What constitutes Food subsidy? Food subsidy comprises of (i) subsidy provided to FCI for procurement and distribution of wheat and rice under NFSA and other welfare schemes and for maintaining the strategic reserve of food grains and (ii) subsidy provided to States for undertaking decentralized procurement. The acquisition and distribution costs of food grains for the central pool together constitute the economic cost.
The Food subsidy bill is calculated as the difference between Economic cost of Food grains and Central Issue price (CIP).
Increase in Food Subsidy Bill: The food subsidy bill has increased from 1.2 lakh crores in 2014-15 to 1.7 lakh crores in 2018-19. In order to pay the food subsidy bill, the Government has been borrowing from National Small savings Fund (NSSF) through the issuance of special G-Secs.
REASONS FOR INCREASE IN FOOD SUBSIDY BILL
INCREASE IN ECONOMIC COST OF FOOD GRAINS
- Higher coverage of beneficiaries under NFSA as compared to erstwhile TPDS
- Increase in MSP (Increase of one unit in real MSP leads to 0.48 unit increase in real economic cost procurement)
- Higher procurement of food grains as against the stocking norms (due to Open Ended procurement Policy)
- Increase in storage cost
PROBLEMS WITH CENTRAL ISSUE PRICE (CIP)
- The CIP for NFSA beneficiaries has not been revised from Rs 200/quintal in case of wheat and Rs 300/quintal in case of rice. These rates were fixed under the Act initially for a period of three years from the date of commencement of the Act and thereafter were to be fixed by the Central Government from time to time, while not exceeding the minimum support price. However, it has not been revised since 2013. This has resulted in widening of the gap between the economic cost and CIP
- Uniform CIP for BPL and APL households
RECOMMENDATIONS TO IMPROVE PDS
- NITI Aayog: Reduce the percentage of beneficiaries under NFSA in the rural (from 75% to 60%) and urban areas (from 50% to 40%). Accordingly, the number of beneficiaries under the NFSA will drop from 81 crores to 71 crores. This will lead to annual reduction in the Food subsidy bill by Rs 48,000 crores.
- Shanta Kumar Committee:
- Need for End-to-End Computerization: Given that leakages in PDS range from 40 to 50 percent, Government should defer implementation of NFSA in states that have not done end to end computerization.
- Reducing the Coverage: Reduce the current coverage of 67% of the population under NFSA to 40% (comfortably cover BPL families and some even above that)
- Increasing the Food grains: The amount of food grains should be increased to 7kg/person from the present 5kg grain per person.
- Pricing: Antyodaya households can be given grains at Rs 3/2/1/kg for the time being, but pricing for priority households must be linked to MSP, say 50 percent of MSP
- Economic Survey 2019-20: The Central Issue price (CIP) should be revised upwards; Coverage of the beneficiaries under NFSA should be reduced.