- Apart from fiscal costs, PMGKAY may erode food stocks and push up prices
The government will give free wheat and rice to India’s poorest for another three months. But is the extension to the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) all about politics? Or is the Modi government only supporting the needy during the festive season, as stated? Indeed, by extending the PMGKAY, the government may be giving the poor some hope and festive cheer, but it may mean rising food prices for the middle class.
What is the PMGKAY all about?
Amid the sweeping covid-19 lockdown in April 2020, the government unveiled PMGKAY as a lifeline for India’s poorest citizens, hit the hardest by the unprecedented crisis. The welfare scheme offered 5 kg free food grains to all beneficiaries covered under the National Food Security Act (NFSA) – totalling about 800 million Indians – including those covered under Direct Benefit Transfer (DBT).
This food allocation to the ‘poor, needy and the vulnerable’ was over and above their entitlement under NFSA at highly subsidized rates. Effectively, it doubled the food entitlement of those covered under NFSA. These are, by definition, India’s poorest – they are not income tax payers, don’t have a fixed occupation, and don’t own land, pucca houses, buffaloes/bulls/tractors etc.
In the first six phases of the scheme, the financial impact for the Centre has been about Rs. 3.45 trillion. With the additional expenditure of about ₹44,762 crore in the seventh phase, the cost of PMGKAY will add up to about ₹3.91 trillion.
Why did the government extend the scheme?
The intended beneficiaries get free food grains for 28 months, with the latest extension. Officially, the government says the extension will ensure “poor and vulnerable sections of society are supported for the forthcoming major festivals like Navratri, Dussehra, Milad-un-Nabi, Deepawali, Chhath Pooja, Guru Nanak Dev Jayanti, Christmas, etc.” However, opposition parties allege the extension has more to do with the assembly elections in Gujarat and Himachal Pradesh over the next three months.
Stoking the controversy further, an official note from finance ministry Department of Expenditure has surfaced on social media, which argues against any further extension to the scheme. The expenditure department has three objections. It says the economic and fiscal implications of the extension would be substantial, pointing out the rise in energy prices because of the war in Ukraine, with its knock-on effect on other subsidies. Also, with the pandemic receding, the document says there appears to be no further need to continue with the scheme. And finally, the department says another extension “may give an impression of its permanent or indefinite continuation and make it difficult to stop.”
What will be the impact of an extension to the PMGKAY?
Wheat prices in India are already rising with the onset of the festival season that begins with Navratri. Demand for wheat products – from atta to maida – typically shoots up during festivals. In September, wheat prices rose 3-4%, adding up to ₹40-70 per quintal in wholesale markets in the country.
Wheat prices are – and will – remain under pressure because of negligible open market sales by the Food Corp. of India (FCI) over the past few months because of depleting stocks. Lower production due to the heat wave earlier this year, and the government’s commitment to the PMGKAY, have substantially eroded wheat reserves. The government has to ensure a buffer stock of wheat – at the end of August, it had a wheat stock of 25 million tonnes while it now needs a buffer of about 20.5 million tonnes.
So, the PMGKAY is partly responsible for wheat prices remaining under pressure during the festival season. It will mean the middle class, a core constituency of the BJP, will feel the pinch of rising wheat prices even as the government shields the poor by offering food grains free for another three months.
Meanwhile, rice stocks have been healthier, and the Centre has been persuading states to distribute more rice instead of wheat. But many states have been reluctant to swap wheat with rice, pointing out the eating habits of Indians. Also, rice prices too are expected to remain under pressure because of lower kharif production forecast and a jump in non-basmati exports, according to the food ministry.
Depleting food grain stocks are not the only reason why the government will find it tough to sustain the scheme indefinitely. Soaring food subsidy bill is another big constraint. Indeed, the food subsidy bill is expected to exceed budget estimates substantially this year. In the 2022-23 Budget, the Centre has allocated ₹2 trillion for food subsidy – about 70% of it has been reserved for food subsidies by FCI.
The problem of food wastage
Amid the debate around PMGKAY, India has had another big problem over the decades. The country wastes a large chunk of the grains it produces. The government says it has managed to contain the problem with superior storage and distribution facilities. Estimates have differed on exactly how much India wastes. A report presented in Parliament by an arm of the Indian Council of Agricultural Research in 2016 estimated food wastage of anywhere between 5-10% (the figure varies for different crops). According to a United Nations Development Report a few years ago, almost 40% of the food India produces gets wasted.
India has always paid a big price for transport, storage and supply chain bottlenecks. The Modi government is working on multiple fronts to address these issues. It has launched an ambitious ₹6,000 crore plan, Sampada, to develop an integrated supply cold chain for agriculture. Building a logistics superstructure for India to prevent wastage of agri produce during transit is also another priority for the government. Gati Shakti and the National Logistics Policy aim to do just that. Minimizing food wastage has to be a top priority in a country where many are still below the poverty line.
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