India’s Free Food Policy Dilemma – Analysis


By Debashis Chakraborty and Ripudaman Bhardwaj*

The COVID-19 pandemic caused not only a health crisis but an even deeper economic crisis in India. This led to job losses and financial instability which in turn exacerbated food insecurity in the country.

To mitigate the economic impacts of the pandemic, in March 2020, the government initiated the emergency scheme Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) — a free food handout policy. The policy aimed to provide 5 kilograms of wheat or rice free of cost for the subsequent eight months to around 800 million people, making it India’s most widely dispersed food security intervention.

India has a long history of implementing food-based welfare schemes to address hunger and malnutrition. For instance, the Targeted Public Distribution System (TPDS) for Below Poverty Line (BPL) households has provided subsidised food grains to the poor through rations since 1997. But the TPDS scheme has faced challenges such as operational inefficiency, corruption and targeting leakages which have resulted in a suboptimal coverage of the intended beneficiaries.

The PMGKAY can be seen as an extension of the 2013 National Food Security Act (NFSA) which legalised the entitlement of subsidised food grains to around two-thirds of India’s population. Compared to the TPDS, the PMGKAY provides free — instead of subsidised — grains while covering a much wider population. The PMGKAY scheme was launched in response to the food security challenges posed by the pandemic, which forced the government to impose strict containment measures that heavily limited economic activity.

The PMGKAY has fared commendably in alleviating hunger and improving food security for vulnerable populations during the pandemic. There has been a reverberating demand to continue the scheme and universalise food security.

Despite the fiscal burden, the government has extended the scheme 7 times, allowing it to run for more than 28 months. According to the Economic Survey 2020–21, the PMGKAY increased the government’s expenditure on food subsidies by 70 per cent between 202021. India’s 2021–2022 Union Budget announced an additional allocation of Rs 1.15 lakh crore (US$14 billion) partially for the PMGKAY.

The government has decided to launch a new integrated food security scheme, also entitled PMGKAY, from January 2023 for one year under the NFSA, costing an additional Rs 2 lakh crore (US$24.4 billion). Given rising food price inflation, the question is whether this move is a short-term strategic compromise before the 2024 general election or a tacit recognition of the long-term welfare implications of such initiatives.

Both farmers and poor households, beneficiaries of the scheme from procurement and disbursement perspectives, support continuing the PMGKAY. The immense responsibility of implementing PMGKAY for 800 million beneficiaries also enhanced procurement and distribution agencies’ operational efficiency.

In contrast, the potential argument in favour of discontinuing the scheme after 2023 lies primarily on fiscal stress. India’s expected fiscal deficit in 2023 is around 6.4 per cent of GDP. It should be remembered that the International Monetary Fund has projected a modest 6.1 per cent GDP growth for India in 2023.

Given the slow recovery, it will be difficult for the government to go back to the pre-COVID 3.4 per cent fiscal deficit in 2019 any time soon. Still, India’s fiscal stress scenario is comparably more comfortable than G7 or OECD countries. There have been calls for additional devolution of funds under PMGKAY for more comprehensive coverage of target households.

A more pertinent concern is that the procurement of food grains necessary for continuing the schemes involves administrative costs and may increase market prices and partially nullify the subsidy’s benefits.

The government’s inclination toward subsidy reduction and market-based solutions in the long term has been evident. The divestment in Air India and other Public Sector Enterprises or the curtailment of energy subsidies all testify to this commitment.

Amid high growth and low unemployment, the market can take care of food security concerns. But low or slow growth scenarios necessitate the provision of subsidised food schemes for BPL households. A desirable approach would involve utilising both the existing buffer stock to control the price of food grains and appropriate budgetary devolutions under NFSA in future.

It will be difficult to balance the consequent fiscal burden with other fiscal priorities. The central government should explore the possibility of sharing responsibility with state governments under the ‘One Nation, One Ration Card’ scheme which will allow beneficiaries to access food grains from any fair-price shop in the country. To lower the fiscal stress, better targeting of BPL households based on emerging trends in the consumption poverty scenario needs to be urgently completed.

Policymakers need to bear in mind that COVID-19 caused an estimated additional 150–199 million people to slip into poverty during 2021–22. With an expected slow rise in world GDP of 1.7 per cent during 2023, spontaneous upliftment of these households from the poverty trap will be difficult.

The rise in school enrolment after the initial drop due to COVID-19 indicates how families at the margin are influenced by food security considerations and perceive the benefits of the Mid-Day Meal Scheme. Not only can the PMGKAY provide poorer households tacit income support, but it also enhances their risk-taking abilities with long-term income implications. Indian policymakers must re-focus their outlook accordingly to address food insecurity-led challenges with both efficiency and compassion.

*About the authors:

  • Debashis Chakraborty is Professor of Economics at the Indian Institute of Foreign Trade.
  • Ripudaman Bhardwaj is IBSA Fellow at the Research and Information System for Developing Countries.

Source: This article was published by East Asia Forum

East Asia Forum

East Asia Forum is a platform for analysis and research on politics, economics, business, law, security, international relations and society relevant to public policy, centred on the Asia Pacific region. It consists of an online publication and a quarterly magazine, East Asia Forum Quarterly, which aim to provide clear and original analysis from the leading minds in the region and beyond.

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