Rationing The Food Subsidy

On August 15 this year, Prime Minister H D Deve Gowda declared that the public distribution system (PDS) would cover only the poorest of the poor, that is, the population living below the poverty line. This group, he said, would be supplied foodgrains at 50 per cent of the central issue price, the price at which ration shops sell their stock.

If you are looking for pure altruism in this move, think again. This is mostly a vote-catching attempt by the government to look at ways of reducing the huge buffer stocks that successive good monsoons and rising procurement prices have built up.

 

But achieving that could be tougher than the prime minister's announcement suggests. By and large, all governments have tried to keep farmers happy by keeping procurement prices high and PDS users content by keeping issue prices low. But between 1993-94 and 1996-97 cutbacks in the consumer subsidies cause issue prices to be raised, as a result of which the states started reducing their offtake from the central pool (see chart