At the outset, it looks like a simple tussle between the Centre and Telangana, over the Prime Minister Garib Kalyan Anna Yojana (PMGKAY) scheme, under which free foodgrains are being distributed to the people below poverty line (BPL). But the issue has actually turned out to be a controversy over the quantity and quality of rice Telangana procured for the buffer stocks maintained by the Food Corporation of India (FCI).  

Root cause of the row

Andhra Pradesh has also been caught in this dispute as it has not distributed the rice under PMGKAY since March. However, State Civil Supplies Minister K V Nageswara Rao told BusinessLine that it was continuing the distribution of rice under the Central scheme.

As a result of the stalemate, rice millers in Telangana and Andhra Pradesh have been left holding at least nine million tonnes (mt) of paddy (over 6 mt of rice after milling) for a few months now.

The root of the controversy seems to have emanated from Telangana and Andhra Pradesh wishing to opt out of the PMGKAY scheme. The scheme, under which the Centre began distributing 5 kg of wheat or rice free of cost to the BPL after the Covid pandemic broke out in 2020, has now been extended till September.  The Centre has not accepted their decision to stay off the PMGKAY scheme, trade sources said. 

FCI inspections

This resulted in the Centre not procuring custom-milled rice from both States. While not procuring rice from them, it asked both States to distribute their share in the PMGKAY scheme first. In particular, it wants them to distribute the free grains for April and May. This forced Telangana to resume the PMGKAY scheme from the third week of June. 

Sources with access to the Union Food Ministry point out that the controversy over the Centre not procuring rice has more to do with its quality, age and quantity than the dispute over the PMGKAY scheme. 

The sources said FCI had carried out inspections of 492 rice mills in Telangana and found out that the stocks with them were very old and not from the new crops.  

Telangana’s failures

FCI also found discrepancies in the quality and quantity of the stocks with the mills. The Food Ministry has asked Telangana why it had failed to monitor these, they said. 

Stocks with mills have to be liquidated within 45 days but the State government had failed on this count too. The Food Ministry’s action has resulted in the State taking action against seven millers, though only against five of them are mild. 

Andhra Pradesh, too, will likely resume rice distribution under the PMGKAY scheme. “In fact, we have got a go-ahead from NITI Aayog for adding another 50 lakh of white ration (BPL) cards, taking the total cards to about 1.40 crore. We are looking forward to distributing the additional rice quota to the new beneficiaries,” he said.

Financial crunch

The major problem for Andhra and Telangana is that they procure paddy from the farmers and get it processed by millers before the FCI takes delivery of the grain. This is because they have opted for the decentralised procurement system (DPS).

As a result, the huge amounts they have spent on procuring paddy are now being held up, particularly when Andhra and Telangana are facing a financial crunch. In the case of Telangana, about ₹22,500 crore has been held up. “It could be a tenth of its annual budget outlay,” said a trade analyst. 

Earlier this year when the Centre said it was extending the scheme for April and May, both States agreed. However, once the Union government extended the scheme till September, they said they were not implementing it in view of the financial crunch they were facing. 

Shouldering subsidy

The issue arises from these States having to shoulder 40 per cent of the subsidy burden. This is in view of the Centre treating 60 per cent of the population in the rural areas as being BPL members. But Andhra Pradesh and Telangana claim that 90 per cent of the rural population belongs to the BPL category.

As a result, these States have to bear the subsidy for the additional ones they claim as belonging to the BPL category. This means they have to share 40 per cent of the total subsidy incurred by the Centre for these two States. 

“The millers hold the cargo (rice or paddy) on the Government of India account, though the State has invested in procurement. The Centre reimburses the money after the rice is deposited with the FCI,” the trader said. 

Downstream sector hit

The reimbursement includes interest for the period the stocks are with mills. “In the case of Telangana, the dispute has been running since last year. Stocks are lying with the mills since November. In the case of Andhra, the stocks are there since April,” said the trader.

The tussle between these three is now not only affecting millers but also the entire downstream trade. While mills are loaded with paddy inventories, the supply of rice bran - which can yield oil-, broken rice and husk has been affected. 

“These are products derived when paddy is milled. The stalemate has affected even the workers, with many of them opting to return to their homes in Bihar,” said the trader. 

The supply of broken rice can help bring down its price and that of bran can help increase the production of rice bran oil. 

According to the trade analyst, there are over 3,000 rice mills in Telangana and the millers are a strong political lobby. “There are trade unions and labour who could be directly affected in the State,” he said.