How will the free foodgrain scheme work out?

Recently, the Union Government has issued a notification to provide free foodgrains to all eligible households under the National Food Security Act, 2013, for one year, but has discontinued the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY).

What is the impact of this measure on the food subsidy bill?

• This move will relieve a major burden on the Union Budget.
• The PMGKAY had effectively doubled the sum, of the food security bill for the past two years (post-pandemic).
  • With centre plans to give free foodgrains under the NFSA for a year and the ending of PMGKAY will save around Rs 2 lakh crores.

What does this mean for foodgrain stocks?

• Relieve stressed foodgrain stocks: The annual foodgrain requirement for the NFSA is about 520 lakh tones, while the PMGKAY required an additional 480 lakh tones.
  • Continuing the PMGKAY would have been unsustainable without further increasing procurement levels.
• Lower Rice and wheat harvests: This is on account of being hit by climatic events and fertilizer shortages in some areas.
• High foodgrain inflation: Global stress due to the Russia-Ukraine war has also led to a situation of high foodgrain inflation.
• Difficulty in maintaining wheat stock: India’s wheat stocks, have dipped dangerously close to the required buffer stock levels.
  • The centre had to ban wheat exports to ensure food security for the domestic market.
• Reduce wheat allocations under PDS: It had to substitute wheat supply with rice in States such as Uttar Pradesh and Bihar.

What are the political implications?

• A purely economic decision here would have been to end the PMGKAY and return to a normal pre-COVID situation.
  • But this free foodgrain announcement is damage control, to combat any adverse fallout from ending PMGKAY.
• It is expected that Tamilnadu is set to save more than Rs 1,300 crores through the Centre’s announcement.
  • The savings can provide ample rooms to states to shift their focus on nutrition security.
• It is unclear what will happen at the end of 2023 when the free foodgrain measure is set to end.

How will it impact beneficiaries?

• Impact on household budgets: The Right to Food Campaign estimates that poor families will be forced to spend Rs 750-Rs 900 a month to access the current level of ration entitlement.
• Entitlement reduced to half: Ration card holders who have received 10 kg of grains a person every month for the past two years will see their entitlement abruptly halved.
• Increased Expenditure: The beneficiary has to spend additional Rs 150-175 to buy the 5 kg previously provided free under the PMGKAY in the open market.
• The increased expenditure will be even starker for those in States which anyway provide free NFSA rations, as from now on they will not receive any savings due to the Centre’s announcement.
• Consumption of foodgrain: as part of a meal varies substantially by State, ranging from about 200 gm per person a day in Kerala to 400 gm in Bihar.
• The move is thus likely to be the highest in the Hindi heartland States where grains make up a higher proportion of the diet.