In today’s Finshots, we explain the real cost of the PM Garib Kalyan Anna Yojana’s 5-year extension.

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The Story

Prime Minister Narendra Modi made a big election promise this weekend — He is extending the free ration scheme for food grains for another 5 years!

A good chunk of the Indian population will cheer this move. However, there will also be those who will question the financial burden such a promise is bound to impose on the state. We are not going to debate this question. Instead we will try and figure out what this programme may actually cost the government. So let's get to that. For starters, the headline number will tell you that we spend a mammoth ₹2 lakh crores on subsidizing food each year. But that’s the total bill. It’s not the cost of this specific promise. So to figure out this number we have to rewind a bit and see how the public distribution system for food grains has evolved in the past decade.

In 2013, the government decided to enact a new law. They called it the National Food Security Act (NFSA). It was meant to ensure food security to the poorest households in the country and it became a legal right. The Act made sure that people could access food grains at an extremely subsidized price. For example, 1kg of rice could be bought for just ₹3 and 1kg of wheat for ₹2.

But when the pandemic struck in 2020, the government felt that they had to do more. The country was at a standstill. Many people had lost their jobs. The poor were suffering. So the government announced a new scheme called PM Garib Kalyan Anna Yojana (PMGKAY). Under this scheme, the same people would be eligible for an extra 5kg of foodgrains and 1kg of pulses. And this would be doled out for free.

You can imagine what would’ve happened to the food subsidy bill, right? It shot up significantly. Some estimates say that it doubled since we basically had a situation where the NFSA and the PMGKAY were running in parallel. Everyone knew this couldn’t go on forever. The government had to pull the plug at some point.

And in December 2022, that’s exactly what happened. The government decided to discontinue the extra 5+1 kg of free ration they’d been giving out. They felt the pandemic had run its course.

But wait…the government wasn’t done yet. They still had a twist. Since they’d put a stop to the free scheme, they decided to merge NFSA and PMGKAY. The NFSA’s promise of a certain quantity of grains to poor households would remain. But now, it would all be for free. The poor wouldn’t even have to pay ₹3 for 1 kg of rice anymore.

Now, initially, the government said this scheme would run for a year. And come 2024, the original NFSA deal would be back in place. But the election may have changed their mind and they decided to extend it by another 5 years.

So what’s the true cost of this program, you ask?

Okay. Remember how we said that the NFSA originally wasn’t free, right? People still paid a nominal amount for the food grains. And some estimates suggest that the government pocketed roughly ₹14,000 crores a year in this manner.

So if the food grains promised under NFSA continue to be given for free, the government will have to forego ₹14,000 crores a year. This is the added financial burden. However when you consider the total food subsidy bill of 2 lakh crores, this isn't exactly massive. Yes, it's a good chunk of money. But you could argue that the people need it.  

But the story isn’t done yet. There’s still one crucial thing we still haven’t discussed about these schemes — the Census!

What do we mean?

Well, before any government outlet distributes the food grains, they demand to see one thing — the ration card. It’s an identity card that basically lists out how much ration a person is eligible for. And it’s states that issue these cards. The states rely on the Census data to issue ration cards. And we haven’t conducted a Census since 2011. We were supposed to conduct one in 2021, but, it ended up being postponed indefinitely due to the pandemic. So even as the population has been growing, states haven’t really issued more ration cards.

Now the free distribution programme has one promise — it says that it will cover up to 75% of the rural population and up to 50% of the urban population. This roughly means that 67% of India has to be covered. In 2011, India had around 122 crore people based on the Census data. So if you calculate 67% of that as the population who’d be eligible for the ration, that gives us a little over 81 crore people.

Meanwhile, we have over 140 crore people today. And if we consider the same 67% benchmark, it would mean that the ration programme should extend to nearly 95 crore people. Yet, we remain frozen at approximately 81 crores since the past decade. That’s why Reetika Khara, an economics professor at IIT Delhi, points out that there could be around 10–14 crore people who are missing on the benefits of the Central government ration today. But these are people who can’t get a ration card because we haven’t conducted a Census. Ergo, they become ineligible for the public distribution benefits.

And the matter even went to court. In July 2022, the Supreme Court said that the government shouldn’t be so stubborn. That they should use population projections in the absence of the Census. But the government didn’t budge. It stuck to the 81 crore number.

So yeah, while extending the free ration scheme may well be much-needed move, it’s also time to fix this data deficit issue. That is the only way we will know the true cost of this scheme.

Until then…

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