• Focus is on annual subsidy of 2 lakh crs INSTEAD of weeding out non-poor beneficiaries, replacing wheat/rice with healthy/environment friendly millets.
• If Centre and States calculate subsidy given to farmers it might throw up surprises.

The Prime Minister’s announcement to extend the free food grains scheme has attracted disproportionate attention. Government says cost Rs 11.8 lakh crores in 5 years. Concern has rightly been expressed on the fiscal impact.

However, most are missing out on key aspects. Read on.

Background to NFSA and PMGKAY

The scheme for free food grains was introduced through the National Food Security Act 2013. Its implementation was left to NDA starting 2014.

NFSA guarantees five kg of food grains per person per month to entitled beneficiaries.  The Antyodaya Anna Yojana households which constitute the poorest of the poor, are entitled to 35 kg per household per month. The Act mandates that 67% of the population (75% in rural areas and 50% in urban areas) must receive highly subsidized food grains? Allocation of food grain is skewed in favour of wheat and rice.

NFSA created a huge subsidy burden!

Subsidy (Rs crs) incurred by Food Corporation of India, 2011-12 to 2019-20 

Source-2, https://fci.gov.in/finances.php?view=109 *Food subsidy bill per Budget July 2019.

Can a developing and resource-constrained country provide subsidised food grains to 67 per cent of its population?

In India few talk about sources of revenue to fund such welfare schemes.

NDA2 inherited NFSA. However, it has kept the rates per kg unchanged since 2014 i.e. rice Rs 3, wheat Rs 2 and coarse grains Rs 1/. If prices were increased regularly the subsidy bill would have been lower.

During COVID19 (2020) PMGKAY was announced. “In April 2020, the government had launched PMGKAY to provide additional 5 kg of free food grain to each beneficiary under the NFSA in addition to 5 kg of grain at a highly subsidised rate of Rs 3/kg and Rs 2/kg for rice and wheat, respectively.” Financial Express

Next, in January 2023, “For effective and uniform implementation of NFSA 2013, PMGKAY will subsume the two subsidy schemes of Department of Food & Public Distribution (a) Food Subsidy to FCI (b) Food Subsidy for decentralized procurement states dealing with procurement, allocation and delivery of free food grains to the states under NFSA.” 1 The additional quantity given during Covid19 is withdrawn. See Press Release of Sept 2022 and November 2021

What PM Modi has now done is to extend the food grains scheme that was to expire in December 2023, for 5 years more. For clarity read this IE report

Thus, the additional subsidy burden in free food grains scheme is the recovery from the Rs 3 and Rs 2 from consumers. The rest was inbuilt in the NFSA 2013.

However, as cost of procurement rises and increase in population (based on new census) the subsidy burden shall increase.

The Centre determines poverty on the basis of consumption expenditure. The National Sample Survey (NSS) conducts consumption expenditure surveys every five years. It was last done in 2017-18 but the report was not made public for reasons unknown.  

Hence, the 2011 Census and NSS consumption survey data from 2011-12 continue to be used even in 2023 to determine 81.5 crore beneficiaries.

If poverty rates fall, should the number of beneficiaries fall too?

How subsidy under PMGKAY can be reduced

The government i.e. elected in May 2024 can reduce the subsidy. Here is how.

According to this PRS India report, the expenditure on food subsidy is increasing whilst the ratio of people below the poverty line is falling. The ratio was 21.9 percent and number of poor 26.9 crores in 2011-12. It seems that despite a decline in poverty rate, the non-poor are still identified as poor by the government.

So the key is to reduce the number of 81 crore beneficiaries, by tightening of norms. 

During a 2018 visit to Bastar, Chhattisgarh, I hired the services of a private taxi owner who had bought his vehicle, a Mahindra SUV, on a bank loan. He told me that his family received subsidised food grains under NFSA.

If targeting is improved and Millets given instead of wheat and rice, the subsidy and water consumption will fall and health of beneficiaries improve.  

Also read     Millets best for human health, soil and environment

In an earlier article I wrote Centre must review NFSA beneficiaries for Budget. Use Aadhar database, not 2011 Census Here are key extracts.

The NFSA provides exclusion parameters, which are decided by states.

When we have the One Nation One Ration Card scheme, should the criteria be decided by individual states? Can the Centre decide a pan-India criteria in consultation with states?

Since the Centre manages the Aadhar database, it should take the responsibility of removing beneficiaries based on the exclusion criteria. Without exception, government employees cannot be beneficiaries.

Like the Centre asking citizens to voluntarily give up LPG cylinder subsidy, a similar campaign could be run for NFSA beneficiaries.

In 2015, the Shanta Kumar Committee recommended bringing down the population coverage from 60 per cent to 40 per cent to “comfortably cover BPL families and some even above that.”

If the number of beneficiaries above is taken as a percentage of the state’s population (per Census 2011), the top nine states are Bihar (82.3 per cent), Assam (80.8 per cent), Jharkhand (80 per cent), Chhattisgarh (78.9 per cent), Madhya Pradesh (75.21 per cent), Uttar Pradesh (75 per cent), Nagaland (70 per cent), Karnataka (65.8 per cent) and Odisha (65.1 per cent).

We are focusing on the absolute subsidy number of 2 lakh crs instead of weeding out non-poor beneficiaries through updating/tightening of norms and replacing wheat/rice with millets.

If the Centre and States accurately calculate the state-wise subsidy given to farmers it might throw up surprises.

Excellent article by Ashok Gulati on Streamlining of Subsidies

Also read

1. Press Release PMGKAY scheme

2. Ideas to help clear Food Corporation of India  mess

3. Benefits and Risks of Millets

4. Traditional Rice Varieties of India  

5. Not much fiscal impact of free foodgrains

6. PM promise of 5 years of free foodgrains  

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