes under NFSA. Pursuant to this, food is available to beneficiaries under the NFSA for free from January 1, 2023 to December 31, 2023.

There are several loopholes in the running of the food subsidy scheme. First, fundamentally, subsidised food is meant for the poor. The number of poor isn’t more than 15 – 20 per cent of India’s population. Yet, the number of beneficiaries under NFSA at 820 million works out to nearly 59 per cent of the population. Even as per the Shanta Kumar Committee (2015), the people eligible for subsidized food under NFSA shouldn’t be more than 40 per cent.

 Second, during the last five years, the number of people below the poverty line has declined by 135 million. This should have led to a corresponding reduction in beneficiaries under the NFSA. That hasn’t happened. Far from that, the number could go up by nearly 100 million if one were to go by the Supreme Court directive to take into account the population during 2021 instead of the present coverage based on 2011 Census estimates.

Third, are the beneficiaries so poor that they can pay only Rs 2/3/1 per kg for food which is a fraction of the cost of making it available (in the case of wheat, it is 1/15th)? Even the Shanta Kumar Committee wanted the non-AAY families to pay 50 per cent of the MSP. Fourth, the current issue price was specified in the NFSA legislation. The law enacted in 2013 froze these rates for three years. Since 2016, there has been no legal bar on increasing the price. Yet, the government hasn’t bothered to increase despite a substantial increase in MSP.

Fifth, the ridiculously low price at which food is available in the supply chain is an open invitation to dubious operators to siphon off and sell in the open market raking in a moolah. This can’t be prevented even if the administration is alert.

Sixth, the initial idea under the Scheme was that FCI et al would buy only the quantity needed for meeting beneficiaries’ requirements under NFSA plus maintain some ‘strategic’ buffer to meet emergency situations. It was never meant to be an ‘open-ended’ procurement which it has become today. This has led to stocking problems, high costs, unsustainable rise in subsidies etc. The open-ended purchase has made India’s position at WTO embarrassing as the system entails subsidy support to farmers in excess of the 10 per cent threshold for developing countries.

As for the PMGKAY, it made sense during FY 2020-21, when economic activity got a big jolt due to Covid resulting in ‘negative’ growth in GDP by 6.6 per cent. However, its continuation during 2021-22 and 2022-23 when the economy rebounded with GDP registering growth of 8.7 percent and 7.2 percent respectively was unjustified. Discontinuation of PMGKAY from January 1, 2023, was the right move. However, the concomitant decision to provide free food grains under regular NFSA was unjustified.  

The reasoning given by Piyush Goyal that this was “to shield the masses from shocks to the system at a time the economy was recovering in the aftermath of Covid crisis” doesn’t cut the ice. This is because on top of two consecutive years of good growth, during the current FY, it is expected to register an impressive 6.3 per cent. Now, the government has given an indication that the free food scheme will continue not just till the end of the current FY but also beyond. This too is untenable.

The way to go is: to disband the existing system of subsidizing the price and give subsidies directly to the beneficiary under DBT. Under DBT, the state agencies need not buy, store and deliver food to the beneficiary; instead the latter buys from the market paying the full price say, Rs 30 per kg of wheat (of this, Rs 28 comes from the government as subsidy and Rs 2 from her pocket).

This will address all maladies afflicting the system. With DBT in place, the government can easily prioritize and undeserving persons won’t get subsidies. There won’t be any misuse or leakage as subsidized food doesn’t enter the supply chain. It will also save on costs currently incurred on handling of grains by the agencies. All consumers will benefit from increased supplies and competition in the market. Finally, India won’t face any problems at WTO as the system doesn’t involve any subsidy to the farmers.

Unfortunately, this is a far cry. We don’t even see baby steps such as deleting undeserving from the list of beneficiaries or small increases in price etc. The root cause lies in the ‘political climate’ wherein the ruling party can’t dare withdraw benefits already enjoyed by the beneficiaries; in fact, it is compelled to give more.

(The writer is a policy analyst; views are personal)