Rising Food Subsidy Budget - NFSA

What is the issue?

• The implementation shortfalls in National Food Security Act are leading to high food subsidy budget for the Centre.
• It needs drastic measures to check the spike in food subsidy budget and address fiscal burden.

What is the NFSA?

• The NFSA (National Food Security Act) replaced the Targeted Public Distribution System (TPDS).
• It significantly expanded the coverage of beneficiaries than before.
• The beneficiaries are entitled to subsidised foodgrains (5 kg per head per month).
• Post the NFSA period, the above poverty line (APL) and below poverty line (BPL) categories under the TPDS have been done away with.
• The objective is food and nutritional security by ensuring access to adequate quantity of quality food at affordable prices.

What is the concern now?

• It is more than 5 years since the passage of the National Food Security Act (NFSA), 2013.
• But the task of supplying highly subsidised foodgrains to the 81 crore people under the PDS is still challenging for the government.
• NFSA has gradually turned out to be a huge financial burden with mounting burden of food subsidy budget.
• This is compounded by the huge surplus grain (rice and wheat) stocks currently held by the Food Corporation of India (FCI).

What are the policy shortfalls?

• Procurement - Open-ended procurement operations is carried out by the FCI and state government agencies.
• This is for purchasing paddy and wheat from farmers by paying minimum support prices (MSP).
• The broad objective is to ensure MSP to farmers and availability of foodgrains to weaker sections at subsidised prices.
• This results in excess procurement of foodgrains against the requirement for the implementation of the NFSA.
• E.g. the FCI and state agencies procured 69 million tonnes (MT) of foodgrains  in both rabi and kharif seasons (2017-18)
• However, the off-take of foodgrains by states (for the NFSA) during 2017-18 was around 54 MT.
• The grain off-take for other welfare schemes had been around 3.6 MT during 2017-18.
• In addition, to carry-forward stock from the previous year, it has led to ‘surplus’ grains held with the FCI, much more than required buffer norms.
• Ultimately, surplus pushes up the cost of storing foodgrains.
• Over the years, the economic cost (procurement, distribution and storage) of holding foodgrains has been rising sharply.
• This, in turn, is contributing to the rising food subsidy budget.
• Price - The Centre is reluctant to increase the price of highly subsidised foodgrains supplied under the NFSA, 2013.
• Under the Act, the price of Rs 3/2/1 for rice, wheat and coarse grains, respectively, was capped for 3 years, which ended in 2016.
• Each rupee (per kg) increase in issue price of grains could result in savings of food subsidy of more than Rs 5,000 crore annually.
• FCI - Along with the rising food subsidy budget, FCI’s financial condition is another concern.
• There is rising outstanding food subsidy dues to the FCI because of the mismatch between the budget allocated to it and the actual expenses incurred.
• So the finance ministry would soon arrange a loan of Rs 27,000 crore from the National Small Savings Fund (NSSF).
• In 2016-17, the finance ministry had arranged a five-year loan from the NSSF of Rs 70,000 crore for the FCI.
• All these measures are likely to push up the food subsidy budget further.

How could it be addressed?

• For better management of foodgrains, the NDA government set up a high-level committee (HLC) chaired by Shanta Kumar.
• The HLC recommended the government to have a relook at the current NFSA coverage of 67% of the population.
• It should be brought down to around 40% of the population, which would comfortably cover BPL families and some even above that.
• The HLC also recommended gradual introduction of cash transfers (DBT) in PDS, which is estimated to save Rs 30,000 crore annually.

• With a huge spike in food subsidy budget, the Centre has to take some key measures such as

1. capping procurement for maintaining optimum foodgrain stocks
2. increasing issue price of foodgrains
3. rolling out DBT in cities
4. curbing grain pilferage through digitisation of the entire foodgrain management

Source: Financial Express