Dealing with PDS reform

| Updated on March 09, 2018

The Shanta Kumar panel’s recommendations are broadly in the right direction

The Shanta Kumar panel to rationalise the National Food Security Act, 2013, has made some sensible suggestions. The law, by placing a huge burden on the exchequer for illusory public gain, requires a sense of balance. The subsidy involved in providing 5 kg of cereals (wheat, rice, coarse grain) per capita per month to 67 per cent of the population at ₹3/2/1, is conservatively estimated at ₹1.3 lakh crore. The real problem with the outgo is that it does not help food producers or consumers. National Sample Survey findings tell us that only 6 per cent of farmers, essentially big landlords, sell wheat or paddy to a procurement agency, while the rest are forced to sell below the support price to recover costs as quickly as possible. If most producers are outside the ambit of the procurement network, consumers too rely on the market for more than half their grain needs. NSSO figures say the average Indian requires close to 11 kg per capita of foodgrain a month, more than what the food law sets out to provide. The suggested changes involve providing a larger quantity of grain to fewer people. The food law entails an annual procurement of 61 million tonnes, close to half of which will not find its way to the poor, with leakages at 47 per cent. High procurement without liquidation of stocks has led to inflation, while fair price outlets remain under-stocked. This is clearly an absurd situation.

Even as the proposed moves are broadly in the right direction, they could run into resistance from States. The panel has suggested that subsidised grain (7 kg per person per month for 40 per cent, and not 67 per cent of the population) be given at 50 per cent of the MSP, and not ₹3 or less. If States such as Tamil Nadu want to continue with their universal PDS, they will have to take a hit of about ₹5 per kg just on BPL rice — the difference between the proposed issue price of ₹10 a kg and the BPL price of ₹5 a kg. Besides, they will end up buying more grain at above-poverty-line rates as the proportion of BPL foodgrain available to States will fall. While the proposed steps will enhance grain availability in the market and reduce the incentive for diversion, the cases of Tamil Nadu and Chhattisgarh, where universal PDS has been successful, deserve a specific response. Other States too may want to tailor the scheme to suit regional needs.

The committee has rightly suggested that the Jan Dhan-Aadhaar network be used to transfer subsidy to beneficiaries. Reforms in pricing, targeting and delivery of grain will lead to an annual saving of ₹30,000 crore, which should be used for rural infrastructure. Moving to direct transfer is to be welcomed, as there seems no other option to plug leakages and check corruption in the distribution of subsidies.

Published on January 27, 2015

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