Food Policy and Public Distribution System in India

Siraj HussainEx Secretary Agriculture, Government of IndiaSenior Visiting Fellow, ICRIER

Food Policy and Public Distribution System in India

Indian Economy-Scaling new heightsReform process started in 1991In 1991, India was a member of the G77 group of developing countries. In 2016, India is a proud member of the G20, the most-powerful countries in the world.In 1991, India took 40% of the funds of the International Development Association (IDA). Today, India is as much a donor as a recipient. India itself has become a substantial donor, including a line of credit of $10 billion to Africa and $2 billion to Bangladesh.Remittances from NRIs exceed 73 Billion $ a yearFDI and Portfolio investments exceed 85 Billion $ a year

Indian Economy-Scaling new heights

Per Capita Income now 1700$ a year. Now India is a middle income countryHowever China per capita is six times higherBetween 2004 and 2011, 13.8 Crore Indians rose above Poverty LineTwo consecutive droghts in 2014 and 2015 tackled successfully and there were no reports of starvation deathsIndia is now a 2 trillion $ Economy, poised to reach 3 trillion in a few yearsAnd yet some thing is missing

The ChallengeAs per International Criteria about 21.3% of Indian Population was below poverty line-Less than 1.9$ a day in 2011. That is 25.95 crore people are poorRangarajan Committee (July 2015) suggested rural poverty line at Rs 32 per day and Rs 47 per day respectively. Estimated number of poor was 36.3 Crore in 2011-12 that is 29.5%Many experts argue Indian poverty line is fixed too low and it can not provide for even basic sustenanceIn any case one third of worlds poor live in IndiaOne in three malnourished people are in India42.5 % children under 5 are under-weight. Even higher income states have malnourished children

Background

After years of debate the National Food Security Act became Law on September 12, 2013Guarantees delivery of 5 Kg of food grains/person/month to all priority beneficiariesPregnant women, lactating mothers and school going children are entitled to free mealsIn case of non-supply GOI will give food security allowancePoorest of poor-Antyoday will get 35 Kg per/family/month

Who will select the eligible personsState Govts are to decide who is poorThey can use Socio Economic Caste CensusAbout 81.35 crore persons or 16.57 crore households are eligible10 crore children covered under mid day meal scheme in schoolsCentral Issue price fixed for three years at:Coarse grains Rs 1/KgWheatRs 2/KgRiceRs 3/Kg

Estimated RequirementCurrently it is 61.4 Million tonnes of Grains per annum but it may rise to 75.39 Million tonnes by 2025Total Food Subsidy estimated to be Rs 1,31,000 croreAll the States and UTs have implemented NFSA except TN, Kerala and NagalandTN had almost universal PDS so it wants that every one should continue to get subsidised food grainsJammu & Kashmir also wanted higher number covered Shift from family entitlement earlier (35 Kg) to per person entitlement (5 KG) reduced allocation to smaller families

Where will the food grains come from?Wheat and paddy are procured at MSPMSPs are raised by Rs 40-50 every yearMost of wheat is procured in Punjab, Haryana, MP, UP and RajasthanMost of rice is procured in Punjab, Haryana, UP, Chhatisgarh, Odisha, AP, WB and BiharSurplus wheat and rice is transported to deficit states by FCIStorage capacity exists in most of the districtsIndia built additional 140 Lakh tonnes storage capacity under a unique PPP model

Procurement of Wheat and Rice (Lakh tonnes)YearWheat ProcuredRice Procured2001-2002206.30221.282002-2003190.26164.222003-2004158.01228.812004-2005167.96 246.852005-2006147.85276.562006-200792.26251.062007-2008111.28287.362008-2009226.89341.042009-2010253.82320.342010-2011225.14341.982011-2012283.35350.412012-2013381.48340.442013-2014250.92318.452014-2015280.23320.402015-2016280.88 340.542016-2017 229.30

Who procures the grains?Most of the wheat is procured by farmers by Agencies of State GovtsFCI procures only 10-15% wheat directlyIn Punjab and Haryana the state agencies store grains and transfer it to FCI who transports grains to consuming states. Grains are issued by FCI to State Agencies for PDSPaddy is also procured directly from farmers by State AgenciesRice procured from millers also through levy route In some States, procurement, storage and distribution undetaken by State Agencies-called Decentralised Procurement

The debateWill adequate supply of grains be ensured in the long run. This year for example procurement of wheat is only 229 Lakh tonnesWhat happens if climate change results in lower productionGobal rice market is just 380-400 Lakh tonnes. If India enters import market, prices will shoot upWhen only 22% people are poor, why should 67% population be given highly subsidized grainsStates may identify larger number of poor than recommended by Niti Ayog

The debateGovt monopoly of procurement may crowd out private sectorThis will increase open market prices of wheat and riceCost of procured grains higher than market rates due to fee/levies and Govts higher carrying cost and interest chargesIt may slow down process of diversification of AgriculturePossibility of recirculation of grains

The debateDue to assured procurement farmers growing rice in water stressed regions like Punjab, Haryana, Western UPEasters States more suitable for rice cultivation e.g. Bihar, WB, OdishaAlternative crops are not as remunerative for farmers as paddy due to assured procurementFarmers will not shift to higher value agriculture due to fluctuations in market prices e.g. Basmati Paddy prices down from Rs 5000/Qtl to Rs 1600/Qtl last year

The debateHigh leakages in Public Distribution SystemEstimates of Leakages range from 30% to 40%In some states, leakages are estimated to be as high as 90%High leakages in case of Above Poverty Line familiesPhysical distribution of grains is an inefficient way of distributing subsidy to poorHigh leakages in North Eastern States except Mizoram and Tripura

What are the States doing now?Many states have gone in for end to end computerisationData base of ration card is being validated through Aadhar- A unique identity numberPoint of sale machines installed at ration shopsSMS messages sent to card holders when grains arrive at ration shopsDe-duplication of bogus ration card holdersBut there are reports of poor connectivity (Rajasthan) and POS machines failing to recognise biometricsCard holders required to make multiple visits

Way forward suggested by ExpertsHigh Level Committee (Shanta Kumar) recommended reduction in entitlement from 67% population to 40%Regularly review list of Antyodya Anna Yojna (AAY) and Below Poverty Line (BPL) beneficiaries. Remove ineligible personsSome states have 14-15% taxes on food grains, thus crowding out private trade-Persuade State Govts to reduce taxes Dont procure excessive quantity of food grainsUndertake Cash transfer to Eligible beneficiariesMove to direct income transfer by abolishing all subsidies

Case for cash transferProblem of malnutrition is multi dimensionalGive cash instead of grainsUse Aadhar platform to transfer cashSeveral Social Security programmes already transferring cash to bank accounts e.g. scholarships, old age pensionSubsidy on Cooking gas now directly transferred to bank account (Scheme name PAHAL)Use accounts opened for unbanked persons under Prime Minister Jan-Dhan Yojana, Link them to AadharPilot going on in Puducherry, Daman and Chandigarh

Limitations of cash transfersIn food deficit States, hilly areas etc, physical movement of grain will have to be continued to ensure availabilityThe pilot should be expanded to States having higher literacy and higher bank penetrationBut the states are reluctant to withdraw supply of food grainsSeveral countries have moved to Conditional Cash TransfersBolsa Familia of Brazil and Opportunidades of Mexico are successful modelsMexico and China have also moved to cash transfersVulnerable group feeding in Bangladesh-Participants may Explain

Critique of Cash transferInfrastructure-Banking and Internet may not be widespreadIdentification of beneficiaries still required to be done by State GovtsCash in the hands of poor may lead to wasteful consumptionRural markets are imperfect. Brazil much more urbanised with higher literacy levelsCash transfers may affect food economy as Govt may withdraw from procurement itself. It may disintivise farmers.A 2011 study of UNDP in Delhi found that cash transfer did not result in decrease in food consumption

Summing upProviding food security to vulnerable population is critical to human development and peace in societyIdentification of beneficiaries is challenging task as many deserving persons are excluded while undeserving are includedCash transfers have proven successful for cooking gas, pensions and other social sector schemesFood Subsidy and Procurement of grains are interlinked and affect crores of farmers and poor householdsWe should move faster to cash transfers