Editorial: Swollen subsidy

The swelling of the food subsidy bill this year to Rs 50,000 crore (an increase of over 50 per cent over last year) can be attributed directly to the record foodgrain procurement, the hefty hike in minimum support prices (MSP) and as a consequence of both these, a substantial increase in foodgrain stocks this year. The underlying cause is an inept food management policy. The public distribution system (PDS), conceived and put in place under circumstances materially different from today’s, has been kept untouched, with all its sub-optimality in tact. Unlike in the past, when most families relied on ration shops because supplies in the open market were scarce and costly, the majority is now above the poverty line (APL) and does not go to these shops. It is, therefore, pointless to continue to allot foodgrains for such APL families, that too at less than half the cost, when everyone knows that the bulk of these supplies will be diverted into the open market. Even the grains allotted for people below the poverty line (BPL), at about one-third of cost, do not reach them in full measure. For starters, the issue of BPL cards is a racket—many more exist than the number of poor families. For another, as researchers have established, the areas with widespread poverty are not where the ration shops are located; so the grain is not reaching the bulk of the poor. Then there is the populism built into the whole exercise. While the MSP has been hiked regularly by substantial margins, issue prices have not been revised since 2002. Inevitably, the subsidy bill has got steadily more bloated—in part, because the present system in almost all years has ended up with a buffer stock that is well in excess of what is required.

Many alternatives to the PDS system have been suggested, but the system remains unreformed. The PDS, even if it has to be kept going, can be fed with cheaper supplies through effective use of contracts entered in a futures market (which today is banned in wheat and rice). This would obviate much of the carrying and transport costs now borne by the government, and would also create fewer distortions in the market because of the absence of an MSP. But an even better scheme would be to pass the food subsidy directly to the genuine poor as cash, using technologies and systems that now exist. This would do away with the leakage-ridden food handling system. The risk with cash transfers is that they will not be used to buy food; the man in the house may quite easily walk across to the nearest liquor shop instead. But solutions to this can be tried out by making the cash transfers to the woman in the house. Any system that ensures better targeting of the subsidy would be preferable to the present one, which is not delivering the goods.