The Hindu Business Line : Rs 2,000-cr cut in food subsidy

WITHOUT tinkering with the issue price of grains sold through the public distribution system (PDS), the Union Finance Minister, Mr P. Chidambaram, has cut Rs 2,000 crore in the budgeted food subsidy for 2004-05 over the figure projected by his predecessor, Mr Jaswant Singh, in his Interim Budget of February 3, 2004.

The Interim Budget had anticipated the Centre's food subsidy bill for the current fiscal at Rs 27,800 crore, against Rs 25,200 crore for 2003-04. But in the `full' Budget for 2004-05, the outgo is expected to be only Rs 25,800 crore, which is Rs 600 crore higher than the previous year's revised estimate.

This is despite there being no increase in the PDS issue price or rationalisation of the existing unlimited grain procurement regime. Further, Mr Chidambaram has proposed extending the coverage of the Antyodaya Anna Yojana from 1.5 crore to 2 crore families. The scheme entitles the beneficiary families to avail themselves of up to 35 kg of foodgrains per month at Rs 2 per kg for wheat and Rs 3 per kg for rice. This scheme alone is expected to account for about Rs 3,500 crore of the total food subsidy.

How has the Finance Minister then restrained the food subsidy bill? The answer, officials say, has mainly to do with the fact that the Food Corporation of India (FCI) will be handling much lower level of stocks this year, which will bring down its inventory holding cost.

As on June 1, this year, total foodgrain stocks in the Central pool were 322.82 lakh tonnes (lt), comprising 122.51 lt of rice, 193.90 lt of wheat and 6.41 lt of coarse grains. At these levels, stocks are not only less than half of what they were on this date two years ago — when they touched a peak of 648.30 lt — but have also dipped to a six-year low.

Much of this has been due to higher offtake levels. During 2002-03 and 2003-04, the total grains offtake from the Central pool amounted to 470-500 lt, which was considerably higher than the quantities lifted in the previous years. A significant portion of this was on account of exports. Between 2000-01 and 2003-04, a total quantity of 289.44 lt was lifted by exporters from FCI's godowns.

The other reason for lower subsidy outgo is lower procurement. During the 2004-05 rabi season, wheat procurement at about 167 lt has been about 20 lt lower than what was being initially expected.

The Interim Budget had not anticipated the sudden rise in temperatures during March, which had impacted wheat yields and brought down the total production by 50 lt from the original estimate of 760 lt. As a result, this year's procurement has been only marginally higher than the 158-lt purchased in last year's drought-hit rabi season. In any case, wheat procurement now is nowhere near the 206.30 lt and 190.26-lt levels of 2001-02 and 2002-03.

"On the one hand, offtake levels are higher. This, coupled with lower procurement along with a freeze in purchase prices, has helped in lowering stocks and controlling the subsidy bill", the officials explained.

In fact, the total grain inventories on July 1 are projected at around 300 lt, which again would be the lowest in the last six years. Although the stocks will still be higher than the normative minimum buffer norm of 243 lt for July 1, there would not be any surplus for exports.

In other words, the days of subsidised exports from the Central pool are over.