It’s been three years since the National Food Security Act (NFSA), 2013, which provides for foodgrains to be given at subsidised rates for a period of three years, came into force. The Act suggested that the issue price be ‘suitably’ linked to the Minimum Support Prices (MSP) after three years, to reduce the burden on the exchequer. Will the Modi government bite the bullet and increase the issue price of these foodgrains?

Under the Act, two-thirds of the population were entitled to 5 kg of foodgrains every month at subsidised prices: rice at ₹3 a kg, wheat at ₹2 a kg and coarse grain at ₹1. With the cost of procurement and distribution rising every year, the subsidy is growing. With a total foodgrain offtake of 25 million tonnes under the NFSA, back-of-the envelope calculation suggests that government’s finances took a hit of ₹5,000 crore in 2015-16.

Vote-bank politics Increasing the issue price will of course improve the Centre’s finances by reducing the subsidy component. However, the increase in the cost of foodgrains supplied may face political pushback. “There is a strong lobby for subsidising the poor, which will be difficult for any political party to overcome,” says Prof A Vaidyanathan, who spent 10 years in the erstwhile Planning Commission.

The food subsidy bill, which also provides for subsidies for pre-existing schemes such as the Antyodaya Anna Yojana, has been climbing over the years; it stood at ₹1,34,919 crore in 2015-16. This is largely due to the widening gap between the economic cost of foodgrains and the price at which it is issued by the Food Corporation of India to the various States. The economic cost, which includes the FCI’s procurement and distribution costs, has inched up over the last four years – by ₹2.4 annually for rice and ₹1.5 for wheat.

The economic cost was ₹30.9 per kg for rice and ₹22 for wheat for 2015-16, up by 5 per cent and 7.3 per cent respectively over the previous year. However, the issue price continued to remain low.

The procurement price — as measured by the MSP for rice and wheat — has been moving up on an average by 4-5 per cent a year. For instance, the MSP for wheat increased by 5.2 per cent for 2016-17 to ₹15.25 a kg as against ₹14.7 a kg (up by 4.3 per cent) for paddy.

Panel recommendations There are other schemes too that are burning a hole in the Centre’s pocket.

In 2015, the Shanta Kumar Committee, formed to restructure the FCI, recommended linking the issue price for priority households to the MSP of the foodgrains, while continuing the lower rates for the extremely poor.

It warned that if the issue price is not linked to the MSP, the NFSA will put undue financial burden on the exchequer. Under the Antyodaya scheme, the issue price for rice and wheat is the lowest at ₹3 and ₹2 a kg respectively, while it is higher for Below-Poverty-Line consumers (₹5.6 and ₹4.1) and Above-Poverty-Line card holders (₹8.3 and ₹6,1). These rates have not been revised by the government since July 2002.

“The government should consider increasing the issue price while targeting the subsidy,” says R Srinivasan, Associate Professor at the University of Madras. And one of the ways, he says, could be by linking the subsidy to income levels.

So, for instance, while an APL cardholder could be made eligible for a maximum subsidy of 25 per cent of the MSP, the BPL cardholders could be given even more – say 50 per cent of MSP.

But all this requires political will, which is considerably in short supply for now.

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