The food subsidy bill- Need to be revamped

Rising subsidy bill

• 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.”
• Food subsidy, coupled with the drawal of food grains by States from the central pool under various schemes, has been on a perpetual growth trajectory.
• 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 ?1.65-lakh crore to ?2.2-lakh crore.
• In future, the annual subsidy bill of the Centre is expected to be about ?2.5-lakh crore.

High drawal rate

• During the three years, the number 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%.
• 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.
• 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 ?4.23-lakh crore, excluding the extra budgetary resource allocation of ?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.
• Importantly, 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.
• Even in the figure of revised estimates for 2020-21, the arrears constitute a portion.

Need for an increase in the Central Issue price

• It is against this backdrop that the Survey has hinted at an increase in the Central Issue Price (CIP), which has remained at ?2 per kg for wheat and ?3 per kg for rice for years, though the NFSA, even in 2013, envisaged a price revision after three years.
• What makes the subject more complex is 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, ?1 in Odisha for both categories of beneficiaries to ?3 and ?2 in Bihar for the two categories, according to an official document.
• Needless to say, in Tamil Nadu, rice is given free of cost for all categories; this includes non-PHH.
• The Centre, by stating through the Survey that it is difficult to reduce “the economic cost of food management in view of rising commitment” towards food security, does not want the NFSA norms to be disturbed.
  • But, a mere increase in the CIPs of rice and wheat without a corresponding rise in the issue prices by the State governments would only increase the burden of States, which are even otherwise reeling under the problem of a resource crunch.

Political compulsions

• Political compulsions are perceived to be coming in the way of the Centre and the States increasing the prices.
• 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 ?1 — and the Telugu Desam Party during the 1983 poll in Andhra Pradesh — ? 2 per kg — captured the imagination of the voter.
• One should ponder over the advisability of keeping so low the retail prices of food grains at fair price shops, 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

• Revisiting NFSA Act: It should revisit NFSA norms and coverage.
• An official committee in January 2015 called for decreasing the quantum of coverage under the law, from the present 67% to around 40%.
• Need for give-up option: For all ration cardholders drawing food grains, a “give-up” option, as done in the case of cooking gas cylinders, can be made available.
• Slab system: As for the prices, the existing arrangement of flat rates should be replaced with a slab system.
• Differential pricing: 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.

Way ahead

• It is nobody’s case that the PDS should be dismantled or in-kind provision of food subsidy be discontinued.
• A revamped, need-based PDS is required not just for cutting down the subsidy bill but also for reducing the scope for leakages. Political will should not be found wanting.