Recent Economic Survey of India highlighted the issue of India’s growing food subsidy bill.
What is India’s food subsidy bill?
During 2016-17 to 2019-20, subsidy amount along with the loans taken by the FCI under the National Small Savings Fund for food subsidy was about Rs 1.65-lakh crore -Rs 2.2-lakh crore.
In future, the annual subsidy bill of the Centre is expected to be about Rs 2.5-lakh crore.
During these 3 years, the quantity of food grains drawn by States (annually) centred around 60 million tonnes to 66 million tonnes.
The National Food Security Act (NFSA) naturally pushed up the States’ withdrawal & under the targeted PDS scheme authorities should provide 5 kg of rice or wheat per month to each beneficiary.
Due to COVID-19 pandemic, the revised estimate of the subsidy is about Rs 4.23-lakh crore, excluding the extra budgetary resource allocation of Rs 84,636 crore.
So the Economic Survey suggested increasing the Central Issue Price (CIP).
What is the issue in increasing the Central Issue Price?
The CIP has remained at Rs 2 per kg for wheat and Rs 3 per kg for rice for years, though the NFSA envisaged a price revision after three years.
But increasing the CIP iscomplex in states where there is nil variation between the retail issue price & CIP.
Such instances occur in states like Karnataka and West Bengal for Priority Households (PHH) and Antyodaya Anna Yojana (AAY) ration card holders respectively.
In Tamil Nadu, rice is given free of cost for all categories which includes non-PHH.
Hence a mere increase in the CIPs without a corresponding rise in the State issue prices will only burden the States which is already facing resource crunch.
Moreover the politics of rice has been an integral feature in the political discourse.
Various Political parties garner the votes of citizen by announcing affordable prices of food grains in their election campaigns.
Despite achieving substantial poverty reduction, it is no longer necessary to keep the retail prices of food grains at fair price shops very low.
As per the Rangarajan group’s estimate in 2014, the share of people living below the poverty line (BPL) in the 2011 population was 29.5%.
Hence it is time to relook the overall food subsidy system including the pricing mechanism.
What can be done now?
An official committee in January 2015 called for decreasing the quantum of people covered under the NFSA from the present 67% to around 40%.
Ration cardholders should have a give-up option as done in the case of cooking gas cylinders.
Though the States frame criteria for identifying the PHH cardholders, Centre can push states to identify the necessary beneficiaries.
The existing arrangement of flat rates prices should be replaced with a slab system.
Except for the needy people, other beneficiaries can be made to pay a little more for a higher quantum of food grains.
These rates can be arrived by the Centre and the States through consultations.
End-to-end computerisation of PDS operations, digitisation of data of ration cardholders, seeding of Aadhaar and automation of fair price shops can be other options.
PDS cannot be discontinued at any cost in a country like India.
Hence a revamped and need-based PDS is required to cut down the food subsidy bill and to reduce the leakages in the system.
