To address the plight of tens of millions workers in the ‘informal’ sector viz. street vendors, craftsmen, construction workers, domestic help, agricultural laborers, self-employed etc affected by Covid – 19, on March 26, 2020, the finance minister, Nirmala Sitharaman announced a Rs 170,000 crore package under PM Gareeb Kalyan Scheme [PMGKS]. The most crucial component of this package is giving 5 kg of rice or wheat per person per month for ‘free’ to around 80 crore people through the public distribution system [PDS] plus one kg of preferred and region specific choice of pulse per household for 3 months.
To understand the full implications of the relief which is estimated to cost the exchequer about Rs 50,000 crore, let us capture the basics of the food security system in India. Under the National Food Security Act [NFSA] in vogue since July 5, 2013, 5 kg of cereals per person per month is made available at subsidized price of Rs 3 per kg rice, Rs 2 per kg wheat & Rs 1 per kg coarse cereals to 67% of India’s population [75% rural & 50% urban] or over 80 crore persons.
It is a matter of shame that six-and-a-half decade after independence, in 2013 when NFSA was enacted, our rulers still felt that more than 80 crore people of this great country were so poor that they need be given food at throwaway price. The belief as embedded in this law [in fact, the prices were mentioned in the Act and were to remain valid for a period of 3 years from the date of its commencement] also mocks at the official claim that India has achieved big success in bringing a large number of people above the poverty line; that the number of poor persons is just about 25-30% of the population.
Be that as it may, the government continues to believe that the interest of a vast majority [read: 80 crore persons] can be fully safeguarded by not allowing any increase in the price. This is abundantly clear from a statement by Union Minister for Consumer Affairs, Food & Public Distribution, Ram Vilas Paswan in 2017 that “the Government will not affect any increase in issue prices for food-grains under the NFSA till June, 2018”. This was made at a time when the executive was unshackled from the bounds of law.
True to that commitment, till date, the price remains unchanged. But, has this safeguarded the poor? The answer lies in recognizing a vital fact which often gets ignored.
The supplies under NFSA at low [albeit subsidized] price at 5 kg per person per month barely covers 50% of his/her requirement which is 10 kg per month estimated by National Sample Survey Organization [NSSO]. This forces him/her to buy the balance quantity from the market at much higher price. That price being equal to the cost of procurement, handling and distribution [in case of rice, at least Rs 35 per kg] is more than 10 times the subsidized price.
As a consequence, whatever benefit the government seeks to give to consumers by keeping price low on sale of certain quantity [read: 5 kg], that is more than offset by their having to pay many time more on purchase the balance 5 kg from the market. For buying 10 kg being his requirement for a month, the poor has to spend a total of Rs 190/- [(5×3)+(5×35)]. The effective price paid by him/her is Rs 19/- per kg instead of Rs 3/- per kg – a sense one gets by a plain reading of the NFSA.
The poor is also getting hit in another way. All along, the government has taken recourse to increasing minimum support price [MSP]. While, this is meant to incentivize farmers produce more, this leads to a collateral damage. The increase in MSP leads to increase in the cost of supplying food which triggers hike in the market price implying that the poor will need to spend more on the quantity bought from the market place.
The decision of government to give 5 kg of rice or wheat per person per month to 80 crore people for ‘free’ over and above 5 kg they are already getting under NFSA will meet their requirement in full thereby obviating the need for them to buy deficit quantity from the market [albeit at higher price] as there is none. But, this is a mere coincidence; not intended as conscious policy move to remove the anomaly. It’s a response to Corona-crisis even as the additional free quantity will be available only for 3 months.
Can the government give additional quantity for the whole year, or total of 10 kg per person per month at Rs 1/2/3 per kg. This will remove the anomaly, but this will be at a huge cost as then the food subsidy [excess of cost of supply over the issue price multiplied by total quantum of sale under NFSA] will double from existing Rs 219,000 crore during 2019-20 [Rs 109,000 crore revised estimate (RE) plus Rs 110,000 crore borrowings by Food Corporation of India (FCI) on behalf of the sovereign government]. This is unacceptable.
How can the food requirement of the poor be met in full without entailing additional burden on the exchequer? How can the two objectives be reconciled? What is the way forward?
To get there, we need to recognize that 80 crore people – the government currently targets for giving subsidized food under NFSA – includes millions of better-off/higher income persons who don’t deserve. This was duly accepted in early 2015, when a committee headed by Shanta Kumar, senior BJP leader recommended (a) reduction in coverage under NFSA from existing 67% to 40%; (b) restricting the eligibility of subsidized food @ Rs 1/2/3 per kg only to the poorest of poor persons under the Antyodaya Anna Yojna [AAY] and increasing their entitlement from 5 kg per month to 7 kg per month; (c) making the rest pay 50% of MSP paid to farmers. The committee had also mooted increased focus on decentralized procurement and distribution of food – especially in surplus producing states – besides participation of private sector in its marketing.
Adoption of committee’s recommendation (a) can take off 27% of the population or 35 crore and resulting savings can be used to give additional quantity at subsidized price to those who really need [as per recommendation (b)]. Even after this utilization, there will be substantial quantities which agencies need not buy thereby help in reducing the subsidy burden. Likewise, action on (c) can help reduce subsidy as to all beneficiaries other than under AAY as the issue price will be Rs 14 per kg rice [current MSP for paddy Rs 18 per kg x1.5 (kg paddy needed for extracting 1 kg rice)x0.5] instead of Rs 3 per kg.
Despite the promised big gains, the government has not acted upon the recommendations even as the country is saddled with millions of under-fed poor, subsidized food cornered by millions of undeserving, unsustainable high subsidy, inefficiency in handling and distribution by state agencies, misuse of subsidy etc.
These maladies are germane to the existing dispensation of controls on almost every aspect of food supply chain. When, subsidized food is available at a fraction of the cost/market price, there is huge incentive for dubious operators to siphon-off. When, handling and distribution cost [besides MSP paid to farmers] is reimbursed to agencies on ‘actual’ as food subsidy, inefficiency and inflated cost claims [including bogus] are inevitable. When, millions of the rich/better-off are also made beneficiaries under NFSA, subsidy is bound to balloon.
The implementation of Dr Shanta Kumar could have made some headway in diluting the bite of these flaws but are far from erasing them as the basics of the dispensation remain intact. Meanwhile, all that the government has done so far is to put in place a nation-wide program of monitoring transactions at fair price shops [FPSs], installation of electronic point of sale (ePoS) machines and Aadhaar-seeding of ration cards. These steps can at best help in reining in bogus sales at the retail level and some saving in subsidy.
To achieve drastic outcome in terms of higher efficiency, lower cost, prevention of misuse and saving in subsidy, there is an urgent need to remove all controls, allow participation of private entities in procurement and distribution, make way for competitive markets and give subsidy directly to beneficiaries using DBT [direct benefit transfer] mechanism. The subsidy should be restricted only to the poor which is no more than 25-30% of the population.
Will Corona – led crisis wake up the political class from deep slumber into implementing this long-pending reform?