During the past seven years or so, the government has weeded out close to 44 million bogus ration cards with 17 million junked in Uttar Pradesh (UP) alone (other states where substantial number of bogus ration cards have been weeded out include West Bengal 7 million, Maharashtra 4 million besides Karnataka, Rajasthan and Telangana where more than a million each have been eliminated). This has happened mostly under Modi – government. It successfully used the IT infrastructure (digitization, seeding of ration cards with Aadhar and installation of electronic PoS machine at retail shops).
Currently, there are 230 million ration cards (815 million individual beneficiaries). The weeded out bogus cards or 44 million is about 20%. This is creditable especially when seen in the backdrop of ballooning food subsidy bill on the one hand and dire need to make subsidized food grain available to millions of deserving cases – who are currently not covered – on the other.
However, the exercise addresses only part of the multitude of problems bedeviling India’s mammoth food distribution program. To understand these and what needs to be done to mitigate them, at the outset, let us see how the system works.
Under the National Food Security Act (NFSA), the union government arranges for supply of wheat, rice and coarse cereals to the beneficiaries at Rs 2/3/1 per kg which is a fraction of the cost of procurement, handling and distribution (e.g. 1/15th in case of wheat). Every person whose name is mentioned on the ration card is eligible to receive five kg of rice or wheat per month (in addition, during April – June, 2020, to mitigate the impact of Covid-19, under PM Garib Kalyan Yojna, it made available for “free” five kg of rice or wheat per person per month to all 815 million individual beneficiaries under the NFSA; besides one kg of free pulses per month was provided on every ration card. These additional provisions – all for free – were extended for a further 5 months till November 2020).
The supplies are made by the Food Corporation of India (FCI) and other State agencies on behalf of the central government who reimburses to the former the excess of the cost of purchase from farmers, handling and distribution over the price charged from the beneficiaries i.e. Rs 2/3/1 per kg (on free supplies applicable to additional quantities during the current year, this is zero). This reimbursement – known in common parlance as food subsidy – is paid from the Central budget.
In recent years, food subsidy has increased to frightening levels. During 2019-20, this was Rs 219,000 crore. For 2020-21, prior to Covid – 19, the likely spend was estimated to be Rs 253,000 crore. Including the impact of free food given during April – November 2020 about Rs 1,50,000 crore, this will scale up to Rs 4,03,000-crore. In case, the free food scheme is extended beyond November 2020, the spend will be much higher.
The ballooning food subsidy is putting a huge stress on the union budget. Faced with shortfall in tax collection in recent years and overarching need to contain fiscal deficit, the Centre has been making short payments to FCI forcing the latter borrow heavily to sustain its operations. The situation is so pathetic that since 2016-17, the FCI has been drawing funds from the National Small Savings Fund (NSSF). As on March 31, 2020, the cumulative borrowings from NSSF were about Rs 330,000 crore.
The allocation for current year being Rs 126,000 crore (Rs 116,000 crore provided in the budget plus Rs 10,000 crore in the first supplementary demands for grants) against requirement of Rs 403,000 crore, the shortfall is Rs 277,000 crore. If, no further supplementary authorization comes, the FCI will have to borrow all of this from NSSF taking its borrowings to a gargantuan Rs 607,000 crore as of March 2021. Though staying on FCI balance sheet, this mammoth debt is entirely the liability of the Union Government and will need to be serviced from the latter’s tax collections in the future.
The core feature of this scheme i.e. supply of wheat or rice at a price almost close to zero may be a boon for the beneficiaries but ends up being a bane for the economy. The availability of wheat at Rs 2 per kg under NFSA through the public distribution system (PDS) when the market price is minimum Rs 30 per kg is a huge allurement to all those involved in administering it. No wonder, there is large-scale diversion of food grains from rake unloading points, godowns of FCI, disappearance of truckloads of grains on way to the retail sale points, millions of non-existent or fake beneficiaries etc.
There is clamor for becoming beneficiaries under the scheme even as there are numerous instances of these persons lifting their subsidized quota of say wheat at Rs 2 per kg and passing off to dubious traders at say Rs 12 per kg (misuse of free supplies during Corona times on an unprecedented scale was also seen). Clearly, there are millions of better-off /non-poor availing of subsidized food. The official word on the number of poor in India is no more than 25-30%; yet the beneficiaries under NFSA are nearly two-third.
Further, since handling and distribution cost (besides MSP paid to farmers) is reimbursed to FCI and other state agencies on “actual” as food subsidy, inefficiency and inflated cost claims (including bogus) are inevitable. The ‘loaders’ getting away with monthly salary in lakhs easily pass muster under a cost-based mechanism. Reports of disappearance of food stocks in Punjab causing a loss of over Rs 20,000 crore to the exchequer in 2016 are still fresh. Such inefficiencies and irregularities have also been pointed out by the Comptroller and Auditor General (CAG) from time to time.
Meanwhile, the most deserving (poorest of the poor) continue to be deprived of their full requirement albeit at subsidized rate. This is because the supplies under the NFSA at five kg per person per month barely cover 50% of the requirement of a person which is 10 kg per month, as estimated by the National Sample Survey Organisation (NSSO). Having to buy the balance 5 kg at a very high price say Rs 30 per kg in case of wheat or rice at Rs 35-40 per kg, they are worse off.
The government has addressed only a small aspect of the problem i.e. weeding out bogus beneficiaries and that too is unlikely to be rooted out completely with use of technology alone. Besides, other problems will persist so long as the system of routing food subsidy through state agencies continues.
In early 2015, a committee under Dr Shanta Kumar, a senior BJP leader, had recognized the need to deal with non-deserving beneficiaries and restricting subsidized food only to the very poor. It recommended a cut in the number of those eligible for subsidized food from 67% to 40% and restricting the benefit of Rs 1/2/3 per kg only to the poorest of poor people under the Antyodaya Anna Yojana while increasing supply to seven kg per person. Others should pay 50% of the MSP (minimum support price) paid to the farmers.
Even as that report is lying in cold storage, the recommendations don’t address the flaws in the existing system. The way forward is to stop routing subsidy through state agencies. The government should stop supplying food at subsidized price. It should credit the subsidy directly to the beneficiary’s account. For instance, it can transfer Rs 280 per month (subsidy @Rs 28 per kg for 10 kg) to the account of poor to enable him buy 10 kg from the market by paying Rs 300/- (includes Rs 20/- from his pocket).
This will strike at the very root of diversion/pilferage/black marketing. When, grains at Rs 1/2/3 per kg are just not available, the very thought of making quick buck will be nipped in the bud. As for FCI et al while they will still be involved in purchase, handling and distribution, they will operate like any other business entity and compelled to operate efficiently and keep costs low. With private entities also allowed to directly buy from farmers, stock farm produce sans any limit (courtesy, three farm laws recently enacted by the Centre), there will be plenty of products available in market ensuring fair amount of competition enabling low price to consumers.
We will have a scenario whereby the market price of wheat could come down to say Rs 25 per kg or even less (from existing minimum of Rs 30 per kg) giving relief to everyone. Ditto for other products. It will have a deflationary impact down the line as all of processed food will cost less. There will be huge in subsidy which will be restricted only to the poor or about 300 million (down from existing 800 million) even as the government need not have to pay for any flab such as inflated cost, inefficiencies, subsidy to bogus beneficiaries etc. This will rein in fiscal deficit, and trim borrowings thereby preventing an unsustainable burden on the future generation of taxpayers.
The outcome of this approach is very promising; however its adoption will require political courage and a fundamental change in the mindset of our policy makers.