On PMGKAY extension – A new poverty conundrum

Source: This post on PMGKAY extension has been created based on the article “A new poverty conundrum” published in Business Standard on 8^th November 2023.

UPSC Syllabus Topic: GS Paper 2 Social Justice – Issues relating to poverty and hunger.

News: This article discusses the impact of the recently proposed extension of PMGKAY on India’s food subsidy bill. It also highlights the challenges associated with this extension.

Recently, the PM announced an extension of the PM Garib Kalyan Anna Yojana (PMGKAY), providing free food grain to 810 million beneficiaries, for 5 more years.

What is PMGKAY?

PMGKAY is a free food grain scheme that covers over 57% of India’s population.

Under PMGKAY, started in April 2020 in the wake of the COVID pandemic, each beneficiary got free 5 kg of food grain per month, in addition to the PDS scheme (an extra 5 kg of food grain per month supplied at a heavily subsidised price).

Its current annual cost (or food subsidy bill) would be over ~ Rs. 2 trillion (Rs. 2 lakh crore), and it should increase in the next 5 years.

What will be the impact of this on India’s food subsidy bill?

The food subsidy bill is certain to rise due to the following:

1. Downward revision of Central Issue Price: The central issue price was last revised in 2013. With this announcement, the issue price has been abolished.
2. Upward revision of MSP: There is continuous pressure to raise the MSP for agricultural crops, raising FCI’s economic costs in procuring grains every year for the central pool.
3. Higher procurement by FCI: Even though the annual requirement for the PDS is estimated at 50-60 million tonnes, FCI’s procurement is on the higher side to prevent any supply shortages.

What are the issues with this extension?

1. Poor Targeting: According to a World Bank report, India’s poverty level declined to 10% in 2019. In contrast, PMGKAY covers 57% of India’s population.
2. Leakages and diversions of food: According to the Shanta Kumar Committee, nearly 50% of the foodgrains are siphoned off from PDS system (NSSO, 2011).
3. Issue of freebies: Free schemes once announced do not have a sunset clause (an ending date).

What should be done?

1. Rectifying inclusion and exclusion errors: The urgent need is to redefine the number of beneficiaries that are truly deserving of a free food grain supply scheme.
2. Revision of central issue price: The government must revise the central issue price for food grain, fixed more than 10 years ago. This can decrease the government’s food subsidy bill.
3. Explore alternatives: A better option could be a direct cash transfer to the deserving beneficiaries, equivalent to the cost that the government incurs on procuring them.

Terminology used:

Central Issue Price: It is the price at which foodgrains under NFSA are being made available to the beneficiaries (Subsidized prices of Rs. 3/2/1 per kg for Rice, Wheat and Coarse-grains (Nutria-cereals) respectively).

Sunset clause: It is a part of a law or rule that states it will expire on a specific date unless lawmakers decide to keep it going. Many laws don’t have this, so they can last indefinitely.

Question for practice:

Critically examine the recently proposed extension of PMGKAY Scheme, in light of India’s rising food subsidy bill.