Sustenance vs Succour: With political will, PDS can be reformed

He also said the government has transferred Rs 31,000 crore to 20 crore poor families under DBT and Rs 18,000 crore has been given to 9 crore farmers.

By Ramji Krishnan, Lekha Chakraborty & Vidya Ramji

The Prime Minister, during his address to the nation on June 30, reiterated that 80 crore people will get free foodgrains till November under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY). This additional quantity doubles the normal quota that people are entitled to under the National Food Security Act (NFSA 2013). He also mentioned that the government has transferred Rs 31,000 crore to 20 crore poor families under DBT and Rs 18,000 crore has been given to 9 crore farmers.

According to Section 18 of the NFSA, the government has declared, for the purpose of ration cards, the eldest woman (not less than 18 years) shall be the head of the household. Thus, the ‘one country, one ration card’ idea could be difficult to implement, as the migrant labourer, in all probability, may need to leave the card with his family to access PDS. Against this backdrop, and the narrative of ‘whatever it takes’ to address ‘life versus livelihood’, we advocate for basic sustenance income (BSI) not only on grounds of justice but also for morally required equity. We believe this significance has not yet been considered by the government.

We propose, as a first step, BSI to include only below poverty line (BPL) and Antyodaya households (poorest of the poor). These are a targeted group of 800 million people as designated under the NFSA.

India accounts for more than 61 million stunted children (low height for age), 47 million underweight children (low weight for age) and 25 million wasted children (weight for height), i.e. approximately 10% of our population! Prevalence of stunting is a clear indicator of inequalities in human development. In ‘stunting syndrome’, linear growth retardation in early life is associated with increased morbidity and mortality, reduced physical and economic capacity, and an elevated risk of disease into adulthood. Stunting is a cyclical process as women who were stunted in childhood tend to have stunted offspring, creating a vicious cycle of poverty and reduced human capital. A World Bank study states two-thirds of India’s current workforce was stunted in childhood, resulting in reduction in GDP per capita income of 13%!

We propose weekly DBT through biometric-enabled electronic debit cards. The amount will be the difference between market rates and subsidised price of grains—adjusted for inflation—for the quantum of foodgrains supplied via PDS. Furthermore, this transfer benefits directly to beneficiaries’ accounts at their place of work. It would be similar to Sodexho coupons offered in the corporate sector with restrictions on what items the money can be spent upon.

DBT can leverage the JAM (Jan Dhan, Aadhaar and Mobile) and IT technology and transfer benefits in a timely, cashless, leak-proof and targeted manner. These are less prone to corruption and a lot cheaper to deliver. The intended beneficiary decides what and how much foodgrains (nutrition) to buy to feed herself and her family from an authorised private retail shop or a PDS outlet. By paying market rates, beneficiaries have the right to demand quality. Providing subsidies directly to the poor would bypass middlemen, reduce waste and storing costs of grain. As a weekly transfer, the amount would be too small to be misused. Initial roll-out of DBT could be in urban areas, well-administered states, and in areas with good internet connectivity and availability of approved shops.

Food subsidy comprises consumer subsidy and cost of maintenance of buffer reserve. Consumer subsidy is the difference between economic cost and central issue price (CIP). Economic cost comprises of two elements: (a) cost of procurement, i.e. minimum support price (70%), and (b) FCI’s cost of procurement incidentals & operations involving handling/storage/transportation (30%). The government makes grains available to states at CIP. States fix retail price to be charged at fair price shops. Chief reasons for ever-increasing food subsidy are rising economic costs (increase in MSP), accumulation of large stocks, increase in quantum of offtake, and unchanged CIP.

Major areas often overlooked are leakages, maintenance cost of excess buffer stocks, interest costs of storage and post-harvest losses.

Leakages are foodgrains not reaching the intended beneficiaries, and are primarily from ‘above the poverty line’ (APL) and ad hoc quotas. All leakages (2011-12, IHDS) are estimated to be costing nearly Rs 50,000 crore annually in today’s rates. APL quota is due to be phased out under the NFSA so we have an opportunity to end this scam.

By June 1, FCI grain stocks were about 97 MMT, against a buffer stock requirement of 41.12 MMT. Monetising this ‘excessive stock’ of over 50 MMT will fetch an estimated Rs 1.5 lakh crore.

The Centre’s food budget ignores the off-budget financing of Rs 2.54 lakh crore of food subsidy financed through borrowings by FCI from the National Small Savings Fund (NSSF). Thus, carrying excess stocks would entail an additional interest cost of Rs 8,000-10,000 crore per annum. Post-harvest losses are estimated by the Indian Grain Storage Management and Research Institute (IGMRI) to account for 10% of total foodgrains at Rs 7,000 crore.

As a comparison, Rs 1.16 lakh crore was allocated as food subsidies in fiscal year 2010-21 and Rs 2.54 crore as off-budget subsidy from the FCI for a total of Rs 3.7 lakh crore. However, this includes all the leakages (including APL quota) and other wastages. Thus, there are many areas for the government to improve upon and pay for BSI.

It is clear that, with political will, PDS can be reformed. More than one-third of the world’s malnourished children live in India, and half of them under three years are underweight. Under Article 21, the right to food is an enforceable right. A government is expected to ensure that children are given a fair chance at a healthy adulthood, elderly to age with dignity, and that a family can take care of its members. It is not just the morally required equity that demands action. It is in our ‘enlightened self-interest’ to take serious policy measures, as it impacts the nation’s growth prospects. It is galling that the state does nothing about leakages in APL quota, thereby condemning millions of children and women to malnourishment, stunted growth, generations of poverty, and reduced human capital. Indeed, to paraphrase Thomas Hobbes, a life without a government which engages in morally required equity, would be the life of a man, solitary, poor, nasty, brutish, and short.

Krishnan is Sloan fellow, London Business School; Chakraborty is professor, NIPFP; Ramji is senior public finance consultant, Kran Consulting