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Resource centre on India's rural distress
 
 

Food subsidy bill may touch Rs75,000 crore this year by Sreejiraj Eluvangal


Even as the prime minister protests his inability to distribute food free of cost to the poor, the overflowing food stocks seem set to lead to another year of blockbuster expenditure on the public distribution system.

According to numbers from the department of food and public distribution system (PDS), the government spent Rs25,600 crore on food subsidies during just the first four months of the year.

The amount — higher than the entire payout during 2006-07 — points to a full year subsidy payout substantially higher than last year’s Rs58,200 crore. The high levels of food stock — currently almost twice the norm — was alone costing the government an extra Rs27 crore per day in July and is estimated to result in an extra expenditure of Rs700-800 crore per year.

Government sources attributed the subsidy increase to a doubling of the purchase prices of wheat and rice in the last five years, even as the selling prices have remained stagnant.

“There has been no change in issue price for BPL or APL families in the last eight years,” said a Department official, pointing out that the majority of grain stock is sold at the above rates. Grain for various categories are sold to the state government at prices ranging from Rs2 per kg of wheat for the most backward sections to rice at Rs8.30 per kg for non-poor customers.

According to the ministry, the cost of acquisition, including storage and transportation costs, is Rs15.44 per kg for wheat while it is Rs20.43 for rice.

Department numbers also show that nearly 40% of the total food subsidies are going towards operational expenses such as godown-rentals, transportation and handling and storage. For example, out of the total expenditure of Rs58,200 crore on PDS subsidies, Rs11,700 crore was spent on ‘operating expenses’ by the Food Corporation of India, in charge of managing India’s PDS and buffer food stocks. It also spent another Rs8,400 crore on renting godowns to store grains after running out of owned capacity.

“The issue is primarily one of proper storage and proper distribution,” says Kavita Srivastava, general secretary of People’s Union for Civil Liberties, which approached the Supreme Court against PDS mismanagement a decade ago. Srivastava points out that the scheme suffers from both a leaky distribution mechanism, leading to large scale diversion, as well as poor procurement and storage policies.

“If the government cannot take care of the food, let them give it to the Panchayats,” she says. However, like the government, PUCL too supports continued subsidies for the above-poverty-line (APL) families, she added.

Against an in-house capacity of 15.5 million tonnes of storage with FCI, India currently has around 55 million tonnes of buffer stocks, forcing the firm to hire godowns from other companies such as the Central Warehousing Corporation (CWC) and state warehousing corporations.

Similarly, FCI spent around Rs5,200 crore last year for moving the grain from the collection centres to the final storage depots, sometimes in a different part of the country. “Procurement should be made from all over, not just from Punjab, Haryana and UP,” says Srivastava.