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Food subsidy issues put UPA govt at risk

Food subsidy issues put UPA govt at risk
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First Published: Mon, Mar 12 2007. 12 56 AM IST
Updated: Mon, Mar 12 2007. 12 56 AM IST
Soaring prices of food articles—particularly of wheat and pulses—was a salient issue in the recently concluded assembly polls in which the ruling Congress party suffered heavy losses.
And inflation is expected to remain a major poll issue in the Uttar Pradesh assembly and Delhi corporation elections scheduled for April.
Against this background, the stinging criticism of the finance minister’s Budget proposed was reserved for his announcement to cut customs duty on pet foods. It was a trifle insensitive, though perhaps wholly unintended, on the part of the finance minister to make a big mention of it in his Budget speech.
Both the Left parties and the Bharatiya Janata Party (BJP) have not missed the opportunity to take digs at the finance minister on the issue. Though the finance minister clarified later that the statement was made in a jovial manner, the damage has been done. The issue, which looks a wee bit trivial, is likely to be raised by the opposition in the ensuing polls and may resonate with the masses and hurt the Congress at the polls.
Subsidized foodgrains have always been a potent political issue. In the recent past, promises of rice at Rs2 a kilo in Tamil Nadu and that of wheat flour at Rs4 a kilo and pulses at Rs20 a kilo in Punjab, have contributed immensely to the success of the Dravida Munnetra Kazhakam (DMK)-Congress combine in Tamil Nadu and the Shiromani Akali Dal–BJP combine in Punjab.
If you think such populist promises appeal only to the poor, you are mistaken. They have a wide spread appeal even among the numerically strong middle classes.
The Centre currently spends a staggering Rs24,000 crore on food subsidies. This is the shortfall between economic cost—that includes the cost of procurement, transportation, storage and distribution of wheat and rice—and the issue price to the consumers under the public distribution system (PDS). Different types of consumers get wheat and rice at different prices.
The National Common Minimum Programme of the United Progressive Alliance (UPA) ruling at the Centre has pledged that all subsidies will be targeted at the poor andthe truly needy.
A report by the Union government titled “Central Government subsidies in India” (December 2004), prepared with the assistance of the National Institute of Public Finance and Policy, had this to say about consumer subsidy: “The PDS in its present form has no self-targeting characteristics, except perhaps for the poor quality of the grains distributed driving away the non-poor.”
It appears that the present government, which had pledged a restructuring and targeting of subsidies, seems to have given up its agenda for the rest of the term. At a time when the prices of food articles are rising sharply—and there is no immediate respite given the supply constraints—this was a dire need of the hour.
The government failed to rise to the occasion and missed an opportunity in restructuring consumer subsidies as a major initiative of the UPA government.
At present, it is reckoned that out of every Rs7 the government spends on food subsidies, only Re1 reaches the beneficiaries. Further, the current food subsidy bill of Rs24,000 crore works out to an impressive average subsidy of Rs3,800 per poor household per annum.
Various proposals have been made to ensure better targeting of food subsidies. Issue of food coupons or stamps to the deserving—which can be used to buy food either from ration shops or from the open market—is one such idea.
But, given the leakages, inefficiencies and delays in the government system, it may be prudent to simply give cash subsidy to the selected beneficiaries. Cash payout may be given in the name of women rather than men, as women have a greater role in ensuring a household’s food security.
As one cannot rely on government channels for effective delivery, this may be delivered either through women’s self-help groups in states where they are vibrant or through local bodies, network of rural banks or post offices. The role of the private sector may also be explored as efficiency can be better achieved.
It is disappointing that a government headed by a reformist Prime Minister, and a finance minister with a similar outlook, has not experimented with any new ideas—despite the UPA’s commitments to the effect—to ensure better targeting of consumer subsidies.
It is equally disconcerting that the UPA chairperson Sonia Gandhi—who has to ensure her party’s continued success—has not taken any initiative in advising the Uniongovernment on a critical issue that concerns the food security of the poor.
If the Congress party fails to rediscover its pro-poor ideological moorings and ignores its aam aadmi (the common man) constituency, the results of the recent assembly elections would have marked an inexorable decline in the fortunes of the Congress.
(G.V.L. Narasimha Rao is a political analyst at heart. His day job is managing director of Development & Research Services, a research and consulting firm. This column appears every other Monday and your comments are welcome at thebottomline@livemint.com)
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First Published: Mon, Mar 12 2007. 12 56 AM IST