Number Theory: Understanding the rejig in India’s food security programme

On December 24, the Union government announced a rejig of India’s food security programme. It has discontinued the Pradhan Mantri Garib Kalyan Yojna (PMGKY) after December 2022 but made the usual Public Distribution System (PDS) entitlements completely free until December 2023. PMGKY was introduced in April 2020 after the Covid-19 pandemic and it gave 5kg of additional foodgrain to more than 800 million people. India’s Public Distribution System (PDS) after the enactment of the National Food Security Act (NFSA) promises 5kg foodgrain per persons at a highly subsidised cost of ₹3/kg for rice, ₹2/kg for wheat and ₹1/kg for cereals. The government will stand to lose this revenue after the decision to make PDS entitlements free. Here are four charts that explain the rejigging of India’s food security programme in detail.The latest decision will bring down the government’s food subsidy billThe free foodgrain scheme under PMGKY is among the most expensive post-Covid measures on the fiscal side. The government’s own estimates put the cumulative cost of the scheme at ₹3.91 lakh crore. This led to a significant increase in the government’s food subsidy bill, and ended up being significantly higher than budgetary allocations in 2020-21, 2021-22 and 2022-23. A Nomura research note estimates that food subsidy spending (as a share of GDP) will come down significantly in 2023-24, which is clearly on account of the latest decision by the government. The bigger relief, however, is for the government’s stressed food stocksWhile finding the money to run a programme such as PMGKY is a challenge, an even bigger difficulty is to make sure that the government has at its disposal the required stock of foodgrain to distribute to the beneficiaries. It is the latter requirement that was becoming more and more difficult for the government as far as running PMGKY was concerned. India’s wheat stocks fell below the stipulated levels – they are called buffer norms in official lexicon – in December 2022 and earlier in April 2022. To be sure, the December stock levels were the lowest since May 2019. While this was partly a result of lower wheat procurement owing to a poor wheat crop, additional PMGKY requirements also played a role. The discontinuation of additional PMGKY requirements – the monthly average was 3.5 million tons – will provide much-needed relief to India’s food stocks which would have run into a bigger crisis if the scheme were continued beyond December 2022. This will also mitigate the need for aggressive procurement in a high-inflation environmentWhile headline inflation, both at the retail and wholesale level, has started to come down, cereal inflation has been on a rising trajectory. Retail inflation for the cereal and products subcategory was at 12.96% in November, the highest since September 2013. Inflation for rice and wheat is also at 89-month and 35-month highs. The earliest inflation data for rice and wheat are available only from January 2015. If the government wanted to continue with PMGKY without undermining its strategic food reserves, it would have had to double down on its procurement from the open market. Given the fact that government already procures a significant share of the cereal production in India – the three-year average is 46% for rice and 36% for wheat -- any significant increase was bound to put additional pressure on open market prices. With PMGKY requirements out of the procurement math, no such (potentially) inflationary market intervention is required now.Politically smart move because roll-backs are never easy in IndiaA lot of critical commentary on the expansion of welfare programmes in India talks about how politics makes it difficult for governments to roll-back schemes, even counter-cyclical relief measures, once they have been started. The decision to make PMGKY’s withdrawal more politically palatable by making existing PDS entitlements free is a smart move on this count. “The withdrawal of the PMGKAY was always going to be politically tricky, as evidenced by its rolling extensions. However, the simultaneous reorientation of food public distribution system towards free food makes it an easier political sell,” a Nomura research note dated December 27 said. To be sure, the relief in India’s foodgrain economy could prove to be limited if the increasingly worsening climate crisis has an adverse effect on production of India’s two staple crops of rice and wheat. The latter suffered serious damage due to a premature heat wave in 2022. With many economists underlining the growing climatic vulnerabilities to food production, food security programmes across the world will have to deal with bigger uncertainties.