Right to food, or right to loot? Rs 1 lakh crore of food subsidy will not reach the poor

If we were to ask you to carry a bucket of water across India whose bottom has eroded by over 88 percent, would you even try fetching water with this contraption? Your first priority would be to either fix the bucket or buy a new one.

However, if you are the UPA government harbouring noble thoughts about serving the poorest of the poor with cheap food, you will say: since a new bucket costs Rs 100, we will use the one we have. And we will make up for the loss by topping up the budget frequently so that at least some water reaches the final destination.

This is the story of the UPA government's food subsidies, which starts out with the full bucket when a budget outlay is announced, but by the time it reaches the poor guy, contains just 12 percent of what was intended for the poor.

This means in 2014-15 the government will be wasting over Rs 1,01,200 crore out of a food subsidy outlay of Rs 1,15,000 crore. It will either be wasted or misspent on the wrong people. It needs to be stopped.

This is the implied conclusion one comes to based on the Planning Commission's Independent Evaluation Office's (IEO's) initial calculations. Set up under Ajay Chibber, a former UN official, the IEO is trying to figure out where the big monies are going, and how effective the public spends on food subsidies are.

Its first study shows that it takes Rs 3.65 to reach Re 1 worth of grain, and even in this Re 1, some 57 percent does not reach the right beneficiary - that is, the poor. This means out of the total Rs 3.65 spent, only 43 paise gets to the poor - about 12 percent of the original quantity. That's how we got the number above. Some 88 percent of the money spent is wasted. That's Rs 1,01,200 crore in next year's budget.

This is not very different from Rajiv Gandhi's estimate in the mid-1980s that only 15 paise worth of money spent on the poor actually reached them. Nearly 30 years later, the situation is, if anything, worse - but money continues to be poured down the same drain using the same horribly leaky bucket.

Remember, even the Rs 1,15,000 crore subsidy bill of 2014-15 is likely to be an underestimate - as budgets usually tend to be. This means the loss in transit will be even larger than the Rs 1,01,200 crore we have estimated.

The IEO study only looks at average costs - spending Rs 3.65 to reach Re 1 of foodgrain to the end-recipient, intended or unintended.

But if you were to look at the ultra-poor - those living in tribal areas or people in chronically drought-prone districts who always live at the margin - the ratio is worse: for every Rs 6 spent, only Re 1 gets to the tribal.

In a news report some years ago, Swarna S Vepa, economist and author of Bearing the Brunt: Impact of Rural Distress on Women (Sage), told BusinessLine in an interview: "As per the report on 'Performance evaluation of targeted public distribution system' by the Planning Commission in 2005, for one rupee worth of income transfer to the poor, government of India spends Rs 3.65. This is the average cost. The cost of reaching the poorest man in the remote tribal areas could be even higher: at almost Rs 6. It means that Re 1 of budgetary consumer subsidy is worth only 27 paise to 13.5 paise to the poor."

Subtract the 57 percent that does not go to the right people, and the final figure could be closer to 12 paise or 6 paise going to right intended beneficiary - whether in non-tribal or tribal areas.

Two issues arise.

One, note the similarity between the figures relating to 2005 that Vepa gives and what IEO have now given: they are the same Rs 3.65 for delivery of Re 1 worth of grain. Clearly, the new estimates are either based on the old study or the system has simply not been improved since 2005.

Two, when we don't know how much money is going down the drain, does it make any sense to increase the size of the flow going down it?

Can you fix a leaky pipe with the water in full flow? The next government will have to first reduce the size of the subsidy by focusing it on the right people, and second, shift to cash payments so that the entire issue of loss in transit is dramatically reduced.

The massive wastage unleashed by the UPA has to be stopped.

Updated Date: Feb 27, 2014 15:08:26 IST