Centre's Garib Kalyan Scheme and the reality of a burgeoning subsidy bill

While govt would have saved Rs 18,000 cr by distributing 33 mn tonnes of grains that would otherwise have gone waste, its subsidy payout amounts to Rs 45,000 cr

Food grain stocking norms refer to the level of inventory in the Central Pool that is sufficient to meet the operational requirement of food grains and exigencies at any point of time.

These stocks are kept to ensure that if there is shortfall at any point of time in procurement due to whatsoever reason, the smooth functioning of the PDS is not hampered. Earlier this concept was called Buffer Norms and Strategic Reserve. The present Food Corporation of India (FCI) stocking norms were last implemented from 2015.

They consist of Operational stocks meant for meeting monthly distributional requirement under the PDS and other welfare programme. They also consist of food security stocks or reserves meant for meeting shortfall in procurement. Stocking norms are for a quarter and consist of operational stock for that period and strategic reserve to take care of shortfall in production or natural calamities.

The Centre revises the buffer stocking norms for food grains every five years. The last such revision was done before the National Food Security Act was implemented in the country in 2013 (see chart). The norms were implemented in 2015.

Accordingly, government now is required to have some 21.04 million tonnes of wheat and rice in its warehouses as on April 1 each year, which is roughly 4.5 months' of PDS requirement (based on average offtake of the last three financial years).

The July 1 buffer and strategic reserve requirement is 41.12 million tonnes (approx 9.2 months' PDS), October 1 is 30.77 million tonnes (approx 7 months) and January 1 requirement is 21.41 million tonnes (5 months).

But for the past several years, food grains stocks in FCI warehouses are much bigger than the buffer and strategic requirement norms due to open-ended procurement and sharp increase in food grain output.

According to some reports, the grain stocks have come down from their dizzying levels of 97.47 million tonnes on June 1, 2020 to about 68.49 million tonnes, down almost 30 per cent in less than six months. This was due to additional allocation of 5 kg of wheat or rice to all PDS beneficiaries under the PM Garib Kalyan Rozgar Abhiyan as Covid relief.

That apart, grains have also been set aside for migrants under the Atmanirbhar package.

Under PMGKY, the Central government is expected to distribute around 32 million tonnes of additional food grains in the two tranches of Gareeb Kalyan Packages and one of Atmanirbhar package in 2020-21, over and above the usual PDS sale of about 55 million tonnes of wheat and rice.

But in spite of all these special schemes, reports said the current stock of food grains in central pool as on October 1 is about 68.49 million tonnes, which is still 122.58 per cent more than the buffer and strategic reserves norms.

However, due to an additional 33 million tonnes of grains distribution under PMGKY abhiyan and atmanirbhar package, the Centre will save around Rs 18,000 crore, which would have been wasted had this massive stock of grains been carried.

On the flip side, the procurement and distribution expenses will further inflate the already high food subsidy.

According to the government, a subsidy of around Rs 45,000 crore has been incurred for distribution of free food grains in the first phase of Garib Kalyan package that ran from April to June. Under this, some 12 million tonnes of wheat and rice were distributed to over 700 million beneficiaries free of cost.

The subsidy calculation has been arrived at assuming a cost of Rs 37.26 per kg for rice and Rs 26.83 per kg for wheat.

In this, an expenditure of Rs 1,930 crore has been added as transportation expenditure and dealer's margin.

Thus, the total subsidy for free distribution comes to around Rs 46,601 crore.

Now when the Garib Kalyan Package has been extended for five more months till November end, an additional subsidy of about Rs 75,000 crore will have to borne by the government.

Therefore, the total subsidy implication for distributing 32 million tonnes (12 million tonnes in first package and 20 million tonnes in the second) of free grains under the Garib Kalyan Package will come to about Rs 1.23 trillion.