The state government increased the issue price of rice supplied through PDS to Rs 6 per kg from 3.50 per kg. However, the 1.20 crore family cardholders will continue to get the first 10 kg of rice at the rate of Rs 3.50 per kg. The revised prices will be effective from October 1.
The government also gave up its direct paddy procurement scheme passing on the financial burden to the Centre. Now the state civil supplies corporation will procure paddy only on behalf of the Centre and draw rice from the central pool. The Kuruvai procurement is due from October 1.
So far the corporation itself procured the foodgrains at about Rs 12 a kg stored and distrubuting through the public distribution system at Rs 3.50 per kg.
Announcing this, chief minister Ms J Jayalalithaa said the state Cabinet decided on these policy changes in the face of its strained financial position, lack of support from the Centre, cut in the state's share in Central taxes and threat from World Bank and the Asian Development Bank and also from the Reserve Bank of India and the State Bank of India.
The chief minister said the Centre had rejected her repeated plea for a special grant of Rs 3,000 crore to tide over the financial crisis and had also reduced the state's share from the divisible pool of taxes by Rs 540 crore.
When state government sought assistance from World Bank and Asian Development Bank, they had stated that they would consider the plea only if the state government embarked upon fiscal reforms and reduced the subsidies to various sectors, she said.
"If these steps were not taken, the state would be blacklisted by the World Bank and ADB. RBI and SBI had stated that they would refinance the state civil supplies corporation for procurement only if the state government immediately paid Rs 635 crore to the corporation as the arrears of food subsidy", Ms Jayalalithha said.
The state could not repay such a huge amount now and the Cabinet, which met on Tuesday, decided to give up the direct procurement of paddy by the civil supplies corporation, she said.
"In fact, the state is on the verge of a financial bankruptcy", she said and added that only some corrective measures could save the state.