The story so far:
In a Cabinet decision on December 23, the Centre decided to provide 5 kg of free foodgrains per month for the 81 crore beneficiaries of the National Food Security Act (NFSA) during 2023, rather than charging them a subsidised amount of ₹3 a kg of rice, ₹2 a kg of wheat and ₹1 a kg of coarse cereal as is currently done. This will soften the blow of the termination of the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), which has provided an additional 5 kg of free grains every month to NFSA beneficiaries after being launched as an emergency measure in response to the COVID-19 pandemic in April 2020 and received multiple extensions since.
What is the impact of this measure on the food subsidy bill?
In a normal year, without COVID disruptions, the Centre’s food subsidy bill on account of the NFSA amounted to around ₹2 lakh crore. The PMGKAY effectively doubled that sum for the past two years. Now that the Centre plans to give free foodgrains under the NFSA for a year, it will spend an additional ₹15,000 crore to ₹16,000 crore on that. However, the Centre will save around ₹2 lakh crore by ending the PMGKAY scheme. Overall, the move will relieve a major burden on the Union Budget.
Editorial | A welcome move: On the free grains scheme under food security law
What does this mean for foodgrain stocks?
Experts point out that the move will be even more of a relief for stressed foodgrain stocks. The annual foodgrain requirement for the NFSA is about 520 lakh tonnes, while the PMGKAY required an additional 480 lakh tonnes, according to Food Ministry officials. (The difference comes from the fact that the poorest families coming under the Antyodaya Anna Yojana category received 35 kg a family every month under the NFSA, but received 5 kg per person under the PMGKAY.) At the time when the PMGKAY was launched, foodgrain production, government procurement and government stocks were regularly breaching record levels.
In 2022, however, the situation is different. Rice and wheat harvests have both been lower this year, hit by climatic events and fertilizer shortages in some areas. The global stress due to the Russia-Ukraine war has also led to a situation of high foodgrain inflation.
India’s wheat stocks in particular, have dipped dangerously close to the required buffer stock levels, with the Centre resorting to a ban on exports to ensure food security for the domestic market.
It has also been forced to substantially reduce wheat allocations under the Public Distribution System, and substitute wheat supply with rice in States such as Uttar Pradesh and Bihar. Continuing the PMGKAY would have been unsustainable without further increasing procurement levels.
Former Agriculture Secretary Siraj Hussain estimates that the Central pool may have just 159 lakh tonnes of wheat on January 1, 2023, barely above the buffer norm of 138 lakh tonnes. “At the end of the day, continuing PMGKAY was more a problem of grain, not cash. If procurement is not high enough, how can it be continued?” he said. The government also needs wheat for the open market sale scheme, he added.
What are the political implications?
“This is definitely a political move,” says economist Pronab Sen, a former Chief Statistician of India. “A purely economic decision here would have been to end the PMGKAY, which was always meant to be a temporary measure, and return to a normal pre-COVID situation. But this free foodgrain announcement is damage control, to combat any adverse fallout from ending PMGKAY,” he added.
If this announcement was meant to dampen backlash against the end of the PMGKAY, it is unclear what will happen at the end of 2023, when the free foodgrain measure is set to end. “Of course, this will have to be continued beyond one year. What government can afford to roll back free foodgrains in 2024, in the run-up to general election?” Mr. Hussain said.
The more subtle political fallout will be in the States, especially those such as Tamil Nadu, Kerala, Karnataka, West Bengal and Jharkhand, which all provide free foodgrains anyway, using their own money to further subsidise the Central allocation. A handful of others such as Andhra Pradesh, Chhattisgarh, Odisha and Telangana also provide further subsidies, though their ration is not completely free.
“This will give them a financial surplus, but it takes away an important political plank for States. The Centre will now take full credit for something they had been providing previously,” Dr. Sen said. It is also unclear whether States or Centre will now bear the cost of transportation of foodgrains.
A senior food official in Tamil Nadu estimated that the State is set to save more than ₹1,300 crore through the Centre’s announcement. “Tamil Nadu already provides universal food security. The focus now needs to be on nutrition security. If the States do not already do so, I would suggest that they spend their new savings on providing subsidised or free pulses, spices or edible oil through the public distribution system in addition to foodgrains,” the official said.
How will it impact beneficiaries?
Leaving aside government budgets, household budgets could be upended by the move. The Right to Food Campaign estimates that poor families will be forced to spend ₹750-₹900 a month to access the current level of ration entitlement.
Ration card holders who have received 10 kg of grains a person every month for the past two years will see their entitlement abruptly halved. Of course, their expenditure on their NFSA entitlement will also come down — for instance, someone spending ₹8 for four kg of wheat and ₹3 for a kg of rice under NFSA will now get those grains free, saving ₹11 a month. However, that is dwarfed by the additional ₹150-₹175 they will need to spend to buy the 5 kg previously provided free under the PMGKAY in the open market (estimating market prices for rice and wheat at around ₹30-₹35 per kg).
The increased expenditure will be even more stark for those in States which anyway provide free NFSA rations, since beneficiaries in those States will not even receive any savings due to the Centre’s announcement. However, the consumption of foodgrains as part of a meal varies substantially by State, ranging from about 200 gm per person a day in Kerala to 400 gm in Bihar, and the impact of the move is thus likely to be the highest in the Hindi heartland States where grains make up a higher proportion of the diet.
- The Centre has decided to provide 5 kg of free foodgrains per month for the 81 crore beneficiaries of the National Food Security Act (NFSA) during 2023, rather than charging them a subsidised amount as is currently done.
- The move will relieve a major burden on the Union Budget, saving the Centre around ₹2 lakh crore by ending the PMGKAY scheme.
- However, household budgets could be upended by the move. The Right to Food Campaign estimates that poor families will be forced to spend ₹750-₹900 a month to access the current level of ration entitlement.
Published - January 01, 2023 02:03 am IST
