Unpaid bills of Rs 17,000 crore — and growing — have revealed hidden food subsidies and acute financial mismanagement as the Indian government prepares to adopt the costliest, most ambitious legislation of its tenure. Documents reveal this is the money the government now owes the state-run Food Corporation of India (FCI), hampering its mammoth operation of buying grain from the farmer, storing it and selling it cheaply to millions of poor people. The documents also reveal that the food subsidy for 2009-10 was about Rs 70,000 crore, or Rs 10,000 crore more than the government officially stated. “The government is not reflecting its true food subsidy,” said a highly placed official, requesting anonymity because of the issue’s political sensitivity.
The unpaid, hidden subsidies indicate the financial and governance challenges ahead for the Food Security Act, which will likely balloon food subsidies to more than Rs 1 lakh crore. The new law, likely to be introduced in the monsoon session of Parliament, comes with a promise of cheap food to the world’s largest malnourished population and possible peril to India’s finances and food grain costs. “We do have a problem, some amounts are pending,” minister of state for food and public distribution KV Thomas acknowledged. “I am myself taking up the issue with various government departments that have not made payments on time.”
So tardy were those payments that food subsidy defaults grew 800% over the last six years, according to a March 2011 bulletin issued by the food ministry. From Rs 6,800 crore for the last fiscal, these arrears have today exceed Rs 17,000 crore. The non-payment of subsidies recently left the FCI with less than 10 days of credit, and the State Bank of India, which leads a consortium of 59 banks funding the nationwide movement of food, refused further credit, sources in the finance and food ministries said, on condition of anonymity.
In Mumbai, an SBI official, similarly refusing to be identified, confirmed that FCI chairman Siraj Husain and his team visited Mumbai about two months ago, seeking a short-term loan from the consortium, beyond the corporation’s government-secured credit limit of Rs 35,000 crore. “We had a pleasant chat,” said the official, explaining that the loan request was turned down since it would not be backed by a sovereign guarantee. The FCI eventually cobbled together “some money” from individual banks, he said.
With a World Bank warning last week that 60% of India’s burgeoning food subsidies do not reach the poor, the mismanagement of payments is the latest evidence of a faltering public-distribution system (PDS) that experts said needs to be fixed before the new law is introduced. “Given the current state of the PDS, without a massive and effective reform, it would be irresponsible to push more money into the system,” said Abhijit Banerjee, an economist at the Massachusetts Institute of Technology (MIT) and founder-director of the Abdul Latif Jameel Poverty Action Lab.
Drafted by the National Advisory Council and strongly backed by UPA chairperson Sonia Gandhi, the Food Security Act will make access to food a legally enforceable constitutional right, like the right to life. The NAC has proposed that in the first phase 72% of the population get subsidised food by 2011-12, with wheat at Rs 2 per kg and rice at Rs 3 per kg. The government has not yet decided prices.