Hunger Games? Govt may Shut Down Free Ration Scheme After September

The scheme for providing 5 kg food grain to every individual in addition to the subsidised ration given to ration card holders may be finished after September. Called the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), it was started during the first lockdown in April-May 2020 and has been extended every six months. It is reported to reach over 80 crore persons and is widely popular.

According to a report in the Economic Times, an internal note of the finance ministry's Department of Economic Affairs has argued that excessive spending has already inflated the food subsidy and fertiliser subsidy, and such measures, coupled with giving tax concessions on petrol and diesel need to be rationalised (read as cut) in order to protect "growth-supportive capital expenditure but also for avoiding fiscal slippage, warning that a higher fiscal deficit could widen the current account deficit”.

What this means is that the Modi government has started thinking about winding down spending on welfare measures motivated by the discredited theory that government spending needs to be minimised and fiscal deficit controlled so that the private sector gets ‘space’ to move forward.

PMGKAY had turned out to be a life saver during the Covid pandemic period of the past two years. During recent Assembly elections in several states, it helped garner goodwill for the ruling party, according to some analyses. Impelled by this ground support, the Modi government extended the scheme several times, the last time in March 2022. Under the Public Distribution System (PDS), up to 35 kilograms of food grain is issued at subsidised prices that vary from state to state. This was not sufficient for most families, and the PMGKAY provided much-needed additional food grain to families that had lost all earnings in the extended lockdowns and pandemic devastation.

The finance ministry appears to be of the view that the pandemic is finished, the economy is rebounding back, and hence there is really no need for the additional free grain to be provided. This bizarre view neglects the fact that the country is in the grip of a double whammy of staggering joblessness and zooming prices, which have suppressed demand and hence stymied any chance of the much-hyped recovery.

Are the views expressed in the note, as reported, official policy or what? At present, they are just opinions of the DEA, probably reflecting the thinking of the mandarins that do the actual running of the department/ministry. But the fact that these opinions have been circulated to journalists implies that there is lobbying going on to get these views accepted as policy. It is also possible that this revelation is a trial balloon sent up by the DEA to gauge the reaction or perhaps build opinion around the position that a squeeze in spending is necessary.

The note, it is claimed, listed several instances of increased subsidies that are damaging the country's fiscal position. These include the fact that although food subsidy had been pared down to Rs.2.07 lakh crore in 2022-23 (down from Rs 2.86 lakh crore in the preceding year), the extension of PMGKAY till September has raised the subsidy bill to Rs.2.87 lakh crore. The note allegedly says that a further 6-month extension from September would mean additional spending of Rs.80,000 crore, raising the total food subsidy to Rs.3.7 lakh crore.

It points out that the fertiliser subsidy has already jumped up from Rs 1.05 lakh crore to Rs 2.15 lakh crore. It may be recalled that international prices of certain fertilisers went through the roof following the sanctions imposed by Western countries on Russia and Belarus (main exporters of certain essential fertilisers) after the start of the Ukraine war.

The note is alleged to have also mentioned that the recent cuts in petrol-diesel prices will cause a loss of Rs.1 lakh crore to the exchequer. This is a disingenuous argument because it was the government itself that had raised petrol-diesel prices several times in order to raise revenue, shifting the whole financial burden onto the people.

Needless to say that these instances all concern much-needed relief to common people facing immense hardships due to the government's own policies. The note is thus a reflection of the dominant economic policy thinking in the Modi government, which is always resistant to economic relief to people being given from the exchequer. Of course, this will ultimately be balanced with political considerations – if elections are to be won, then this thinking gets shunted to the back burner, and populism takes over. However, in the long-range, all welfare schemes are constantly facing the squeeze. The much-hyped Ujjwala scheme of subsidised LPG cylinders for domestic use has come to a cropper because the subsidy was withdrawn silently. All that remained was a free connection.

Whatever the case, the Modi government's record doesn't provide much confidence that these views recorded in the DEA note (as reported) will not be given serious credence.In that case, people across the country may well be facing a very serious financial crisis as the cornerstone of relief in the form of staples will be wiped out after September. Far from acceding to the demand for providing income support to non-income tax-paying families and expanding the PDS basket, as voiced repeatedly by trade unions and farmers' organisations, this will be a retrograde step that will further aggravate the grave financial crisis facing the people. It should be remembered that procurement of wheat has already plummeted this season, and it will not be surprising if the PDS allocations fall in the absence of adequate stocks. This would create an explosive crisis for crores of families that the Modi government – enamoured of its own perceived successes and blind to the harsh reality – will find difficult to handle