Daily Answer Writing
11 March 2021

Q) Over the years the food subsidy bill of the Union government has grown unsustainably large. What steps can be taken to balance farm subsidies with food subsidies, while maintaining the fiscal prudence. (250 Words)

Source: The Hindu Editorial: A case for a revamped, need-based PDS

GS 3: PDS - objectives, functioning, limitations, revamping; issues of buffer stocks and food security;

Approach Answer:


Introduction: The Economic Survey 2020-21 flagged the issue of a growing food subsidy bill, which “is becoming unmanageably large.” They survey hinted at an increase in the Central Issue Price (CIP), which has remained at ?2 per kg for wheat and ?3 per kg for rice for years, though the NFSA, even in 2013, envisaged a price revision after three years. The government had budgeted food subsidy at Rs 1,15,570 crore for the current financial year.


Challenges in reducing the Food subsidy and increasing prices:

               a. Dual challenge: if it makes DBT(direct benefit transfer) fully operational to plug leakage in PDS system, then it would not require to procure wheat and rice, which would affect farmers negatively.

               b. Higher future projection: There is a rise in per unit cost of subsidy procuring, transporting, storing and distributing every kg of wheat or rice by the Food Corporation of India. In future, the annual subsidy bill of the Centre is expected to be about ?2.5-lakh crore. Also there is a greater withdrawal of food grains by States from the central pool under various schemes.

               c. High Debt on FCI: the subsidy amount in the recent budgets have been clubbed with loans taken by the Food Corporation of India (FCI) under the National Small Savings Fund (NSSF) towards food subsidy. This was in the range of ?1.65-lakh crore to ?2.2-lakh crore.

               d. Huge variation in the retail issue prices, from nil in States such as Karnataka and West Bengal for Priority Households (PHH) and Antyodaya Anna Yojana (AAY) ration card holders, ?1 in Odisha for both categories of beneficiaries to ?3 and ?2 in Bihar for the two categories, according to an official document to free of cost for all categories in Tamil Nadu.

               e. State finances: Increase in the CIPs of rice and wheat without a corresponding rise in the issue prices by the State governments would only increase the burden of States.

               f. Political compulsions are perceived to be coming in the way of the Centre and the States increasing the prices.

               g. Poverty: As per the Rangarajan group’s estimate in 2014, the share of people living below the poverty line (BPL) in the 2011 population was 29.5% (about 36 crore). Thus there is little scope to reduce the coverage more than this number.


Steps required to improve the system

               a. Reducing coverage: An official committee in January 2015 called for decreasing the quantum of coverage under the law, from the present 67% to around 40%.

               b. Increasing CIP: Considering inflation, the Economic survey's implication of review of CIP must be taken seriously.

               c. Plugging leakage via Aadhar: In 2015, a Committee on Restructuring of Food Corporation of India had also recommended introducing Aadhaar to plug leakages in PDS, and indexing it to inflation.  The Committee estimated that a switch to DBT would reduce the food subsidy bill of the government by more than Rs 30,000 crore.

               d. Give up campaign: For all ration cardholders drawing food grains, a “give-up” option, as done in the case of cooking gas cylinders, can be made available.

               e. Multiple slab system: 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.

               f. Consulting states: The rates at which these beneficiaries have to be charged can be arrived at by the Centre and the States through consultations.

               g. Diversification of procurement: Government must diversify its procurement to cover pulses and coarse grains to be covered under various provisions of NFSA, such as Mid-day meal scheme.


Conclusion:  A revamped, need-based PDS is required not just for cutting down the subsidy bill but also for reducing the scope for leakages. In this regard, reducing dependence on the procurement system itself should be crucial, for this the recently introduced farm laws would be vital. The political bottlenecks to such reforms must be streamlined as quickly as possible to lay a base for future reforms.

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