It is unfortunate, though perhaps understandable given its minority in the Rajya Sabha, that the government has no plans to scrap Sonia Gandhi’s National Food Security Act (NFSA) that seeks to give vastly subsidised foodgrains—at a mere 10-15% of the market prices—to two-thirds of the population while under 30% of the population is poor even according to the new poverty lines. What is inexplicable, however, is why the government has chosen not to aggressively move to cash transfers, which was the principal recommendation of the Shanta Kumar committee set up for restructuring FCI. While this is being portrayed as proof of the government’s commitment to cooperative federalism—the states are to be given the choice of whether they want to move to cash transfers or give consumers physical rations—the fact is that the current system is far too expensive, even if you ignore the unfairness of a system that seeks to subsidise even the middle classes. And, in any case, if direct cash transfers are being given for LPG subsidies, there is no reason not to give them for food subsidies. And if you agree, as seems likely, that state governments are party to the 50% leakage levels in ration supplies, there is really no reason to believe states would want to reform the system on their own.
The problem with the current system is that it is just too expensive. FCI typically stocks double the foodgrains it needs—according to the Shanta Kumar committee, once cash transfers are the norm, FCI’s stocks could be reduced from 54 million tonnes to 5 million, thereby releasing R1 lakh crore to be invested in, for instance, creating more irrigation facilities. On average, if the farmer is paid X for his grain, by the time FCI procures and stores this grain, the cost doubles to 2X. Given that much of this is due to FCI’s bloated cost structure, this means moving to cash transfers will ensure everyone, even the undeserving non-poor, gets their subsidy with pretty significant wastage being cut out. Part of this wastage, of course, is plain blackmail by the grain-producing states. Punjab and Haryana, from where the bulk of foodgrain is procured, levy a 14.5% mandi tax—so, if the farmer gets paid X, FCI buys it for 1.15X. Once you have cash transfers, and private traders buy more grain from other states—where the taxes are lower—FCI would be in a position to tell Punjab and Haryana it will procure from them only after the tax is scrapped; but till such time that FCI has to procure, it has no option since the bulk of procurement it does is in these states.
Which is why, it is important the government ensures the basic preconditions are met for the NFSA. As reported by FE last week, just a handful of states have put the details of the beneficiaries online—this list does not include the more populous states like Bihar and Uttar Pradesh. Since putting the lists online is one way of ensuring only the beneficiaries get the grain, there should be no further relaxation in these norms—states that do not have their lists online must not be given NFSA benefits. One advantage of having the lists online is that, over a period of time, political parties who profess to work only for the poor will be forced to protest against a system that gives away their benefits to the better off. And it will keep some kind of check on the costs of the NFSA.