Will Centre extend free foodgrains scheme beyond Sept or let it fade away?

Drawdown in wheat stocks, fear of fall in rice production raise doubts on scheme's sustenance beyond Sept 30 deadline

A sharp drawdown in India’s wheat inventory, exacerbated by a fear of a fall in rice production due to drought-like conditions in the main growing states, has raised questions on the government’s ability to sustain the free foodgrain distribution scheme beyond its current deadline of September 30.

The drawdown in wheat stocks due to low production and strong procurement by private agencies could have led to some savings in expenditure.

Whether the savings will be enough to cover the extra expenditure on extending the free foodgrain schemes beyond September is a big question.

Moreover, does the country have enough wheat and rice stock to sustain another extension of Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) without escalating domestic prices?

“Rice can be the major concern as acreage is down. In states like Uttar Pradesh, West Bengal, and Bihar, deficient rains may reduce overall production. In Punjab and Haryana, rice production may be plus/minus 10 per cent of last year. Production may come down by at least 15 million tonnes (mt), compared to last year,” says Rahul Chauhan, a commodity analyst with iGrain India.

India’s next wheat crop will come into the market from April 1, 2023. Until then, the country will have to rely on its stocks — both from private traders and the central government — to meet domestic consumption demand.

Fearing drawdown in inventory, the central government had in early May replaced around 5.5 mt of wheat with rice under the Pradhan Mantri Garib Kalyan Yojana.

Thereafter, it replaced another 6.1 mt of wheat with rice distributed under the regular public distribution system (PDS), according to the National Food Security Act (NFSA).

Through this, it freed up around 11 mt of wheat to manage its stocks.

Under PMGKAY — launched in March 2020 as a welfare scheme to reduce the hardships of people during the Covid-19 pandemic — around 5 kilos of free grain are distributed to NFSA beneficiaries.

The scheme has since been extended six times — the latest being on April 1 for six months.

Wheat

An analysis of the current stock position and future distribution scenarios reveal that if the Centre decides to extend PMGKAY beyond September with the current mix of wheat and rice — which was changed in May in favour of rice — it will end up with 11.4 mt of wheat in its inventory by March 31, 2023, against a buffer and strategic reserve requirement of 7.5 mt.

Assuming the central government continues with its current distribution plan for both NFSA and PMGKAY, it will have a year-end inventory of 52 per cent more than the buffer requirement.

This year-end closing of wheat stock has been calculated assuming a monthly demand for PDS and PMGKAY at 2 mt, while the July 1 wheat stock in the central pool is estimated to be around 28.5 mt.

Rice

Assuming PMGKAY is extended, India’s year-end rice stocks in the central pool will be around 8.6 mt less than the buffer requirement of 13.58 mt.

However, there is a catch in this calculation. This does not take into account the new procurement, which will start from October 1.

Unlike wheat, rice is grown twice — the biggest is kharif, procurement for which will start from October 1.

If rice procurement drops sharply like it did for wheat, when it fell nearly 57 per cent this year, it could be a very different scenario.

A panel of senior government officials is believed to have deliberated on possible rice stock scenarios and weighed up the need to curb exports.

A senior official told Business Standard that no decision has been taken on extending PMGKAY beyond September. Even if it is, fiscal consideration will be of least priority.

A bigger consideration will be the availability of foodgrain stocks.

India had budgeted Rs 2.06 trillion for food subsidy for 2022-23 (FY23). This shot up by Rs 80,000 crore due to the extension of the free foodgrain scheme for the first six months, starting April 1.

The total expenditure on food subsidy is estimated to be around Rs 2.86 trillion for FY23.

Extending the scheme by another six months will add the same or more to the Budget Estimates for food subsidy.

There is a snag here as well.

Some reports say the Centre has managed to save around Rs 76,000-78,000 crore due to lower-than-targeted wheat procurement in FY23.

A third and perhaps more crucial factor that could influence the Centre’s plans to extend PMGKAY is the impending Assembly elections and the message an abrupt halt to a pro-poor measure will have on the electorate.