The scheme mooted by the Delhi Government will only create more avenues for the middlemen to make money at the cost of the taxpayer

Arvind Kejriwal, Chief Minister, National Capital Territory (NCT) of Delhi has justified his much-trumpeted scheme for door-step delivery of ration on the ground that this will help rein in what he describes as 'ration mafia' while ensuring that every grain of the subsidized food reaches the person (read: the poor) for whom it is intended.

Who is this 'ration mafia'? How does it plunder the subsidized food? Can the scheme prevent it?

Under the National Food Security Act, 2013, the Union Government directs the Food Corporation of India and other state agencies to procure food from the farmers at MSP (minimum support price) and organize its distribution to a mammoth population of 800 million people through an elaborate network of fair price shops (in common parlance, these are called 'ration shops') at the subsidized price of Rs 2, Rs 3 and Rs 1 per kg for wheat, rice, and coarse cereals, respectively. Each person is eligible to receive 5 kg of cereals per month.

Considering that the cost of procurement, handling, and distribution is higher (in fact, many times more) than these ridiculously low selling prices, the Centre reimburses the excess amount as 'food subsidy' to the FCI and other agencies and is paid from the Union Budget.

During 2020-21, a total of Rs 463,000 crore was paid to FCI. Apart from regular payment of Rs 215,000 crore, this included about

Rs 150,000 crore towards free food given to all the 800 million beneficiaries as also to the migrant labour during April-November, 2020 under the Aatmanirbhar package. The balance amount was used for paying off a good slice of the loan taken by FCI from the National Small Savings Fund (NSSF) to finance the shortfall in subsidy reimbursements by the Centre in the past. Additionally, Rs 40,000 crore was paid to other state agencies under decentralized procurement (DCP).

During 2021-22, payment to FCI is expected to be about Rs 302,000 crore including Rs 202,000 crore being the budget allocation and an additional about Rs 100,000 crore to provide for free food under Aatmanirbhar till November 2021 (announced subsequently to mitigate the impact of the second pandemic wave). A further Rs 40,000 crore is available for DCP.

The scheme is pan-India, covering all the 28 states and eight union territories including the NCT of Delhi. The stuff unveiled by Kejriwal is merely an improvisation of this scheme. Unlike the latter wherein the beneficiary has to go to the ration shop for collecting 5 kg of cereals per month, under the former, the State Government will arrange for delivery of 4 kg of wheat flour and one kg rice at his/her doorsteps. Hopefully, he/she need not pay extra for getting 'wheat as flour' or receiving ration at home.

However, the delivery will be at a huge cost to the state exchequer by way of the Government having to pay vendors for picking up wheat from the ration shop, process it into flour and deliver back to the shop in round one, and then lifting the wheat flour plus rice and delivering the packet to each of the millions of beneficiaries at their homes in round two. This cost will have to be funded by the state as an 'additional subsidy' over and above what is given by the Centre.

Fundamentally, the Delhi scheme being the same as the Centre's, if the charge (read: 'ration mafia') leveled by Kejriwal holds for the latter then this will also hold for the former. Let us examine.

When the owner of a ration shop has in his stock wheat/rice meant for distribution to ration card holders (RCH) at Rs 2/Rs 3 per kg, he may get a strong temptation to divert it to the open market where they can fetch a minimum of Rs 25/Rs 35 per kg. He will take deliveries from the FCI godown in the name of a 'fictitious' RCH and sell all those quantities in the market raking in a clear bonanza of Rs 23 and Rs 32 per kg on wheat and rice, respectively. This indeed is happening on a massive scale all over India and has been recognized by the Prime Minister too.

To stem the rot, the Modi Government has taken several measures including the One Nation One Ration Card (ONORC) scheme which has at its core, the e-POS machine at all ration shops. Under this modus operandi, supply of the subsidized food to the beneficiary is made conditional upon him/her authenticating - using Aadhaar - taking delivery with the sale getting registered on the e-POS machine. This is uploaded onto the web portal on a 'real time' basis which should help in detecting dubious sales if any.

Since 2014, reportedly, the Government has weeded out close to 44 million bogus ration cards which are equivalent to 176 million beneficiaries (assuming four persons on a card) or nearly 20 per cent of 800 million covered under NFSA. This is a creditable achievement. However, considering the large-scale diversion which in some states could be as high as 50 per cent, there is still a long way to go.

The menace of bogus ration cards is only a part of a larger problem in the public distribution system (PDS) as pilferage could be happening even at other levels in the supply chain; for instance, at the rake unloading points and godowns of the FCI. Reports of the disappearance of food stocks worth about Rs 20,000 crore in Punjab in 2016 is a glaring example. The misuse of budgetary resources also manifests in other forms such as inefficiencies in handling operations of FCI/other state agencies and inflated claims (including bogus claims) towards various expenses.

All this happens because, under the existing system, the agencies get reimbursement for the costs on an 'actual' basis. This indeed is the most serious flaw in the scheme. Camouflaged under the noble banner of 'food subsidy', albeit, for the millions of poor, this often goes unchallenged even when irregularities are pointed out by Comptroller and Auditor General (CAG).

The scheme mooted by the Delhi Government does nothing to address this flaw. It will only create more avenues for middlemen to make money at the cost of the taxpayer. What is the way forward?

The solution to the problem cannot be seen in isolation from its source. It has to do with plenty of food available 'virtually for free' which ignites the greed of stakeholders leading to pilferage and other ills. This free cult has to stop.

The Government should unshackle the food supply and distribution chains. It should put the subsidy currently built into the sale price of food, say, Rs 32 per kg on rice (cost: Rs 35 per kg minus subsidized price: Rs 3 per kg) or Rs 160 per person per month (under the NFSA, he/she is eligible to get 5 kg in a month) in the account of a beneficiary who can use it to buy from wherever he/she chooses. This is the Direct Benefit Transfer (DBT) of subsidy. While fully protecting the poor, it can help in curbing the colossal loot and wastage of public money that is germane to the existing dispensation.

Will Prime Minister Modi bite the bullet?

(The writer is a policy analyst. The views expressed are personal.)