Free grain under NFSA: States to save on food bill, lose political mileage

With the Centre making the supply of rice and wheat through ration shops free under the National Food Security Act (NFSA) for one year, states that were further subsidising the foodgrain under the public distribution system (PDS) are likely to make huge savings in FY24. 

While the Central government provides rice and wheat at Rs 3 and Rs 2 per kg, respectively, to states under the NFSA, many states further subsidise that foodgrain at fair price shops. States, such as Andhra Pradesh, Chhattisgarh, Madhya Pradesh, Odisha, and Telangana, provide rice at Rs 1 per kg, while Jharkhand, Karnataka, Kerala, Tamil Nadu, and West Bengal give both rice and wheat free at ration shops. 

Food subsidies are a major portion of subsidies provided by states. While no aggregate data on states’ food subsidies is available, Andhra Pradesh spends around 40 per cent of its total subsidy on food, while the figure for Kerala is 86 per cent. States have budgeted Rs 2.48 trillion as subsidies for FY23, according to the Reserve Bank of India’s latest State Finances report.

N K Singh, chairman of the 15th Finance Commission, said the savings on food subsidies provide fiscal flexibility to states which they can use in multiple ways. “One is to deepen the PDS programme itself by increasing the quantum. The other is to enhance the allocation for education and particularly for the health sector, which I always felt has been neglected. This was also recommended by the Finance Commission and it was part of the 2017 National Health Plan. That in my view should be a priority area,” he said.

Pronab Sen, former chief statistician of India, said though states will be saving a lot of money, they will be losing out on political mileage, to the Centre. “States’ food subsidy was an important part of their political play, which has been taken away because the entire credit will now go to the Central government. The question is how do states use that money to get back the political mileage,” he added. 

But D K Srivastava, chief policy adviser at EY India, argued states can always find avenues to help people from their savings. “Since the PDS currently provides a limited variety of foodgrain, states can cover other types of foodgrain that are not subsidised. This can vary from state to state, depending on the preference of the citizens of that geography,” he said.

Sen, however, was apprehensive that the Centre may not allow states to increase the quantity of foodgrain under the PDS. “If states seek to increase the free foodgrain allocation from 5 kg to, say, 7 kg, the Centre may not allocate the extra grain to states. States may have to pick up extra foodgrain through auction by the Food Corporation of India and that may prove to be an expensive proposition for them,” he said.

Former Kerala Finance Minister Thomas Isaac said though the financial burden on state governments will come down, the Centre shouldn’t have withdrawn the additional foodgrain that was being provided under the Pradhan Mantri Garib Kalyan Anna Yojana. “In Kerala, we are already providing the foodgrain free of cost. The Centre is now stopping the additional foodgrain it was giving. So, people of Kerala will be worse off,” he added.

(Sanjeeb Mukherjee contributed to this story)