Introduction

• The 2021 Economic Survey rightly flagged the issue of a growing food subsidy bill which is becoming unmanageably large.

 

Status of Food Subsidy

• 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 Rs. 2.2-lakh crore.
• In future, the annual subsidy bill of the Centre is expected to be about 2.5-lakh crore.

Key findings from the CAG audit: Imbalances in availability of storage capacity across states: There is an imbalance in the availability of storage capacity across regions. On the one hand, there is a shortage of space in consuming states, such as Rajasthan and Maharashtra, which together account for 13 percent of the total capacity of the FCI. Maximum buffer norms not specified: The minimum buffer norms prescribed by the government do not clearly delineate individual elements of food security (e.g., emergency, price stabilisation, food security reserve, and TPDS) within the minimum buffer stock. The existing norms also do not specify the maximum stock that should be maintained in the central pool for each of the above components. Low utilisation of existing capacity in various states/UTs: The audit observed that despite storage constraints in FCI, utilisation of existing storage capacity in various states/UTs was less than 75 percent in the majority of the months during the period 2006-07 to 2011-12.

Reason for High Subsidy

High drawal rate:

• During the three years, the quantity 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) enhanced entitlements (covering two-thirds of the country’s population), this naturally pushed up the States’ drawal.

Issue prices:

• Central Issue Price (CIP) has remained at Rs. 2 per kg for wheat and Rs. 3 per kg for rice for years, though the NFSA, even in 2013, envisaged a price revision after three years.

Comparison with other mechanism

Way Forward

In this context, it is time the Centre had a relook at the overall food subsidy system including the pricing mechanism.

Give Up Option:

• 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%. For all ration cardholders drawing food grains, a “give-up” option, as done in the case of cooking gas cylinders, can be made available.
• Even though States have been allowed to frame criteria for the identification of PHH cardholders, the Centre can nudge them into pruning the number of such beneficiaries.

 Slab System:

• As for the prices, the existing arrangement of flat rates should be replaced with a slab system. 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.