India missed a chance to reform the Public Distribution System

In a widely anticipated move, the government finally ended the free foodgrain scheme under the Pradhan Mantri Garib Kalyan Yojana (PMGKY) from 1 January. The scheme, which was introduced as part of the pandemic relief effort in March 2020, provided 5kg of free cereals, rice or wheat to eligible Public Distribution System (PDS) beneficiaries. PDS beneficiaries are entitled to 5kg of rice/wheat/millets at ₹3/2/1 per kg as part of the National Food Security Act (NFSA). The PMGKY was over and above that.

The primary reason for the discontinuation of the scheme is the ballooning fiscal deficit of the government. However, while saving food-subsidy cost on the erstwhile PMGKY, the government also decided to forgo the token prices collected from NFSA beneficiaries for foodgrain entitlement through the PDS. This additional step will cost the government a small sum of ₹18,000 crore. However, the impact of both these measures taken together is likely to be an additional monthly spending of around ₹500-600 for a household of four members, as they will now have to purchase an additional 5kg from the market if they need it.

While the decisions by the government are politically and fiscally savvy, this is not the best option either in the short or long run. The PMGKY was meant to provide a cushion to the majority of rural and urban poor against the loss of income and employment during the pandemic. While pandemic-related disruptions are over, most indicators of the rural economy suggest that distress persists. Given that cereal inflation has been in double digits with no signs of slowing, the additional foodgrain could have been continued until inflationary pressures cooled. Also, the decision to reduce PDS prices to ‘free’ is unlikely to save the government much and will also be a difficult decision to reverse.

A more serious matter of priority is for the government to reform the PDS as it exists today. This system, used by the NFSA and PMGKY both, has played an important role in recent years. A large part of this is thanks to the quasi-universal nature of food entitlements, with 75% coverage of rural areas and 50% of urban. As several studies have documented, enlarging the beneficiary pool has helped in curbing leakages and increasing efficiency of the PDS. However, despite several economists and the Supreme Court too reminding the government to increase its number of beneficiaries to adjust for population increase, there has been no effort to do so. Perhaps a better option would have been to expand the beneficiary roll while retaining subsidized issue prices for food staples. That would have been a fiscally neutral step.

The real issue, however, is about what the PDS represents. In the case of NFSA and also PMGKY, it is erroneous to treat it as an income transfer programme. The basic purpose as envisaged is to make essential foodgrains available to a large majority of the population at affordable and stable prices. More than an income transfer, it is the availability and stability of prices that play an important role in assuring Indians food security. When the NFSA was enacted, an issue price of ₹3/2/1 was fixed for three years. After that, it was supposed to change as prices increased, so long as it remained under the minimum support prices (MSPs) of the crops. In fact, by simply increasing prices a little to keep real prices constant, the government could have raised the quantum of grains given to beneficiaries without affecting its fiscal discipline. Raising the prices to even half the MSP levels would have allowed entitlement to increase to 7-8kg per person. It is also possible to provide pulses and edible oil, which were given during the pandemic. These are not just essential sources of nutrition as far as proteins and fats go, but are also part of the NFSA objectives. With India having declared 2023 as “the year of millets”, it is time to diversify away from the rice/wheat combination and provide people nutritious food.

The PDS plays an important role for consumers, but equally so for farmers, as it enables government procurement for distribution. Diversifying to oilseeds and pulses, for which the country is highly import-dependent, is essential to incentivize their production.

While the government may have scored political points, its move does not benefit consumers reeling under inflation or farmers in distress. It is also a missed opportunity to take bold steps towards reforming the PDS in line with NFSA goals. Doing so is not just essential for ensuring food security in its true sense, but is also fiscally prudent.

Himanshu is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi