The article highlights the factors governing the food subsidy bill and suggests ways to reduce it.

Growing food subsidy bill

• The Economic Survey, tabled in Parliament in January, rightly flagged the issue of a growing food subsidy bill.
• During 2016-17 to 2019-20, the subsidy amount, clubbed with loans taken by the Food Corporation of India (FCI) under the National Small Savings Fund (NSSF) towards food subsidy, was in the range of ₹1.65-lakh crore to ₹2.2-lakh crore.
• In future, the annual subsidy bill of the Centre is expected to be about ₹2.5-lakh crore.
• During the three years, the quantity of food grains drawn by States (annually) hovered around 60 million tonnes to 66 million tonnes.
• The National Food Security Act (NFSA) 2013, covered two-thirds of the country’s population, this naturally pushed up the States’ drawal.
• Based on an improved version of the targeted Public Distribution System (PDS), the law requires the authorities to provide to each beneficiary 5 kg of rice or wheat per month.

How politics influenced the issue price

• Economic Survey has hinted at an increase in the Central Issue Price (CIP).
• Central Issue Price has remained at ₹2 per kg for wheat and ₹3 per kg for rice for years, though the NFSA, even in 2013, envisaged a price revision after three years.
• What makes the subject more complex is the variation in the retail issue prices of rice and wheat, from nil in States such as Karnataka and West Bengal for Priority Households (PHH) and Antyodaya Anna Yojana (AAY) ration card holders.
• In Tamil Nadu, rice is given free of cost for all categories; this includes non-PHH.
• A mere increase in the CIPs of rice and wheat without a corresponding rise in the issue prices by the State governments would only increase the burden of States.
• Political compulsions are perceived to be coming in the way of the Centre and the States increasing the prices.

Relook at food subsidy system

• An official committee in January 2015 called for decreasing the quantum of coverage under the law, from the present 67% to around 40%.
• For all ration cardholders drawing food grains, a “give-up” option, as done in the case of cooking gas cylinders, can be made available.
•  Even though States have been allowed to frame criteria for the identification of PHH cardholders, the Centre can nudge states into pruning the number of such beneficiaries.
• As for the prices, the existing arrangement of flat rates should be replaced with a slab system.
• Barring the needy, other beneficiaries can be made to pay a little more for a higher quantum of food grains.

Consider the question “There is a pressing need for revamping the food subsidy system. In light of this, suggest the measures to improve the system.”

Conclusion

These measures, if properly implemented, can have a salutary effect on retail prices in the open market. A revamped, need-based PDS is required not just for cutting down the subsidy bill but also for reducing the scope for leakages. Political will should not be found wanting.

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