Since the UPA had already passed the National Food Security Act (NFSA), the NDA had little option but to continue with it despite the 40%+ levels of leakages and the excessive subsidies—while it costs FCI Rs 21 per kg of wheat and over Rs 29 for rice, 5 kg of these were to be supplied each month at Rs 2 and Rs 3 per kg to two-thirds of the population. The NDA, however, had a window of opportunity since NFSA allowed the prices to be reviewed after three years. The government, however, allowed the status quo to continue last year and, according to this newspaper, is likely to do the same again now.
This is unfortunate given the high cost and the leakages, given the poor seeding of ration cards with Aadhaar in many states or the lack of PoS machines in ration shops in others. Indeed, with consumer inflation as low as it is—it is at a decadal low of 2% and the last reading of food inflation was negative—the government had a great chance of paring subsidies. Since the present ration shop prices are barely around a tenth of FCI’s cost, even if the target population was not reduced, the government could easily have hiked prices without too much of a hue and cry.
Even if rice prices were raised to Rs 6 and wheat to Rs 4, they would still be just a fifth of costs—indeed, over a period of time, as was done for diesel by the UPA and for kerosene by the NDA, prices could be raised by 10-15 paise every month subject to, say, the subsidy falling to 50% of costs. Given how poverty has been falling—at 2.2% per annum between 2005 and 2012, this was nearly three times faster than that achieved during 1993 to 2004—it is also not clearly why two-thirds of the population should be entitled to such largesse. Keep in mind that while rural wages did stagnate for a brief period following two droughts in 2014 and 2015, they are growing again, and a good harvest this time around, should help sustain the rise.
Independent of what the government does on the subsidised prices, it has to move to direct cash transfers as far as possible, egging on the states to help digitise the operations. This is working well for other products like LPG and there is no reason food subsidies cannot be disbursed the same way. Apart from reducing leakages, a big advantage of cash payments is that FCI’s inefficiencies will be reduced—if, for instance, it is possible to buy the same ration-shop-quality rice at Rs 20 in the free market instead of the present Rs 29 it costs FCI, this is a net saving to the system.