Mains Paper 3: Economy
Prelims level: Food Corporation of India
Mains level: Issues related to direct and indirect farm subsidies and minimum support prices Public Distribution System-objectives, functioning, limitations.

Highlights

### Context:

• The Economic Survey, tabled in Parliament in January, rightly flagged the issue of a growing food subsidy bill, which, in the words of the government, “is becoming unmanageably large.”

• The finance ministry official said, we have just carried forward with the food and fertilizer subsidy scheme for FY22 though they are becoming unsustainable. The timing is not right for any reform in these subsidies.

### Food subsidy:

• During 2016-17 to 2019-20, the subsidy amount, clubbed with loans taken by the Food Corporation of India (FCI) under the National Small Savings Fund (NSSF) towards food subsidy, was in the range of Rs. 1.65-lakh crore to Rs. 2.2-lakh crore. In future, the annual subsidy bill of the Centre is expected to be about Rs. 2.5-lakh crore.

• For the 2021/22 fiscal year, India’s total outlay toward the food subsidy is expected to cross Rs 2.1 lakh crore ($28.7 billion), but the budgeted allocation is likely to go up by only 4 per cent-6 per cent from Rs 1.16 lakh crore earmarked in the previous year. • The government’s allocations would fall short of the required funds to finance its mammoth food welfare program, government-backed Food Corporation of India (FCI) will likely have to borrow more than 800 billion rupees ($11 billion) in 2021/22.

### High drawal rate:

• During the Last three years, the quantity of food grains drawn by States (annually) hovered around 60 million tonnes to 66 million tonnes. Compared to the allocation, the rate of drawal was 91% to 95%.

• For this financial year (2020-21) which is an extraordinary year on account of the COVID-19 pandemic, the revised estimate of the subsidy has been put at about Rs. 4.23-lakh crore, excluding the extra budgetary resource allocation of Rs. 84,636 crore.

• Till December 2020, the Centre set apart 94.35 million tonnes to the States under different schemes including the NFSA and additional allocation, meant for distribution among the poor free of cost.

### Issue prices and politics:

• As the National Food Security Act (NFSA), which came into force in July 2013, enhanced entitlements (covering two-thirds of the country’s population), this naturally pushed up the States’ drawal.

• Based on an improved version of the targeted Public Distribution System (PDS), the law requires the authorities to provide to each beneficiary 5 kg of rice or wheat per month.

• It is against this backdrop that the Survey has hinted at an increase in the Central Issue Price (CIP), which has remained at Rs. 2 per kg for wheat and Rs. 3 per kg for rice for years, though the NFSA, even in 2013, envisaged a price revision after three years.

• The FCI’s economic cost of rice is Rs 37/kg and of wheat about Rs 27/kg. This economic cost is roughly 40 percent higher than the procurement price.

### The State’s food Price Policy:

• The variation in the retail issue prices of rice and wheat, from nil in States such as Karnataka and West Bengal for Priority Households (PHH) and Antyodaya Anna Yojana (AAY) ration card holders.

• The Rs.1 in Odisha for both categories of beneficiaries to Rs. 3 and Rs. 2 in Bihar for the two categories, according to an official document. Needless, in Tamil Nadu, rice is given free of cost for all categories; this includes non-PHH.

### The Past Politics and Poverty:

• The politics of rice has been an integral feature of the political discourse. Promises by the Dravida Munnetra Kazhagam in the 1967 Assembly election in Tamil Nadu — three measures (approximately 4.5 kg) at Rs. 1.

• The Telugu Desam Party during the 1983 poll in Andhra Pradesh — Rs.2 per kg — captured the imagination of the voter.

• Even after the passage of nearly 50 years and achieving substantial poverty reduction in the country, 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% (about 36 crore).

### Recast the system:

• An official committee in January 2015 called for decreasing the quantum of coverage under the law, from the present 67% to around 40%.

• For all ration cardholders drawing food grains, a “give-up” option, as done in the case of cooking gas cylinders, can be made available.

• Even though States have been allowed to frame criteria for the identification of PHH cardholders, the Centre can nudge them into pruning the number of such beneficiaries.

• The existing arrangement of flat rates should be replaced with a slab system. Barring the needy, other beneficiaries can be made to pay a little more for a higher quantum of food grains.

• The rates at which these beneficiaries have to be charged can be arrived at by the Centre and the States through consultations. These measures, if properly implemented, can have a salutary effect on retail prices in the open market.

• There are no two opinions about reforms implemented in the PDS through various steps, including end-to-end computerisation of operations, digitisation of data of ration cardholders, seeding of Aadhaar, and automation of fair price shops.

### Conclusion:

• The 15th Finance Commission in its report said though targeting of food subsidy is expected to have improved with electronic point of sale (e-PoS) devices at fair price shops authenticating beneficiaries at the time of distribution of foodgrain.

• The government has decided to abandon the practice of extra budgetary resource allocation and include in the food subsidy amount itself, arrears in loans outstanding of the FCI drawn through the NSSF, must be taken away in step by step manner.

• The Direct Benefit Transfer is an attempt to change the mechanism of transferring subsidies and need-based PDS that’s required not just for cutting down the subsidy bill but also for reducing the scope for leakages, 439 schemes implemented by 55 ministries and departments use DBT.

• It is time to revise the issue prices for beneficiaries, “Antyodaya” category can keep receiving grains at Rs 2 or Rs 3/kg, and all others should pay at least half of the procurement price if food subsidy has to be brought to manageable levels.