November 10, 2023
Good morning. In today’s either/view, we discuss whether continuing the free food grain scheme is a good idea.
📰 FEATURE STORY
Is continuing the free food grain scheme a good idea?
How does a government ensure tens of millions of people don’t go hungry? What would such an undertaking look like? How much would it cost? The answers to these questions aren’t exactly straightforward. There’s a lot of logistics and economics at play. There’s also legislation. Ultimately, the government needs to feed millions, and it has worked on it.
The Union government recently announced that its free ration food scheme, aka the PM Garib Kalyan Anna Yojana (PMGKAY), will be extended for another five years. That’s good news for millions who depend on the scheme for sustenance. However, questions remain on whether this is the right approach. What’s the financial burden going to be?
Context
2023 marks a decade since the enactment of the National Food Security Act (NFSA) in 2013. This is where we need to begin. The NFSA was a significant moment for India’s food security. The fundamental shift was from a welfare to a rights-based approach. It outlined a legal framework for benefits under existing schemes like Mid Day Meal and the Targeted Public Distribution System (TPDS).
Concerning food grains, the Act entitled 50% of urban and 75% of the rural population to 5 kg of foodgrains at subsidised prices. With the life-cycle approach, there are special provisions for pregnant and lactating mothers and children entitled to free nutritious meals through Integrated Child Development Centres (ICDS). All in all, about two-thirds of the population is covered under the NFSA.
Food security in India has been a somewhat one-step forward two steps back story. Despite successive governments’ policy interventions, it remains a challenge. Explanations range from capacity issues to supply-demand mismatches. The NFSA in 2013 meant India followed in the footsteps of Brazil and South Africa in recognising the right to food as an inalienable right.
As India grappled with the COVID-19 pandemic, it was evident that millions would be affected by job losses and financial instability. In March 2020, the government decided to act and initiated an emergency scheme called the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY). It promised 5 kg of wheat or rice for free to around 800 million people.
You can look at the PMGKAY as an extension to the NFSA. The difference, of course, is that the PMKGAY provided free instead of subsidised food grains. The PMGKAY was initially meant for 8 months, but the government extended it seven times. It wasn’t cheap. According to the 2020-21 Economic Survey, it increased the government’s expenses on food subsidies by 70%. To continue funding it, the government allocated an additional ₹1.15 lakh crore in the 2021-22 budget partially for the PMGKAY.
In January this year, the government decided to go a step further. They launched a new integrated food security scheme for one year under the NFSA. This cost an additional ₹2 lakh crore. Apart from ensuring food security, the government also looked at rising inflation and wanted to provide some relief.
Recently, the Prime Minister announced an extension of this scheme for another five years. Given the costs, is it the right call?
VIEW: Minimal fiscal impact
The fundamental argument for not extending the scheme for five years is economic. It’s a valid concern, but the government isn’t worried. The messaging from them is a minimal fiscal burden. Based on current beneficiary data, some estimates say the extension could cost about ₹2 lakh crore in the current fiscal and ₹2.55 lakh crore in the 2029 fiscal. If we assume the quantity doesn’t change and the number of beneficiaries remains about the same, only the annual cost might change.
Broadly speaking, the extension’s impact on the overall subsidy bill and the fiscal deficit will be limited since the government has already accounted for a majority of the cost in the budget. The government has also covered its bases on other related fronts. The Food Corporation’s resources were increased to ₹1.45 lakh crore in FY 2024. The government’s export bans could continue to keep procurement costs in check.
While there are concerns about growth, the Indian economy remains relatively robust. If there’s high growth and low unemployment, market forces will take care of food security issues. We need to keep in mind that the pandemic resulted in nearly 200 million slipping into poverty. The PMGKAY can provide poorer households with tacit income support.
COUNTERVIEW: Need to assess risks
There’s no doubt that millions in the country need these free or subsidised food grains. However, some questions need to be looked at. Let’s begin with how many actually need them. We haven’t had a census since 2011, so we don’t have any data on that front. Clearly, the goal is to ensure more people have access to these food grains. A better approach would be a direct benefit transfer, especially for those who aren’t very poor.
When the PMGKAY was announced earlier this year, some said it was politically motivated and didn’t do much. You could argue the same for the recent 5-year extension. It’s election season, after all. But the politics aside, the scheme has a major flaw – lack of universal coverage. Ration records haven’t been updated since the 2011 census. According to some estimates, about 40% of the population is excluded from the NFSA and PMGKAY. In many villages, the most marginalised communities, including migrants and the homeless, don’t have NFSA ration cards.
The economics at play can’t be ignored. The new integrated food scheme is expected to cost ₹1.68 lakh crore annually. That means the government will need to spend over ₹8 lakh crore over the next five years. You combine this with other food-related welfare schemes, and the government will most likely spend ₹2 lakh crore or more annually over the next five years. That’s elevated costs compared to historical prices.
Procurement costs aren’t likely to decrease in the future. The economic costs of rice and wheat grew by 5.7% annually over the past seven years. This doesn’t take into account leakages in the PDS. So that’s the dilemma – the need for subsidised food grains for millions of households is undeniable, but announcing free schemes like this could only lead to competitive populism.
Reference Links:
- All about National Food Security Act 2013 – India Today
- Hunger and Malnutrition in India after a Decade of the National Food Security Act, 2013 – NLS
- India’s free food policy dilemma – East Asia Forum
- Free Food Grain Scheme Extension: Limited Impact In FY24, Adds To Medium-Term Risk, Say Economists – Bloomberg
- Poll timing: On the extension of the Pradhan Mantri Garib Kalyan Anna Yojana – The Hindu
- Extension of free foodgrain scheme: India needs to diversify the diets of the poor – Moneycontrol
What is your opinion on this?
(Only subscribers can participate in polls)
a) Continuing the free food grain scheme is a good idea.
b) Continuing the free food grain scheme is a bad idea.