Issue of Food Subsidy in India
- November 7, 2023
- Posted by: OptimizeIAS Team
- Category: DPN Topics
Issue of Food Subsidy in India
Section: Food security
Context: The decision to extend the free food grains program by five years, as announced by Prime Minister Narendra Modi, is viewed as a medium-term policy with potential fiscal risks and implications for competitive populism, according to Nomura economists.
While this extension is not anticipated to significantly impact the fiscal calculations for the current financial year, the potential for additional populist measures leading up to the general elections in 2024 remains a concern.
Key points highlighted by Nomura economists in their research note include:
- The announcement cements the free foodgrains scheme as a medium-term policy, reflecting the challenges associated with rolling back populist policies, particularly in the context of upcoming elections. This move is seen as an attempt to align with public sentiment.
- While the immediate fiscal and inflationary effects of the extended 5 kilograms free foodgrain scheme appear manageable, the government’s food subsidy expenditure is likely to escalate over time due to increasing procurement costs.
- The foregone revenues from subsidized food sales to the poor, estimated to be 0.05% of GDP annually, contribute to the overall fiscal implications of the policy.
- Although the necessity of subsidized grains for low-income households is acknowledged, there are inherent risks associated with the competitive populism induced by the introduction of free schemes.
- The economists express concerns about the potential rise in revenue expenditure, particularly linked to growing rural employment guarantee spending, and the inclination to announce further populist measures, potentially impacting the fiscal deficit target of 5.9% of GDP.
- The current expenditure on food subsidy by the central government is reported to have been lower than the previous fiscal year, suggesting some control over spending, despite the extension of the free foodgrains scheme.
Overall, while the short-term impact is expected to be manageable, the economists emphasize the need for cautious fiscal management, especially considering the potential escalation of costs over time and the possibility of additional populist measures being introduced in the future.
About National Food Security Act (NFSA)
The National Food Security Act (NFSA) is a significant legislation enacted by the Indian government to ensure food and nutritional security for the population.
Notified On: 10th September, 2013.
Objective: The primary objective of the NFSA is to ensure access to an adequate quantity of quality food at affordable prices, enabling people to live a life with dignity. It adopts a human life cycle approach to provide food and nutritional security.
Coverage: The NFSA extends its coverage to 75% of the rural population and up to 50% of the urban population, ensuring that they receive subsidised food grains under the Targeted Public Distribution System (TPDS). Overall, it covers approximately 81.35 crore citizens.
Eligibility: The Priority Households are identified and covered under the TPDS based on the guidelines provided by the respective State governments. Additionally, households falling under the Antyodaya Anna Yojana are also eligible for coverage under the NFSA.
Provisions: The NFSA provides several crucial provisions, including the distribution of 5 kgs of food grains per person per month at affordable rates (Rs. 3/2/1 per Kg for rice/wheat/coarse grains). Furthermore, the Act ensures that existing AAY households receive 35 kgs of food grains per household per month. It also includes provisions for meal and maternity benefits for pregnant women and lactating mothers, meals for children up to 14 years of age, and a food security allowance to beneficiaries in cases of non-supply of entitled food grains or meals. Additionally, it emphasizes the establishment of grievance redressal mechanisms at both the district and state levels.
The NFSA serves as a critical instrument in addressing food security concerns and promoting the well-being of vulnerable sections of society, ensuring they have access to essential food and nutrition.
About Pradhan Mantri Garib Kalyan Anna Yojana (PM-GKAY)
The Pradhan Mantri Garib Kalyan Anna Yojana (PM-GKAY) has been a critical intervention by the Indian government to provide essential food security to vulnerable populations, especially during the challenging times brought on by the COVID-19 pandemic.
Introduction: The scheme was initially launched in response to the COVID-19 pandemic, and its scope has now been extended to distribute wheat and rice free of cost to approximately 80 crore people.
About the Scheme: PM-GKAY is recognized as one of the world’s largest food security schemes, with the primary aim of ensuring adequate food supplies for the underprivileged and those in need during the pandemic. It operates as a part of the relief package introduced in response to the COVID-19 crisis.
Nodal Ministry: Ministry of Finance.
Features and Eligibility: The scheme encompasses the distribution of 5 kg of food grains and 1 kg of gram per month to eligible beneficiaries, including families falling below the poverty line, as identified under the Antyodaya Anna Yojana and Priority Household categories. The identification of eligible families is conducted by the respective state governments and union territory administrations.
Necessity and Concerns: While the PM-GKAY addresses the immediate need for food security, challenges persist, particularly in reaching certain vulnerable groups and effectively implementing the scheme. Migrant workers, in particular, face constraints in accessing affordable and nutritious food, especially without adequate cooking arrangements or fuel.
The scheme has faced several challenges and issues that need to be addressed:
- Inadequate updates in ration records since the 2011 Census have led to a significant portion of the population being excluded from the benefits of both the NFSA and PMGKAY, especially vulnerable groups such as migrants, sex workers, and transgender individuals.
- Although the scheme is designed to assist to the needy, certain flaws have limited its effectiveness. The 25 kg limit on the collection of free grains for a family of five is a reduction from the earlier provisions, and the repeated extensions of the scheme have raised concerns about political motivations.
- Steps have been taken by some states, such as Tamil Nadu, Odisha, Rajasthan, Chhattisgarh, and West Bengal, to universalize or expand the coverage of the scheme using state cards.
- Additionally, the Supreme Court has directed the central government to broaden the coverage of the NFSA.
Fiscal Impact of Free Food Grains under NFSA:
- Center’s food subsidy bill on NFSA was around ₹2 lakh crore annually.
- PMGKAY effectively doubled the sum for the past two years, but the termination will save the government a significant burden.
Impact of Decision on Food Grain Stocks:
- Relief for stressed food grain stocks as production and procurement levels faced challenges in 2022.
- Continuation of PMGKAY was unsustainable without increasing procurement levels.
The Food Corporation of India (FCI) is a statutory body established under the Food Corporation Act of 1964. It was set up with the primary objective of fulfilling various aspects of the Food Policy in India. The key responsibilities and functions of the FCI include:
- Effective price support operations to safeguard the interests of farmers.
- Distribution of food grains across the country through the Public Distribution System (PDS) to ensure food accessibility for the general population, especially those in need.
- Maintenance of a satisfactory level of operational and buffer stocks of food grains to ensure national food security and stabilize food prices in the market.
Under the Ministry of Consumer Affairs, Food and Public Distribution, Government of India, the Food Corporation of India plays a vital role in ensuring food security and stability in the country. Since its establishment, the FCI has played a significant role in transforming India’s food security system, shifting the focus from crisis management to a more stable and sustainable approach.
Open Market Sale Scheme (OMSS)
- Objective: Ensure food security, moderate open market prices, and enhance food grain supply during lean seasons.
- Initiative: FCI sells surplus food grains (wheat and rice) from the central pool through e-auctions to traders, bulk consumers, and retail chains.
- Revision: Quantity restrictions imposed on single bidders (3,000 MT to 10-100 MT) to encourage small and marginal buyers, curbing monopolies of bulk purchasers.
- Impact on States: Sale of rice and wheat from central pool under OMSS to state governments stopped, leading states to seek alternative procurement methods.
- States’ Reactions: Criticisms from states like Tamil Nadu and Karnataka, citing adverse effects on their welfare schemes.
- Centre’s Stance: Restrictions implemented to manage inflation and supply, with emphasis on existing distribution to 80 crore marginalized beneficiaries under NFSA.