Context: Regime of highly ineffective food and fertiliser subsidies must be reformed. Government needs to summon the courage to bite the bullet, ensure enough lead time to prepare for proper implementation.
Background
- The world has made tremendous progress in increasing food production by large-scale adoption of better seeds, more irrigation, and higher doses of fertilisers and pesticides. Farm machinery has become more efficient.
- All this could not have been done without increasing incentives to farmers — input subsidies, higher prices for their produce, or a mix of some of the two.
Government Initiatives
- National Food Security Act (NFSA), 2013: It was to cover roughly two-thirds of the Indian population in providing rice, wheat or coarse grains (5kg/person/month) at Rs 3/kg, Rs 2/kg, and Rs 1/kg, respectively.
- These prices could be revised upwards after three years of the Act, keeping in view the ballooning magnitude of food subsidy on account of this Act, and the overall finances of the government.
- Targeted PDS: Under that scheme, the antyodaya (most vulnerable) people got free food, while those above that had to pay at least half the minimum support price (MSP) being paid to the farmer, and those above the poverty line had to pay 90% of MSP.
Challenges with Food Security Schemes
- Fiscal Burden: Huge beneficiary base as the scheme covers roughly 66% of the population, whereas the Rangarajan Committee estimated the headcount poverty ratio at about 29%. This wide coverage puts a huge fiscal burden on the government. As a result, food subsidy is the largest subsidy in the Union budget.
- Reduces Fiscal Space for Capital Investments: Along with fertiliser subsidy, it cuts down much more rational and productive investments in agri-food space, such as in agri-R&D, precision agriculture, micro-nutrients, women’s education and sanitation. These investments are almost 10 times more effective in ensuring the food and nutritional security of our people than free food and highly subsidised fertilisers and power.
- Incentivises Corruption: Subsidies, when they are abundant and almost open-ended, become an instrument of corruption. ICRIER research shows that a substantial part (almost 25-30%) of these two subsidies, food and fertilisers, never reaches the intended beneficiaries. If one looks at the inefficiency in the use of these two subsidies, and adds that to the leakages, the overall loss easily goes to 40-50% of the total amount of resources being spent on them.