Problem of Allocating funds: Increase in the Food Subsidy Bill:
The food subsidy bill has increased from 1.2 lakh crores in 2014-15 to 3.8 lakh crores in 2020-21.
In order to pay the food subsidy bill, the Government has been borrowing from National Small savings Fund (NSSF) through the issuance of special G-Secs.
However, this practice of borrowing from NSSF has been discontinued from this year as announced in the Union Budget 2021-22.
Food subsidy comprises of:
- Subsidy provided to FCI for procurement and distribution of wheat and rice under NFSA and other welfare schemes and for maintaining the strategic reserve of food grains and
- Subsidy provided to States for undertaking decentralized procurement. The Food subsidy bill is calculated as the difference between Economic cost of Food grains and Central Issue price (CIP).
Way Forward: Recast the food subsidy system is the need of the hour:
- In this context, it is time the Centre had a relook at the overall food subsidy system including the pricing mechanism.
- It should revisit NFSA norms and coverage. An official committee in January 2015 called for decreasing the quantum of coverage under the law, from the present 67% to around 40%.
- For all ration cardholders drawing food grains, a “give-up” option, as done in the case of cooking gas cylinders, can be made available.
- Even though States have been allowed to frame criteria for the identification of PHH cardholders, the Centre can nudge them into pruning the number of such beneficiaries.
- As for the prices, the existing arrangement of flat rates should be replaced with a slab system.
- Barring the needy, other beneficiaries can be made to pay a little more for a higher quantum of food grains.
- The rates at which these beneficiaries have to be charged can be arrived at by the Centre and the States through consultations.
- These measures, if properly implemented, can have a salutary effect on retail prices in the open market.