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Source: Indiaspend

Context

India is providing free food to over 800 million people. With extreme poverty down to 5.3%, there is a need to rationalize food subsidies.

Economic Growth Trajectory of India (2004–2025)

Indicator	2004	2014	2025 (Projected)
Nominal GDP (USD Trillion)	$0.709	$2.04	$4.19
GDP (PPP, USD Trillion)	$2.75	$6.45	$17.65
Global Rank (Nominal GDP)	-	-	4th (Behind USA, China, Germany)
Global Rank (GDP in PPP)	-	-	3rd (Behind China, USA)
Per Capita Income (PPP, USD)	$2,424.2	$4,935.5	$12,131.8
Global Rank (Per Capita Income PPP)	181	-	149
Gini Coefficient (Income Inequality)	0.34	0.35	0.33 (2021)
Poverty Rate (< $3/day, PPP)	-	27.1% (2011)	5.3% (2022)
Poverty Rate (< $4.20/day, PPP)	-	57.7% (2011)	23.9% (2022)
Comparison – Per Capita Income (PPP, USD)
– Bhutan	-	-	$17,735
– Sri Lanka	-	-	$14,970
– India	$2,424.2	$4,935.5	$12,131.8
– Bangladesh	-	-	$10,261.1
– Pakistan	-	-	$6,950.5

Types of Subsidies in India

Type of Subsidy	Description	Example
Direct Subsidy	Government provides cash transfers or direct payments to beneficiaries.	PM-KISAN income support to farmers
Indirect Subsidy	Government reduces the cost of goods/services via tax exemptions or price controls.	Subsidised foodgrains under NFSA, subsidised LPG cylinders

Revisiting Subsidies: The Case for Reform

With extreme poverty in India dropping to 5.3%, there is an urgent need to recalibrate subsidy policies to ensure efficiency, nutritional security, and environmental sustainability.

Food Subsidy: Shift from Hunger to Nutrition

• ₹2.03 lakh crore allocated for food subsidy in FY26.
  
  
• 800 million beneficiaries receive 5 kg/month of free rice or wheat under the Public Distribution System (PDS).
  
  
• However, this system fails to address hidden hunger – micronutrient deficiency.
  
  
• Essential items like pulses, milk, and eggs remain unaffordable for many families.
  
  

Proposed Reform:

• Introduce digital food coupons worth ₹700/family/month for the bottom 15%.
  
  
• Tapered coupons of ₹500/family/month for other eligible families.
  
  
• Coupons can be redeemed at designated stores for a wider range of nutritious food.
  
  
• Enhances consumer choice, reduces over-reliance on grains, and promotes nutrition-based welfare.

Reducing Leakages & Enhancing Efficiency

• The current PDS is prone to leakages, transit and storage losses.
  
  
• Digital food coupons can:
  
  
• Minimize fraud,
  
  
• Track redemptions in real-time,
  
  
• Enable use of a wider retail network for better accessibility.
  
  

Fertiliser Subsidy: A Case for Rationalisation

• ₹1.56 lakh crore allocated for fertiliser subsidies in FY26.
  
  
• Overuse of subsidised urea has caused imbalanced NPK usage, leading to:
  
  
• Soil degradation
  
  
• Water and air pollution
  
  
• Reduced agricultural efficiency
  
  

Proposed Reform:

• Issue fertiliser coupons directly to farmers.
  
  
• Deregulate fertiliser prices, enabling choice between chemical, biofertilisers, or natural farming methods.
  
  
• Aim to cut import dependence, improve soil health, and reduce fiscal burden.
  
  

Challenges in Execution

• Informal Workers and Tenant Farmers: Current databases do not adequately record many beneficiaries, including migrant laborers and tenant farmers.
• Data Must Be Triangulated: Incorporating income data, ration cards, land records, and Aadhaar into precise targeting.
• Errors in Exclusion: The possibility that actual beneficiaries will be overlooked because of inaccurate or out-of-date information.

Way Forward

• For the bottom 15% of the population, who spend around ₹700 per family per month on food items like pulses, milk, and eggs, the transition to digital coupons for these items should be made.
• Adjust subsidy amounts according to beneficiary income data (found in databases such as PM-KISAN, Aadhaar, and SECC).
• To encourage balanced and environmentally friendly use, deregulate prices and issue fertiliser coupons to farmers.
• Promote organic farming practices and bio-fertilizers.
• For better targeting and fewer inclusion/exclusion mistakes, strengthen monitoring by triangulating data (PM-KISAN, land records).
• Avoid pushback from farmers (like in previous demonstrations) by establishing rapport with them in advance through political communication.

Practice Question Q. .What is the significance of crop insurance, minimum support price and food processing for small and marginal farmers?