Relevance: GS-3: Issues related to direct and indirect farm subsidies and minimum support prices; Public Distribution System- objectives, functioning, limitations, revamping; issues of buffer stocks and food security

Key phrases: Food subsidies, TPDS, Food security act 2013, Transparency, WTO, FCI

Why in News?

• The Centre’s food subsidy is set to fall 30 per cent to ₹3.72 lakh crore in 2021-22 fiscal from ₹5.29 lakh crore in FY21,as per latest statement from the government. The current year’s subsidy also includes about ₹1.47 lakh crore to be spent only on the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY).

What is Food Subsidy?

• Food subsidy is provided by the Central government in the budget of the Department of Food and Public Distribution to meet the difference between the economic cost of food grains and their sales realisation at central issue prices for Targeted Public Distribution System and other welfare schemes.
• In addition, the central government also procures food grains for meeting the requirements of buffer stock. Hence, part of the food subsidy also goes towards meeting the carrying cost of buffer stock.
• The subsidy is provided to the Food Corporation of India, which is the main instrument of the government for procurement and distribution of wheat and rice under TPDS and other welfare schemes and for maintaining the buffer stock of food grains as a measure of food security.

Components of Food Subsidy:

Expenditure on food subsidy can be classified under three heads:

• Subsidy to FCI: The Food Corporation of India (FCI) receives subsidy for procuring food grains from farmers at government notified prices and selling them at lower subsidised prices. It also receives subsidy for the storage cost incurred in maintaining buffer stocks.
• Subsidy to states: Under the decentralised procurement scheme, states may choose to undertake the operations of procurement, storage, and distribution on behalf of FCI, for which they are provided with subsidy.
• Sugar subsidy: Sugar subsidy is provided for giving one kg of sugar per month at subsidised rates to families covered under the Antyodaya Anna Yojana (i.e., poorest of the poor families).

Food Subsidy in last Decade:

• Food subsidy is the largest component of the Department’s expenditure. It accounts for 95% of the allocation to the Department in 2020-21.
• The expenditure on food subsidy increased from Rs 63,844 crore in 2010-11 to Rs 1,39,419 crore in 2015-16.
• However, since 2016-17, spending on food subsidy by the Department has comparatively decreased, as a major part of the funds allocated for food subsidy remain unspent (40% of the budget allocation was not utilised in 2018-19).
• This underspending by the Department has increased over the years, even though the actual requirement of funds for food subsidy being higher than the amount it spends.
• This gap can be bridged if more funds are spent by the Department for food subsidy. To fill this gap in the meanwhile and meet the cost incurred each year in subsidising food, FCI relies on borrowings.

Various Factors Affecting Food Subsidy in India:

• Rising Minimum Support Prices: One of the important factors behind rising subsidy is high food prices in domestic and world markets. Although some of the factors are structural and cyclical but in the short term, a continuing trend of high and volatile food prices is likely in developing Asia and need urgent attention.
• Pending dues of FCI: The central government provides food subsidy to FCI as reimbursement of the loss it incurs in its procurement, storage, and distribution operations.
• Leakages in PDS: Leakages refer to food grains not reaching intended beneficiaries. Note that recent public data on leakage is not available. The latest available data is for 2011. According to the 2011 data, leakages in PDS were estimated to be 46.7%.
• Exclusion errors occur when entitled beneficiaries do not get food grains. It refers to the percentage of poor households that are entitled to but do not have PDS cards. Exclusion errors had declined from 55% in 2004-05 to 41% in 2011-12 (Figure 8).
• Inclusion errors occur when those that are ineligible get undue benefits. Inclusion errors increased from 29% in 2004-05 to 37% in 2011-12.
• The PDS dealers are sometimes found resorting to malpractices like diverting the grains to open market for more profit.

Reason For Decrease in Food Subsidy:

• Move to increase transparency: This is a move to increase transparency, bringing a subsidy expenditure back on the government’s books. It’s an accounting adjustment that will help reflect the government’s debts and current financial state more accurately.
• Automation at the Fair Price Shops is another important step taken to address the problem in PDS. Currently more than 4.3 lakh (82%) Fair Price Shops have been automated across the country. Automation involves installation of Point of Sale (PoS) devices, for authentication of beneficiaries and electronic capturing of transactions.
• Replacing the Targeted Public Distribution System (TPDS) with Direct Benefit Transfer (DBT) of food subsidy.
• Digitalization of Ration card
• A proper and effective grievances redressal system for both the fair price shops as well as beneficiaries.

Source: The Hindu BL

Mains Question:

Q. The Centre’s food subsidy is set to fall 30 per cent to ₹3.72 lakh crore in 2021-22 fiscal from ₹5.29 lakh crore in FY21. In this context explain food subsidy and its components. Discuss various measures of government for effective utilization of food subsidy? Illustrate.