Despite extensive measures implemented by the government, including digitisation, pilferage persists, revealing systemic flaws in how food subsidies are administered According to a Study titled ‘Rationalising Public Distribution System in India’ done by the Indian Council For Research On International Economic Relations (ICRIER), there was grain leakage under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) of 20 million tons (17 million ton of rice and 3 million ton of wheat) which is 28 per cent of the 71 million ton of grain off-take by states (that included 52 million ton of rice and 19 million ton wheat) during August 2022 – July 2023. The Study estimates the annual fiscal cost of this leakage to be around Rs 70,000 crore. Under...
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Category: Pricing Policies & Subsidies
Food subsidy reforms: Can Govt tackle mounting costs
Timely disbursement of funds to FCI would go a long way to streamline the Pradhan Mantri Garib Kalyan Anna Yojana, which provides free food grains to the people The Ministry of Finance (MoF) has released Rs 97,000 crore towards food subsidy expenses in the first half of the current financial year (FY) to the Food Corporation of India (FCI). This is over two-thirds of the required fund support of Rs 147,000 crore to FCI during the current FY. The MoF is expected to release the balance amount by December 31, 2024. Under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), the Centre asks the FCI and other state agencies to procure food from the farmers at MSP (minimum support price)...
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Populism will not let food subsidy reforms take off
Leakages can be curbed if the subsidy is given directly to the beneficiaries using ‘direct benefit transfer’ mode. The potential for reducing food subsidies is immense In the full Budget presented by Union Finance Minister Nirmala Sitharaman on July 23, 2024, the government has pegged the budget estimate (BE) food subsidy for FY 2024-25 at Rs 205,250 crore which is no different from the estimate given in the interim Budget. Though slightly lower than the revised estimate (RE) of Rs 211,394 crores for FY 2023-24, this is no consolation as invariably, the RE for any financial year turns out to be higher than the BE. For instance, while presenting the budget for FY 2023-24, Sitharaman kept the BE for food...
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Reining in food inflation
During the fiscal year 2023–24, the Union government launched a scheme to sell food at subsidised rates under the Bharat brand. Bharat Chana was introduced in July 2023, Bharat Atta in November 2023, and Bharat Rice in February 2024. Under this scheme, the Food Corporation of India (FCI) buys cereals from farmers and sells them to the National Agricultural Cooperative Marketing Federation of India (Nafed) and the National Co-operative Consumers’ Federation of India (NCCF). The Nafed and NCCF then directly sell Bharat brand products to the general public through retail stores, mobile vans, and e-commerce platforms such as Amazon and BigBasket. These products are priced lower than the market price. For example, Bharat Atta is sold at Rs 27.5 per...
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Address the root cause to stabilise food prices
The Bharat brand scheme aims to stabilise prices for consumers and ensure fair compensation to farmers. However, its impact will be limited due to State laws Last year in July, the Union Government launched a Scheme of selling chana dal at a subsidised rate under the Bharat brand call it Bharat Chana. This was followed by launch of Bharat Atta in November 2023 and Bharat Rice in February 2024, Under the Scheme, the Food Corporation of India (FCI) – a central agency whose prime responsibility is to procure, store and distribute food grains to meet the needs of beneficiaries covered under the National Food Security Act (NFSA) – buys the cereals from the farmers and sells to the National Agricultural...
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MSP methodology and farmer demands
Questions arise about the rationale and implications of adopting Dr Swaminathan’s proposed methodology for MSP calculation Co-terminus with the legal guarantee for Minimum Support Price (MSP) for all crops, another demand raised by the farmers relates to how the MSP is fixed. They want it to be calculated based on the recommendations of the National Commission on Farmers (NCF) under Dr MS Swaminathan (2006). All along, the Commission for Agricultural Costs and Prices (CACP) – a statutory body under the Ministry of Agriculture & Farmers Welfare – has been setting MSP at the level of the so-called comprehensive cost or C2 cost. C2 is arrived at by adding three components viz. A2 covers all paid-out expenses, both in cash and...
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Farmers’ demands are impractical and unrealistic
The farmers want the Govt to withdraw from the WTO and all Free Trade Agreements, which is next to impossible in a globally interdependent world After three years of hibernation, farmers mostly from Punjab are back on the roads with over a dozen demands from the Union Government. If taken on board, these are sure to spell disaster. The foremost demand is securing legal guarantees for the Minimum Support Price (MSP) of their agricultural produce. MSP is a “minimum price” for any crop that the government considers as remunerative for farmers and hence deserving of “support”. Put into practice in the 1960s under an ‘executive order’, it was meant to assure farmers that they get at least MSP from selling...
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MSP guarantee is bad economics
Yet, political parties give because it helps them win elections. MSP representative image. Credit: DH File Photo In the recently concluded state assembly elections, among the various guarantees made by the BJP—Modi’s guarantees—a significant commitment is a hefty increase in the minimum support price (MSP) for paddy and wheat offered to farmers in Madhya Pradesh and Chhattisgarh. In MP, the party promised an MSP of Rs 3,100 per quintal for paddy, a 42% increase from the current Rs 2,183 per quintal fixed by the Centre. For wheat, the promised MSP is Rs 2,700 per quintal, a 27% rise from the existing Rs 2,125 per quintal. In Chhattisgarh, a commitment was made to procure paddy at an MSP of Rs 3,100...
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Has free ration become a political compulsion?
Under ‘open-ended’ procurement, Govt buys from farmers unlimited quantities at MSP. Apart from high stocks, this adds to the food subsidy bill substantially Addressing a poll rally in Chhattisgarh, Prime Minister Narendra Modi has announced an extension of the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) free ration scheme for another five years. Launched in April 2020 to deal with the situation triggered by the Covid-19 pandemic, PMGKAY provided 5 kg of rice or wheat per person per month for “free” to 820 million, as well as 1 kg of pulses per family per month to people covered under the National Food Security Act (NFSA). Run for three months initially, the scheme got six extensions till December 31, 2022. On...
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Rethink rationale for food subsidy
Most of its actions in implementing the food subsidy scheme are out of sync with the changing times and lead to leakages and corruption The NITI Aayog has invited bids for a Central Coordinating Agency that can study the effectiveness of its National Food Security Subsidy scheme. The Agency will hold the mandate to suggest ways to better the scheme. It will also suggest ‘whether, and how, the scheme can be rationalised or closed’. However, the government’s move to continue the supply of free food grains under the National Food Security Act (NFSA) beyond the current FY gives the contrary signal. In fact, most of its actions in implementing the food subsidy scheme are out of sync with the thought...
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