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Reducing Subsidies: Let’s Focus on Food Wastage, and Not Procure and Store 50% More Than Required, Please?

The Food Corporation of India continues to have very high stocks of wheat and rice, but it’s beginning to moderate. We are still storing stocks that are 50% higher than even the revised buffer requirements due to the Food Security Act (which were increased from earlier norms by over 1/3rd).

Here’s the current buffer stock of Wheat and Rice (which is pretty much more than 95% of what FCI procures):

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According to a Business Standard Article, the government will change the buffer norms (the black line above) to the following:

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We currently have 48 million tonnes (480 lakh tonnes) in stock. This is higher than even the upwardly revised norms of 33 million tons by about 50%!

Subsidy Blowout

A less spoken about part of the budget this year was: The Food Subsidy for 2014-15 is going to be 123,000 cr., which is 33,000 cr. higher than the expenditure budgeted in July last year of 90,000 cr.

We just overshot our subsidy budget for food by 35%!

Our View: Clean This Up

I would encourage everyone to read this excellent summary of the Shanta Kumar Report on the FCI. FCI staff get over Rs. 4 lakh a month as salary, procure from a very small set of states, and stock way above the buffer norms.

This needs to be cleaned up. We saved 30,000 cr. on the oil subsidy last year, just to pay it out to FCI. FCI procures only from rich farming states – and only 4 to 5 states benefit – which means the “subsidy” is going only to a few pockets.

Asking everyone else to give up LPG subsidy is okay, but it’s more important to see the bigger picture of subsidies themselves. The sheer size and wastage in the Food Subsidy makes the LPG thing pale in comparison. It’s time to reduce that dramatically, and immediately, just as we desperately beg people to pay Rs. 200 more per cylinder if they can afford it.

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