Baba’s Explainer – Free Foodgrain Scheme

  • IASbaba
  • January 6, 2023
  • 0
Economics, International Relations
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  • GS-3: Public Distribution System- objectives, functioning, limitations, revamping
  • GS-3: Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Context: 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).
What was Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY)?
  • It was introduced by the Narendra Modi government during the first nationwide lockdown due to  Covid-19 in March 2020.
  • Under this scheme, the center provides 5kg of free food grains per month to the poor. This is in addition to the subsidized ration provided under the National Food Security Act (NFSA) to families covered under the Public Distribution System (PDS).
  • The scheme which can be availed through the One Nation One Ration Card (ONORC) plan was first introduced from April to June 2020 during the stringent lockdown in India and has been extended six times ever since
  • Its nodal Ministry is the Ministry of Finance.
  • The overall expenditure of PMGKAY will be about Rs. 3.91 lakh crore for all the phases.
  • It was initially announced for a three-month period (April, May and June 2020), covering 80 crore ration cardholders. Later it was extended till September 2022.
What is National Food Security Act (NFSA), 2013?
  • It was 10 September, 2013.
  • Objective: To provide for food and nutritional security in the human life cycle approach, by ensuring access to adequate quantities of quality food at affordable prices to people to live a life with dignity.
  • Coverage: 75% of the rural population and upto 50% of the urban population for receiving subsidized foodgrains under Targeted Public Distribution System (TPDS).
    Overall, NFSA caters to 67% of the total population.
  • Eligibility:
    • Priority Households to be covered under TPDS, according to guidelines by the State government.
    • Households covered under existing Antyodaya Anna Yojana.
  • Provisions:
    • 5 Kgs of foodgrains per person per month at Rs. 3/2/1 per Kg for rice/wheat/coarse grains.
    • The existing AAY household will continue to receive 35 Kgs of foodgrains per household per month.
    • Meal and maternity benefit of not less than Rs. 6,000 to pregnant women and lactating mothers during pregnancy and six months after the child birth.
    • Meals for children upto 14 years of age.
    • Food security allowance to beneficiaries in case of non-supply of entitled foodgrains or meals.
What is the fiscal impact of government’s latest decision of providing free foodgrains under NFSA?
  • 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.
What is the impact of latest decision on foodgrain stocks?
  • 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.
  • 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.
  • Continuing the PMGKAY would have been unsustainable without further increasing procurement levels.
  • 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 is estimated 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.
What is the impact of latest decision on beneficiaries?
  • 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 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.
  • 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.
What are the political implications of the free foodgrain decision?
  • This is definitely a political move. 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.
  • However, 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. This is because the government can ill afford to roll back free foodgrains in 2024, in the run-up to general election.
  • 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.
  • 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, it is suggested 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.

Main Practice Question: With income levels increased since liberation period, do you think that government should continue to provide highly subsidised food grains through its public distribution? Discuss.

Note: Write answer his question in the comment section.

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