Growing Food Subsidy Bill: Reasons and Suggestions

Synopsis: The centre needs to find pragmatic solutions to limit the growing food subsidy bill.

Background

• The Economic Survey 2020-21, has pointed out the issue of a growing food subsidy bill.
• During 2016-17 to 2019-20, the total food subsidy bill was in the range of ₹1.65-lakh crore to ₹2.2-lakh crore. (Food subsidy + loans are taken by the Food Corporation of India (FCI) under the National Small Savings Fund (NSSF)
• Whereas, the food subsidy bill for the financial year (2020-21) according to the revised estimate is ₹4.23-lakh crore. It excludes extra-budgetary resource allocation. (the Centre distributed extra food grains to the poor at free of cost during the Pandemic).
• Also, the survey has stated that it is difficult to reduce the economic cost of food management in view of rising commitment towards food security.

What are the Reasons for Increasing Food subsidy bill?

1. One, The National Food Security Act (NFSA), 2013, increased the entitlements. It covers two-thirds of the country’s population.
   • The law requires the authorities to provide to each beneficiary 5 kg of rice or wheat per month. This resulted in an increased States’demand for food grains in the States.
2. Two, recently the government has discontinued the National Small Savings Fund Loan to FCI for Food Subsidy. (i.e., extra-budgetary allocation has been discontinued) The Budget Provisions are provided accordingly. Consequently, budgetary allocation increased.

What was the suggestion given by the survey to address the growing food subsidy bill of the centre?

• The survey suggested increasing the Central Issue Price (CIP). It remains at ₹2 per kg for wheat and ₹3 per kg for rice for years.
• However, a mere increase in the CIPs of rice and wheat without a corresponding rise in the issue prices will not work. It would only increase the burden of States.
• Also, the State governments don’t want to increase the state issue price. It is because food subsidies are internal to their political discourse. For example,
  • • In States such as Karnataka and West Bengal, the retail issue prices of rice and wheat Priority Households (PHH) and Antyodaya Anna Yojana (AAY) ration card holders are nil.
    • In Tamil Nadu, rice is given free of cost for all categories including non-PHH.
• This is the reason why retail prices of food grains at fair price shops are so low even after achieving substantial poverty reduction in the country.

What can be done?

1. First, the centre should find solutions to decrease the quantum of coverage under the NFSA law from the present 67% to around 40%. It can be done by
   • • One, allowing a “give-up” option, as done in the case of cooking gas cylinders.
     • Two, the centre should nudge the state governments to objectively identify PHH cardholders, thereby reducing the number of ghost beneficiaries.
2. Second, the prices of the existing arrangement of flat rates should be replaced with a slab system.
   • • Excluding the needy, other beneficiaries can be made to pay a little more for a higher quantum of food grains.
3. Third, other reforms to strengthen the PDS system includes,
   • • End-to-end computerisation of operations,
     • Digitisation of data of ration cardholders,
     • Seeding of Aadhaar, and automation of fair price shops.

In India, the PDS system has shown to be more effective over Direct benefit transfer especially during the time of emergencies. So, it is important to revamp the PDS based on the needs.

Source: The Hindu