Food Subsidy for Thought

Why in News?

• The government recently decided to discontinue the free-food scheme namely Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) that was started during the Covid pandemic, citing improved economic situation and eased restrictions.
• It also announced to distribute food grains for free for one year from January 2023 under the Public Distribution System (PDS) of National Food Security Act (2013) in a move to shield the poor from the effects of termination of PMGKAY.
• With India's deficit being the highest among G20 countries, the article tries to figure out whether the government's decision is a sound policy.

 

Background

• Even after the economy has recovered from the pandemic, the fiscal deficit remains large.
• The deficit of the Centre and states put together is likely to be around 10% of GDP this year (the deficit of the Centre alone is budgeted to be 6. 4% of GDP), the highest among G20 countries.
• This necessitated government’s move for terminating the PMGKAY that was aimed at giving relief to vulnerable sections of population impacted by stagnation in non-agricultural growth during the pandemic.

 

About the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY)

• In April 2020, the Union government announced the Yojana under which an extra 5 kg of free food grains (wheat or rice) was provided per person, per month to all families holding a ration card in addition to the NFSA entitlement.
  • Therefore, ration card holders were entitled to 10 kg ration per person.
• It was initially launched for three months from April 2020 till June 2020 (Phase I) and then extended several times. It is in its final, seventh phase now and will end on 31^st December, 2022.
• The scheme covered about 35 crore people over a span of 2 years.

 

National Food Security Act, 2013 (NFSA)

• Under this, all priority category ration card holders are entitled to 5 kg of grain per person per month and the Antyodaya category cardholders to 35 kg of grain.
• The NFSA caps the price at ₹3 per kg of rice and ₹2 per kg of wheat and coarse grains at Rs 1 per kg, thus making access to subsidized grain a legal right to 67% of the population (75% in rural areas and 50% in urban areas), based on the population figures of Census 2011.

 

Arguments supporting government’s move

• Enhanced savings: The free food grain distribution under PM-GKAY has costed government nearly $47 billion, which is fiscally inviable.
  • The government will save at least $20 billion over the next 12 months by ending PMGKAY, as they will only spend on one food scheme (NFSA) instead of multiple programmes.
• Alleviate inflation concerns: The government was struggling to manage the wheat stockpile due to additional distribution of wheat under PMGKAY and the prices in the local market jumped to the record high.
  • Thus, discontinuing scheme means the government can now sell 2 to 3 million tonnes in the open market to stabilize prices.
• Depletion of buffer to ease: A monthly ration of 10 kg (5 kg each under NFSA and PMGKAY) for 81.35 crore persons translates into nearly 100 million tonnes (mt) or over a third of India’s total cereal production.
  • Termination of PMGKAY had become inevitable as buffer stocks of both wheat and rice have depleted considerably in the last one year by 50% and 45%, respectively.
  • The current stocks of rice and wheat in the Central pool, at 55.46 mt on 1^st December 2022, are one third than a year ago.
  • Thus, ending PMGKAY will ease the pressure on foodgrain stocks under the central pool.
• People can afford as the economy normalise: It is unviable to provide free food grains to people who could afford to pay with normalising economic activity.
• Balanced move: The recent free entitlement under NFSA amounts to roughly half of the average monthly per capita cereal consumption as per the last National Sample Survey data for 2011-12, which can be considered reasonable.

 

Arguments against government’s move

• Fiscally unsustainable: The Union government bearing the entire cost of Rs 2 lakh crore to give rations free for the next 12 months, citing food security concerns could put immediate pressure on the public purse.
  • It also commits the government to a scheme that makes it more difficult to achieve medium term fiscal consolidation targets.
• Unviable post-pandemic plan: The free foodgrain under NFSA implies that food subsidy will go up and will increase the fiscal burden compared with the pre-pandemic times, because:
  • The selling prices of PDS grains have been reduced to zero
  • The quantities provided have been increased
• Politically unviable: In the past, the government could reduce the budget deficit by raising the prices at which food grains were distributed through PDS.
  • However, now it will be difficult for the government to go back to charging a subsidised price for food grains, ever again after making it free now.
• Implications for agricultural policy: This announcement will have repercussions for overall agricultural policy as the government will be more constrained as far as raising the minimum support price (MSP) is concerned.
  • This is because raising the MSP could squeeze its budget further as it will procure the grains at a higher price and then distribute them for free.
  • If the government does not raise the MSP, the farmers’ income will fall in real terms and they may decide to sell to the free market rather than the government that could lead to a shortage of foodgrain stock with government.

 

What can be done?

• In a bid to counter-balance the effects of terminated PMGKAY and slowing global economy, enhanced outlays towards existing rural schemes such as NREGS (National Rural Employment Guarantee Scheme), PM-KISAN, PM Awas Yojana – Gramin, etc., should be allocated in the forthcoming 2023-24 Union Budget.
• Also, all farm price support and input subsidies should be replaced with per-hectare income transfers, which will complement the limited grain entitlement for poor and vulnerable consumers under the NFSA.

 

Conclusion

• Every economic policy comes with costs and benefits. A careful weighing of short, medium and long-term benefits versus costs (both economic and social) in the case of free food grains policy must determine its longevity.

 

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Q1) What was the aim of the Pradhan Mantri Garib Kalyan Anna Yojana?

The Pradhan Mantri Garib Kalyan Yojana 2020 aims to provide relief to different sections of the society such as migrant workers, farmers, urban & rural poor and women. The govt. identified sections that were hit the hardest amid COVID-induced economic disruptions.

 

Q2) What is the minimum support price?

The MSP is the price at which the government is supposed to procure/buy that crop from farmers if the market price falls below it. As such, MSPs provide a floor for market prices, and ensure that farmers receive a certain minimum remuneration so that their costs of cultivation (and some profit) can be recovered.

 

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Source: Food subsidy for thought: With India’s deficit highest among G20 nations, the budget must chart a clear consolidation path