As the Government continues to provide free foodgrain to over 800 million people, a closer look reveals troubling patterns of misuse, policy distortion, and an urgent need for reform. The question now is not whether food should reach the poor — but how best to do it without enriching the corrupt
Last year, the Indian Council For Research On International Economic Relations (ICRIER) released a Study titled ‘Rationalising Public Distribution System in India’ saying there was grain leakage under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) of 20 million tons entailing an estimated annual fiscal cost of around `70,000 crore to the central exchequer.
Under the PMGKAY, the Union Government asks the Food Corporation of India (FCI) and other state agencies to procure food from the farmers at MSP (minimum support price) and organise its distribution to around 820 million people for free. This is done through a network of fair-price shops under the Public Distribution System (PDS). The entire cost i.e. MSP paid to farmers plus handling and distribution cost (HDC) is reimbursed to the FCI/other state agencies as a subsidy.
While, the PMGKAY has been in force since January 1, 2023, before that, the Centre was giving food to 820 million persons at a heavily subsidised price of `2/3/1 per kg for wheat/rice/coarse cereals under the National Food Security Act or NFSA. In addition, since April 2020, it has given 5 kg of food per person per month for “free” to all 820 million beneficiaries under PMGKAY to mitigate the effect of the COVID-19 pandemic.
From January 1, 2023, they have been getting free food under the PMGKAY. Umpteen ground reports corroborate the substantial leakage of cereals from the PDS. The most recent revelation is from Uttar Pradesh’s Bareilly, Agra and Meerut divisions where between 2015 and 2018, the heavily subsidised food at `2/3/1 per kg for wheat/rice/coarse cereals under the NFSA was given to ‘ineligible persons’ thereby depriving the real beneficiaries of their due.
Last year, there were reports of a massive scam in West Bengal where rice meant for distribution through the PDS made its way to privately owned rice mills who after re-milling (polishing) sold in the open market raking in a moolah.
The scale of diversion can be gauged from the fact that the Enforcement Directorate (ED) — currently investigating — estimates the proceeds of crime to be `9,000-10,000 crore. The leakage has continued for more than a decade.
In 2016, there were reports of the disappearance of a significant amount of food grain stocks from godowns in Punjab raising concerns about potential losses and the financial implications for banks involved in the state’s food borrowing program. Under directions from the Reserve Bank of India (RBI), banks were forced to make provisions for such losses estimated to be around `12,000 crore. This was even as the Central Government didn’t allow this loss to be absorbed under the ‘food subsidy’ budget.
There could be other numerous instances of leaks hidden from public glare. All put together, these could be denting the state exchequer by colossal amounts. So, when we talk of the ever-increasing food subsidy bill of the Centre (over `200,000 crore during FY 2024-25), it includes a sizeable portion towards the leak.
Its root cause has to do with how food subsidy is administered. Under the extant system, the subsidy is built into the price which under this Scheme is Zero; even under regular NFSA from 2013 till December 2022, the price was close to zero at `2/3/1 per kg.
Compare this with the cost of supply (MSP plus HDC) which is currently around `27 per kg for wheat and `39 per kg for rice. The availability of a mammoth of around 55 million tons (the quantity distributed through the PDS) in the supply chain with zero price tag is an open invitation to dubious stakeholders to derive unintended gains.
Fundamentally, subsidised food is meant for the poor. The number of poor isn’t more than 15-20 per cent of India’s population. Yet, the current number of beneficiaries is 59 per cent of the population. Even as per the Shanta Kumar Committee (2015), the beneficiary number under the then NFSA shouldn’t be more than 40 per cent. Furthermore, according to Niti Aayog, since 2015, 250 million persons have come out of poverty.
This should have led to a corresponding reduction in the number of beneficiaries. But, this was not to be.
Even as millions of ‘undeserving’ people refuse to exit, the Supreme Court (SC) has directed the Central Government to update the list of beneficiaries to take into account the population during 2021 (the existing list is based on 2011 Census estimates). On this basis, the latter will need to give free food to an additional 100 million. With no deletion, the Scheme will have to cater to 920 million.
The NFSA legislation enacted in 2013 required beneficiaries to pay `2/3/1 per kg for wheat/rice/coarse cereals. It froze these rates for three years. Since 2016, there has been no legal bar on increasing the price. Yet, far from increasing, the Modi-Government has reduced the price to zero.
The nexus of corrupt politicians/officials and local ration dealers/millers stares at the ‘huge differential’ between the zero-priced PDS stuff and the high market price with hawkish eyes.
They can circumvent even the best of technology interventions made by the Modi-Government; those include installing PoS (point of sale machines) at ration shops; digitisation of the supply chain from procurement to distribution; authentication of beneficiaries with their Aadhaar numbers and so on.
On the procurement front, cases have come to light where small/poor farmers are unable to sell their produce to the State agencies — despite registering at the latter’s portal. This deprives them of the MSP benefit and guaranteed purchase even as dubious traders acting in collusion with the officials manipulate the system to their advantage.
Leakage can be curbed in fact, eliminated if only the Government gives subsidy directly to the beneficiaries using DBT mode. For instance, taking the cost of supplying wheat `27 per kg, it can transfer `135 a month (`1620 per annum) to a beneficiary’s account being the eligible subsidy amount for 5 kg of monthly food entitlement under the Scheme.
With this money, she can purchase her needs from the market. The ration shops — currently catering to PDS — will have to recalibrate and work like any normal retailer.
The state agencies need not procure food for distribution to the beneficiaries which under the proposed DBT mechanism, won’t be required. The farmers will sell their produce in the same manner as happens for any other commodity in a market-driven framework. The three central farm laws should be revived as that will give them more options to them sell their farm output and fetching a good price.
With no zero-priced food available in the system, there won’t be any temptation to divert. Also, there won’t be any clamour to corner food (albeit free) in the name of fake beneficiaries.
The Government will be able to better target subsidies by excluding the undeserving persons. It will also be spared the ‘guaranteed’ purchase from farmers and associated high cost and subsidy outgo which it can’t avoid under the existing dispensation.
In short, by restructuring the Scheme, the Government has much to gain by way of eliminating misuse and leakages, bringing about huge savings in subsidy, putting in place competitive/efficiently driven markets and ensuring remunerative prices to farmers.
(The writer is a policy analyst. Views expressed are personal)
https://www.dailypioneer.com/2025/columnists/free-food-scheme-is-inherently-prone-to-misuse.html
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