
## Demand For Grants 2021-22 Analysis Food And Public Distribution

The Ministry of Consumer Affairs, Food and Public Distribution has two Departments: (i) Food and Public Distribution, and (ii) Consumer Affairs. Allocation to the Ministry accounts for 7% of the budget of the central government in 2021-22.1 

As 2020-21 had extraordinary expenditure on 
account of COVID-19 and payment of food 
subsidy arrears, we have used annualised 
increase (CAGR) over the 2019-20 figures to 
compare the 2021-22 budget estimates. 

Department of Consumer Affairs is responsible for spreading awareness among consumers about their rights, protecting their interests, implementing standards, and preventing black marketing.2  In 2021-22, the Department has been allocated Rs 2,974 crore, a 24% annual increase over 2019-20.3 
Department of Food and Public Distribution is responsible for ensuring food security through procurement, storage, and distribution of foodgrains, and for regulating the sugar sector.4  In 2021-22, the Department has been allocated Rs 2,42,836 crore (99% of the Ministry's allocation).5  This is an annual increase of 48% over 2019-20 expenditure. 

% change 
Department 
2019-20 
Actuals 
2020-21 
Revised 
2021-22 
Budgeted 
(annualised) 
in 2021-22 
over 2019-20  
Food & Public Distribution 
1,15,173  4,38,649  2,53,974  
48% 
Consumer Affairs 
1,923  
12,038  
2,974  
24% 
Total 
1,17,096  4,50,687  2,56,948  
48% 

Sources:  Expenditure Budget, Union Budget 2021-22; PRS. 

This note examines the allocation to the Department of Food and Public Distribution.  It also discusses the broad issues in the sector and key observations and recommendations made in this regard. 

## Overview Of Finances

Food subsidy is the largest expenditure by the Department of Food and Public Distribution.  96% of the Department's allocation in 2021-22 is towards food subsidy (see Table 9 in the Annexure for more details).  The subsidy is provided to the Food Corporation of India (FCI) and states for procuring foodgrains from farmers at government notified prices and selling them at lower subsidised prices (known as Central Issue Prices), under the National Food Security Act, 2013.  The Act mandates coverage of 75% of the population in rural areas and 50% in urban areas, and covers 81 crore persons.6,7 
Tel: (011) 43434035, 23234801 ◼ www.prsindia.org 

The subsidy also covers the storage cost incurred by 
FCI in maintaining buffer stocks in order to ensure 
food security in the country.  Table 2 shows the 
expenditure on food subsidy during 2011-21. 

| Year     | Allocation    | Expenditure    | % utilisation    |
|----------|---------------|----------------|------------------|
| 2011-12  | 60,573        | 72,822         | 120%             |
| 2012-13  | 75,000        | 85,000         | 113%             |
| 2013-14  | 90,000        | 92,000         | 102%             |
| 2014-15  | 1,15,000      | 1,17,671       | 102%             |
| 2015-16  | 1,24,419      | 1,39,419       | 112%             |
| 2016-17  | 1,34,835      | 1,10,173       | 82%              |
| 2017-18  | 1,45,339      |                |                  |
| 1,00,282 |               |                |                  |
| 69%      |               |                |                  |
| 2018-19  | 1,69,323      |                |                  |
| 1,01,327 |               |                |                  |
| 60%      |               |                |                  |
| 2019-20  | 1,84,220      |                |                  |
| 1,08,688 |               |                |                  |
| 59%      |               |                |                  |
| 2020-21  | 1,15,570      |                |                  |
| 4,22,618 |               |                |                  |
| #        |               |                |                  |
|          |               |                |                  |
| 366%     |               |                |                  |
| 2021-22  | 2,42,836*     |                |                  |
| -        |               |                |                  |
| -        |               |                |                  |

Note:  *Budget estimate; #Revised estimate. Sources:  Expenditure Budget, Union Budgets (2011-21); PRS. 

The Department was allocated Rs 1,84,220 crore for 
food subsidy in 2019-20.  However, only 59% of the 
allocation was utilised as the food subsidy provided 
to FCI decreased from Rs 1,51,000 crore (budget 
estimate) to Rs 75,000 crore.  As directed by the 
Ministry of Finance, the Department deferred the 
payment of food subsidy due to FCI, resulting in an 
underspending of Rs 76,000 crore.8  Due to such 
deferment, more so since 2016-17, the food subsidy 
paid to FCI has been much lower than the amount 
allocated in the budget for this purpose.  As a result, 
the food subsidy payment due to FCI increased over 
the years, from Rs 50,037 crore at the end of 2015-
16 to Rs 2,43,779 crore at the end of 2019-20.9 

In the meanwhile, the government provided loans to 
FCI from the National Small Savings Fund (NSSF) 
to meet its operational requirements.  NSSF loans 
worth Rs 2,54,600 crore were outstanding with FCI 
at the end of 2019-20.10  In her 2021-22 budget 
speech, the Finance Minister announced that the 
government will discontinue the NSSF loans given 
to FCI and accordingly make budget provisions in 
2020-21 and 2021-22.11  It estimates the NSSF loans 
outstanding with FCI to reduce to Rs 63,712 crore 
by the end of 2021-22.12  Thus, the government has 
significantly increased the allocation for food 
subsidy to FCI to clear its dues, which in turn will 
be used by FCI to repay the NSSF loans.  In 2020-
21, the allocation has increased from Rs 77,983 
crore (budget estimate) to Rs 3,44,077 crore (revised 
estimate).  In 2021-22, Rs 2,02,616 crore has been 
allocated, a 64% annual increase over 2019-20. 

Note that the increase seen in allocation in 2020-21 
is also on account of the additional expenditure incurred by FCI in providing free foodgrains to poor under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY).13  The scheme was announced in March 2020 as a part of the COVID-19 relief package for the poor.  Under the scheme, five kg of wheat or rice and one kg of pulses were provided for free every month to persons from poor families during the period April-November 2020.  All beneficiaries under the National Food Security Act, 2013 were eligible for these benefits in addition to their existing foodgrain entitlements. The cost of providing free foodgrains under the scheme PMGKAY was borne by the Department in 2020, which is estimated to be nearly Rs 1,34,030 crore.14  This expenditure was in the form of: (i) food subsidy to FCI, (ii) food subsidy to states, and (iii) assistance to states for intra-state movement of foodgrains and margin of fair price shop dealers. In May 2020, the government extended the benefits provided under PMGKAY to migrants (who were not eligible for the benefits otherwise) for a period of two months in 2020 under the Aatmanirbhar Bharat Economic Package.15  This scheme's cost for the Department is estimated to be Rs 989 crore.16 

## Components Of Food **Subsidy**

Expenditure on food subsidy can be classified under the following three heads (break-up in Table 3): 

- 
Subsidy to FCI:  The Food Corporation of 
India (FCI) receives subsidy for procuring foodgrains from farmers at government notified prices and selling them at lower subsidised prices.  It also receives subsidy for the storage cost incurred in maintaining buffer stocks. 
- 
Subsidy to states:  Under the decentralised 
procurement scheme, states may choose to 
undertake the operations of procurement, storage, and distribution on behalf of FCI, for which they are provided with subsidy. 
- 
Sugar subsidy:  Sugar subsidy is provided for 
giving one kg of sugar per month at subsidised rates to families covered under the Antyodaya Anna Yojana (i.e., poorest of the poor families). 
In 2021-22, subsidy to FCI and states form 83% and 16% of the allocation for food subsidy, respectively. 

% change 
Subsidy 
2019-20  
Actuals 
2020-21  
Revised 
2021-22 
Budgeted 
(annualised) 
in 2021-22 
over 2019-20 
Subsidy to FCI 
75,000 3,44,077 
2,02,616 
64% 
33,508 
78,338 
40,000 
9% 
Subsidy to states (decentralised procurement) Sugar subsidy 
180 
203 
220 
11% 
Total 
1,08,688 4,22,618 
2,42,836 
49% 

Sources:  Expenditure Budget, Union Budget 2021-22; PRS. 

## Issues In The Sector

FCI and state agencies procure foodgrains from 
farmers at the government notified Minimum 
Support Prices (MSPs).  These foodgrains are 
provided to the economically weaker sections at 
subsidised prices through fair price shops under the 
Public Distribution System (PDS).  The central and 
state governments provide subsidised foodgrains to 
beneficiaries under the National Food Security Act, 
2013 as well as certain other welfare schemes such 
as the Mid-Day Meal scheme.  In this section, we 
examine some issues relating to the: (i) pending 
dues of FCI, (ii) provision of food subsidy, (iii) 
PDS, and (iv) sugarcane dues to farmers. 

## Pending Dues Of Fci

The central government provides food subsidy to 
FCI as reimbursement of the loss it incurs in its 
procurement, storage, and distribution operations.  
During the period 2016-20, although the Department 
used to receive sufficient allocation for payment to 
FCI, due to budget cuts made during the year, the 
actual amount paid to FCI was much lower.  The 
CAG (2019) observed that when the food subsidy 
budget is not sufficient to clear FCI's dues, such 
dues are carried over to the next year.17  Due to such 
carryovers every year, payment due to FCI for food 
subsidy increased from Rs 50,037 crore at the end of 
2015-16 to Rs 2.44 lakh crore at the end of 2019-20. 

In 2020-21, the allocation for food subsidy to FCI 
has been increased by 359% over 2019-20 to Rs 
3.44 lakh crore (revised estimate).  In comparison, 
the subsidy cost incurred by FCI in 2020-21 has also 
increased significantly due to the additional benefits 
provided under the COVID-19 relief packages.  The 
cost incurred by FCI in 2020-21 is estimated to be 
Rs 2.19 lakh crore, 65% higher over 2019-20.  Thus, 
there is a surplus allocation of Rs 1.25 lakh crore in 
2020-21 for clearing the dues of FCI.  This would 
reduce FCI's outstanding dues from Rs 2.44 lakh 
crore to Rs 1.19 lakh crore by the end of 2020-21. 

Sources:  Food Corporation of India; PRS. 

In 2021-22, Rs 2.03 lakh crore has been allocated 
for food subsidy to FCI.  Assuming that the subsidy 
cost incurred by FCI in 2021-22 is the same as that 
in 2019-20 (Rs 1.33 lakh crore), this allocation 
would further reduce the outstanding subsidy dues 
of FCI to Rs 48,703 crore by the end of 2021-22. 

Due to the delay in clearing dues by the Department, FCI borrows money for its operational requirements. When FCI uses such borrowings to fill the resource gap, the Department has to provide additional funds in subsequent years for payment of interest on these borrowings.  The CAG observed that the central government has adopted this off-budget method of financing the subsidy dues, thereby deferring the payment to FCI.17  This understates a particular fiscal year's expenditure by keeping deferred expenditure off-budget for that year, and prevents transparent depiction of fiscal indicators.  For instance, if the central government had cleared all the subsidy dues of FCI in the year 2019-20 itself, its fiscal deficit (borrowings) for 2019-20 would have increased from 4.6% of GDP to 5.8% of GDP. 

## Provision Of Food Subsidy

The Targeted Public Distribution System (TPDS), through which foodgrains are distributed at subsidised prices, seeks to provide food security to people below the poverty line.  Over the years, the spending on food subsidy has increased and the ratio of people below the poverty line has decreased from 54.9% in 1973-74 to 21.9% in 2011-12 (Table 4). 

No. of Poor (in crore) 
| 1973-74    | 54.9%    |   32.1  |
|------------|----------|---------|
| 1977-78    | 51.3%    |    32.9 |
| 1983-84    | 44.5%    |    32.3 |
| 1987-88    | 38.9%    |    30.7 |
| 1993-94    | 36.0%    |    32   |
| 2004-05    | 27.5%    |    30.2 |
| 2011-12    | 21.9%    |    26.9 |

Note:  Figures from 1973-74 to 2004-05 have been computed using the Lakdawala methodology, and figures for 2011-12 have been computed using the Tendulkar methodology. Sources:  Planning Commission; PRS. 

The proportion of undernourished persons reduced from 18.6% in 2000-02 to 14% in 2017-19 (Table 5).  However, due to population growth, the number of undernourished persons has not reduced much (from 20 crore in 2000-02 to 18.9 crore in 2017-19). 

Number of 
Year 
Proportion of population 
undernourished (in %) 
undernourished 
persons (in crore) 
2000-02 
18.6% 
20.0 
2003-05 
22.2% 
25.1 
2008-10 
16.4% 
20.0 
2013-15 
15.3% 
19.8 
2017-19 
14% 
18.9 

Sources:  Food and Agriculture Organisation, 2020; PRS. 

Nutritional balance:  The National Food Security Act, 2013 guarantees five kg of foodgrains per person per month to entitled beneficiaries at subsidised prices.  Further, Antyodaya Anna Yojana households, which constitute the poorest of the poor, are entitled to 35 kg per household per month at subsidised prices.  Presently, the food items provided by the central government for distribution under PDS are mainly rice, wheat, and sugar.18 

As shown in Figure 2 and Figure 3, there has been a 
change in the pattern of nutritional intake among 
people in both rural and urban areas (details given in 
Table 10 and Table 11 in the Annexure). 

Although cereals or foodgrains contain only 10% 
protein, their share as a percentage of the total 
protein intake has been over 50% in both rural and 
urban areas.19  However, other food items such as 
meat and pulses contain more than 20% protein but 
contribute to only 15% of the total protein intake. 

The share of cereals in calorie intake has reduced by 
10% in rural areas and 7% in urban areas, whereas 
that of milk, eggs, fish, and meat has increased (see 
Table 10 in the Annexure).  This indicates a reduced 
preference for rice and wheat, and an increase in 
preference towards other protein-rich food items.  
The National Food Security Act, 2013 requires the 
central and state governments to undertake steps to 
diversify commodities distributed under PDS.6 

Imbalance in farm production: MSP is the assured 
price announced by the central government at which 
foodgrains are procured from farmers by the central 
and state governments and their agencies, for the 
central pool of foodgrains.6  The central pool is used 
for providing foodgrains under PDS and other 
welfare schemes, and also kept as reserve in the 
form of buffer stock.  While MSPs are annually 
announced for 23 crops, public procurement is 
limited to a few crops such as paddy (rice), wheat, 
and, to a limited extent, pulses (Figure 4). 

The Economic Survey 2019-20 observed that the regular increase in MSP is seen by farmers as a signal to opt for crops which have an assured procurement system (for example, rice and wheat).20 Thus, MSP incentivises farmers to grow crops which are procured by the government.  As wheat and rice are major foodgrains provided under the PDS, the focus of procurement is on these crops. This skews the production of crops in favour of wheat and paddy (particularly in states where procurement levels are high), and does not offer an incentive for farmers to produce other items such as pulses.21  Further, this puts pressure on the water table as these crops are water-intensive (also applicable to sugarcane which has assured purchase by private sugar mills).22  Note that the National Food Security Act, 2013 requires the central and state governments to undertake steps to diversify commodities distributed under PDS.6 The procurement of foodgrains is largely concentrated in a few states.  Three states (Madhya Pradesh, Punjab, and Haryana) producing 46% of the wheat in the country account for 85% of its procurement.  Six states (Punjab, Telangana, Andhra Pradesh, Chhattisgarh, Odisha, and Haryana) with 
40% of the production of rice have 74% share in procurement.  The National Food Security Act, 2013 requires the central, state, and local governments to strive to progressively realise certain objectives for advancing food and nutritional security.6  One of these objectives involves geographical diversification of the procurement operations. 

As procurement of wheat and paddy is done at MSP 
(which is often above market prices), their stocks 
have grown over the years.  At the end of 2019-20, 
the stock of these foodgrains was 19% more than the 
offtake in that year (see Table 13 in the Annexure). 

## Revision Of Central Issue Price (Cip)

Under the National Food Security Act, 2013, food 
subsidy is given to beneficiaries at the CIP, which 
was last revised in 2002.  Table 6 shows the CIP for 
wheat and rice for various beneficiaries. 

| Foodgrain    |   AAY  |   BPL  |   APL  |
|--------------|--------|--------|--------|
| Rice         |      3 |   5.65 |   7.95 |
| Wheat        |      2 |   4.15 |   6.1  |

Note:  AAY - Antyodaya Anna Yojana, BPL - Below Poverty Line, APL - Above Poverty Line. Sources:  Department of Food and Public Distribution; PRS. 

In comparison to the CIP, the economic cost 
(including procurement, stocking, distribution) for 
wheat is Rs 30 per kg and for rice is Rs 43 per kg as 
of February 2021.9  Food subsidy is calculated as 
the difference between the economic cost of 
procuring foodgrains, and their CIP.  While the 
economic cost for rice has increased from Rs 11 per 
kg in 2001-02 to Rs 43 per kg in 2021-22 (Figure 8), 
and of wheat from Rs 9 per kg to Rs 30 per kg over 
the same period (Figure 7), their CIPs have not been 
revised.  This has led to an increasing gap between 
the economic cost and CIP, leading to an increase in 
expenditure on food subsidy. 

The Standing Committee on Food, Consumer Affairs and Public Distribution (2016-17) noted that the reasons for increase in food subsidy include: (i) increase in the procurement cost of foodgrains, (ii) non-revision of the Central Issue Prices since 2002, and (iii) implementation of the National Food Security Act, 2013 in all states.23  In 2018-19, the Ministry had stated that increasing the CIP could be one of the measures to bridge the gap between the funds it requires, and the funds it is finally allocated. 

## Delivery Of Food Subsidy

Leakages in PDS:  Leakages refer to foodgrains not reaching the intended beneficiaries.  Note that recent data on leakage is not publicly available.  The latest available data is for 2011.  According to the 2011 data, leakages in PDS were estimated to be 46.7% (see Table 12 in the Annexure).24,25 Leakages may be of three types: (i) pilferage or damage during transportation of foodgrains, (ii) diversion to non-beneficiaries at fair price shops through issue of ghost cards, and (iii) exclusion of people entitled to foodgrains but who are not on the beneficiary list.26,27  Studies have shown that targeting mechanisms such as TPDS are prone to large exclusion and inclusion errors.28 
Exclusion errors occur when entitled beneficiaries do not get foodgrains.  It refers to the percentage of poor households that are entitled to but do not have PDS cards.  Exclusion errors had declined from 55% in 2004-05 to 41% in 2011-12 (Figure 9). 

Inclusion errors occur when those that are ineligible get undue benefits.  Inclusion errors had increased from 29% in 2004-05 to 37% in 2011-12. Declining exclusion errors and increasing inclusion errors are due to two reasons.  First, increase in the coverage of TPDS has reduced the proportion of poor who do not have access to PDS cards.  Second, despite a decline in poverty rate, non-poor are still identified as poor by the government thus allowing them to continue using their PDS cards.29 Note that under the National Food Security Act, 2013, states are responsible for the identification of beneficiaries.  In 2016, the Comptroller and Auditor General of India (CAG) found that this process had not been completed by the states, and 49% of the beneficiaries were yet to be identified by states.30 
Sources:  Evaluation study on the role of PDS in shaping households and nutritional security in India, NITI Aayog, December 2016; PRS. 

Alternative subsidy systems:  Over the years, 
several solutions have been suggested to plug 
leakages, including: (i) Direct Benefit Transfer 
(DBT) in lieu of food subsidy, and (ii) end-to-end 
computerisation of the PDS operations.24 

The National Food Security Act, 2013 requires the 
central and state governments to progressively 
reform TPDS by taking various measures, including 
introduction of schemes such as cash transfer or 
food coupon.6  Various experts and bodies have also 
suggested replacing TPDS with a DBT system.31,32  
Advantages and disadvantages of these two methods 
of delivering benefits have been discussed below. 

- 
TPDS:  TPDS assures beneficiaries that they 
would receive foodgrains, and insulates them against inflation and price volatility.  Further, foodgrains are delivered through fair price shops in villages, which are easy to access.33,34 

However, high leakages have been witnessed in 
the system, both during transportation and 
distribution.  These include pilferage and errors 
of inclusion and exclusion from the beneficiary 
list.  In addition, it has also been argued that the 
distribution of only wheat and rice may cause 
an imbalance in the nutritional intake of 
beneficiaries.6  Beneficiaries have also reported 
receiving poor quality foodgrains under TPDS. 

- 
DBT:  DBT or cash transfers seek to increase 
the choices available with a beneficiary, and provide direct financial assistance.  It has been argued that the costs of DBT may be lesser than TPDS, owing to lesser costs incurred on transportation and storage of foodgrains.33,34  

On the other hand, it has been argued that the 
cash received through DBT may be spent on 
non-food items.  Further, such a system may 
expose beneficiaries to inflation.  In this regard, 
one may need to consider the low penetration 
and access to banking in rural areas.35 

 
 
In 2015, the Department released two notifications: 
the Cash Transfer of Food Subsidy Rules and the Food Security (Assistance to State Governments) Rules.36,37  As per these notifications, the central government offers two choices to states and union territories for reforming their respective PDS 
machinery: (i) replacing the existing TPDS with a DBT system, or (ii) Fair Price Shop automation, which involves installation of Point of Sale devices, for authentication of the beneficiaries and electronic capturing of transactions.  As of January 2021, the DBT system is under implementation in the union territories of Chandigarh and Puducherry.38 As of February 2021, 4.94 lakh (91%) Fair Price Shops have been automated across the country.39 Details regarding the status of computerisation of PDS are given in Table 14 in the Annexure. 

The High-Level Committee on Restructuring of FCI (2015) had suggested that switching to DBT for food subsidy would reduce the food subsidy bill of the government by more than Rs 30,000 crore.24 While making this recommendation, the Committee illustrated this by taking the case of subsidy given on rice (Table 7).  It assumed that the government would transfer Rs 22 for per kg rice to a beneficiary. 

Table 7: Illustration: subsidy given on rice (2015) 
1. CIP 
Rs 3 per kg 
2. MSP 
Rs 20 per kg 
3. Subsidy (3=2-1) 
Rs 17 per kg Rs 27 per kg 
4. Cost to government (Subsidy + Costs on procurement, storage, and distribution) 5. Cash subsidy to beneficiaries 
Rs 22 per kg 
6. Government saving (6=4-5) 
Rs 5 per kg 
7. Increase in beneficiary benefit (7=5-3) 
Rs 5 per kg 

Sources: High-Level Committee Report on Restructuring of FCI, January 2015; PRS. 

Aadhaar:  The High-Level Committee (2015) had also recommended the introduction of biometric authentication and Aadhaar to plug leakages in PDS. Such transfers could be linked to Jan Dhan account, and be indexed to inflation.24  As of February 2021, 128.3 crore Aadhaar cards have been generated.40 In February 2017, the Ministry made it mandatory for beneficiaries under the National Food Security Act, 2013 to use Aadhaar as proof of identification for receiving foodgrains (deadline for linking Aadhaar with ration cards extended to March 31, 2021).41,42  This aims to facilitate the removal of bogus ration cards, check leakages, and ensure better delivery of foodgrains.24,43,44 Note that beneficiaries may face issues with Aadhaar authentication while availing PDS benefits. According to the data submitted by UIDAI to the Supreme Court in Justice K. S. Puttaswamy vs Union of India, the Aadhaar authentication failure rate (across all purposes) was 8.5% for iris scans and 6% for fingerprints.45  In its judgement, the Court held that services cannot be denied to beneficiaries due to Aadhaar authentication failure. 

As of March 2020, while 100% ration cards had 
been digitised, the seeding of these cards with 
Aadhaar was at 90%.46  As of February 12, 2021, 
more than 70% of the transactions on Point of Sale 
devices are done using biometric authentication.39  
Further, between 2013 and 2020, nearly 4.4 crore 
ration cards were deleted due to detection of bogus, 
ghost, and duplicate cards during Aadhaar seeding.39 

## Current Challenges In Pds

Storage:  The Department allocates funds for the 
construction of godowns and silos to increase the 
storage capacity of FCI and state agencies.  In 2021-
22, Rs 60 crore has been allocated for this purpose, 
whereas this was Rs 63 crore in 2019-20 and Rs 44 
crore in 2020-21 (revised estimate). 

As of December 31, 2020, the total storage capacity 
in the country was 819 lakh tonnes, against 530 lakh 
tonnes of foodgrain stock.47  Of the total capacity, 
699 lakh tonnes was covered storage and 150 lakh 
tonnes (18%) was CAP (cover and plinth) storage. 

In 2021-22, out of the Rs 60 crore allocation for 
creation of storage capacity, Rs 45 crore has been 
allocated for the north-eastern region.  The Standing 
Committee on Food, Consumer Affairs and Public 
Distribution (2020) noted that FCI could not achieve 
the targets set for construction of godowns in 2019-
20.46  In the north-eastern region, against the target 
of 25,000 tonnes of storage, only 10% of the target 
was achieved.  In other states, no new godown was 
constructed, whereas the target was 2,240 tonnes. 

The Committee observed that FCI faces various 
issues in construction of godowns in the north-
eastern region such as difficult terrain, frequent 
bandhs, and difficulty in acquisition of land.  The 
Committee recommended that the Department 
should coordinate with the state governments to 
resolve these issues.  It further recommended that a 
roadmap should be chalked out by the government 
for creating mini-godowns across the country. 

In 2016, the CAG observed that, until 2014, the 
foodgrain stock in the central pool was higher than 
the FCI's storage capacity (Figure 10).30  It noted 
that in 2015, the foodgrain stock in the central pool 
became lower than the storage capacity due to an 
increase in decentralised procurement by states. 

Under the decentralised procurement system, the state governments and their agencies undertake procurement, storage, and distribution of foodgrains on behalf of FCI.  The expenditure incurred by them is reimbursed by the central government in the form of food subsidy.  The Standing Committee (2020) 
observed that the decentralised procurement system reduces FCI's handling and transportation cost and increases the efficiency of procurement.46  As of March 2020, 17 states had adopted the decentralised procurement system.  The Committee recommended that more states should be encouraged to adopt the decentralised procurement system.46  FCI should create necessary infrastructure for procurement of foodgrains in coordination with state governments. 

Fair Price Shops:  Fair Price Shops are licensed ration shops which provide foodgrains and kerosene under the public distribution system.  They may also sell certain other goods in some states.  It has been observed by various experts and the Ministry that the margins on which the Fair Price Shops operate are low.48  Further, in the absence of economic viability, there may be cases where the dealer resorts to unfair practices.  In order to make these shops viable, some states have taken steps such as: 

- 
Chhattisgarh provided interest-free seed capital of Rs 75,000 to each fair price shop for 20 years.  It also increased the commission on foodgrains from Rs 8/ quintal to Rs 30/ quintal. 
- 
States such as Assam and Delhi have permitted the sale of non-PDS items at these fair price shops.  Such items include oil, potatoes, onion, tea, and mobile recharge coupons. 

## Sugarcane Dues

The Department is also responsible for formulation of policies and regulations for the sugar sector.  In 2021-22, Rs 4,337 crore has been allocated for providing assistance to sugar mills through various measures, an annual increase of 10% over 2019-20 (Table 8).  These measures include: (i) direct assistance to mills for clearing the sugarcane dues of farmers, (ii) reimbursing the mills for maintaining buffer stock, (iii) facilitating export of sugar, and (iv) improving their ethanol production capacity. 

% change 
 
2019-20  
Actuals 
2020-21  
Revised 
2021-22 
Budgeted 
(annualised) 
in 2021-22 
over 2019-20 
For facilitating export of sugar 
551 
350 
2,000 
91% 
Direct assistance for clearing dues 
2,155 
5,073 
1,200 
-25% 
For maintaining buffer stock 
530 
650 
650 
11% 
For ethanol production 
50 
150 
300 
145% 
Other measures 
310 
594 
187 
-22% 
Total 
3,595 
6,818 
4,337 
10% 

Sources:  Expenditure Budget, Union Budget 2021-22; PRS. 

The assistance is being provided with the aim of 
improving the liquidity of sugar mills in order to 
facilitate payment of sugarcane dues of farmers.49,50  
Note that as of January 31, 2021, payment of Rs 
19,260 crore is pending with sugar mills as dues for 
2019-20 and previous years.51  State-wise details of 
the dues are given in Table 16 in the Annexure. 

These sugarcane dues accumulate due to delay in 
payments to farmers for their produce.  In years of 
surplus production, the sugar prices fall impacting 
the sale of sugar and liquidity of mills.52  As a result, 
mills are unable to pay farmers leading to delay in 
payments and accumulation of dues.  Note that 
sugar mills are obligated to purchase sugarcane from 
all farmers within their specified area at a price 
fixed by the government.  Conversely, farmers are 
bound to sell to the respective mills. 

Rationalisation of sugarcane pricing has been 
recommended as one of the steps for improving the 
efficiency of the sugar industry.  The central 
government fixes the Fair and Remunerative Price 
(FRP) for sugarcane, which is the minimum price 
that must be paid by sugar mills to farmers.53  The 
FRP is fixed based on the recommendations of the 
Commission for Agricultural Costs and Prices 
(CACP).  It is recommended taking into 
consideration: (i) the cost of production, (ii) rate of 
recovery of sugar, (iii) availability of sugar to 
consumers at a fair price, (iv) returns to farmers 
from alternative crops and the general trend of 
prices of agricultural commodities, (v) realisation 
from sale of by-products, and (vi) reasonable 
margins for farmers on account of risks and profits. 

State governments can also intervene in sugarcane 
pricing by announcing a State Advised Price (SAP).  
SAPs are usually much higher than the FRP.  This 
creates a distortion in the industry as SAP is neither 
linked to sugar recovery nor it takes into account 
domestic and global prices and other relevant 
parameters.  As a result, when sugar prices are low, 
mill owners are unable to pay farmers resulting in 
delayed payment and accumulation of dues.  The 
CACP (2018) recommended that the FRP must be 
implemented in all states and the announcement of 
SAP by states should be stopped immediately.53     
In case state governments decide to continue with 
SAP, the difference between SAP and FRP should 
be paid by the state governments directly to farmers.

## Annexure

% change 
(annualised) in 2021-
 
2019-20 
Actuals 
2020-21 
Budgeted 
2020-21 
Revised 
2021-22 
Budgeted 
22 over 2019-20 
Food subsidy 
1,08,688 
1,15,570 
4,22,618 
2,42,836 
49% 
       Subsidy to Food Corporation of India (FCI) 
75,000 
77,983 
3,44,077 
2,02,616 
64% 
       Subsidy to states (decentralised procurement) 
33,508 
37,337 
78,338 
40,000 
9% 
       Sugar subsidy payable under PDS 
180 
250 
203 
220 
11% 
Assistance to state agencies for intra-state movement of foodgrains and for margin of fair price shops' dealers 
1,679 
3,983 
8,000 
4,000 
54% 
Investment in equity capital of FCI 
1,000 
1,000 
1,000 
2,500 
58% 
Scheme for defraying expenditure on transport and marketing of sugar exports, including handling and processing 
551 
200 
350 
2,000 
91% 
Assistance to sugar mills for the seasons 2017-18 to 2019-20 
2,155 
700 
5,073 
1,200 
-25% 
Scheme for creation and maintenance of buffer stock of sugar 
530 
200 
650 
650 
11% 
Financial assistance to sugar mills for enhancement and augmentation of ethanol production capacity 
50 
50 
150 
300 
145% 
Schemes for development of sugar industries 
210 
172 
176 
187 
-6% 
Scheme for extending soft loan to sugar mills 
100 
120 
418 
- 
- 
Department 
1,15,173 
1,22,235 
4,38,649 
2,53,974 
48% 

Sources:  Demand no. 15, Department of Food and Public Distribution, Expenditure Budget, Union Budget 2021-22; PRS. 

| Vegetables &    | Meats,    |
|-----------------|-----------|
|                 |           |
| Cereals         |           |
| Pulses, nuts,   |           |
| & oilseeds      | fruits    |
| Milk & milk     |           |
| products        |           |
| Miscellaneous   |           |
| Rural           |           |
| 1993-94         | 71.0      |
| 1999-00         | 67.6      |
| 2004-05         | 67.5      |
| 2009-10         | 64.2      |
| 2011-12         | 61.1      |
| Urban           |           |
| 1993-94         | 58.5      |
| 1999-00         | 55.1      |
| 2004-05         | 56.1      |
| 2009-10         | 55.0      |
| 2011-12         | 51.6      |

Sources:  Table T18, Nutritional Intake in India, 2011-12, NSSO; PRS. 

Year 
Cereals 
Pulses 
Milk and milk products 
Egg, fish, and meat 
Other food 
Rural 
1993-94 
69.4 
9.8 
8.8 
3.7 
8.4 
1999-00 
67.4 
10.9 
9.2 
4.0 
8.4 
2004-05 
66.4 
9.5 
9.3 
4.0 
10.8 
2009-10 
64.9 
9.1 
10.0 
4.0 
12.0 
2011-12 
62.5 
10.6 
10.6 
4.7 
11.7 
Urban 
1993-94 
59.4 
11.5 
11.7 
5.3 
12.1 
1999-00 
57.0 
13.1 
12.4 
6.0 
11.5 
2004-05 
56.2 
11.0 
12.3 
5.5 
15.0 
2009-10 
56.4 
11.3 
13.8 
5.6 
13.0 
2011-12 
53.7 
12.4 
13.6 
6.4 
13.9 

Sources:  Table T21, Nutritional Intake in India, 2011-12, NSSO; PRS. 

| State/ UT         | Total consumption from PDS    | Offtake (2011-12)    | Leakage    | % Leakage    |
|-------------------|-------------------------------|----------------------|------------|--------------|
| Andhra Pradesh    | 36.1                          | 40.7                 | 4.6        | 11.3%        |
| Arunachal Pradesh | 0.8                           | 1.0                  | 0.2        | 20.0%        |
| Assam             | 9.5                           | 24.4                 | 14.9       | 61.1%        |
| Bihar             | 11.3                          | 36.2                 | 24.9       | 68.8%        |
| Chhattisgarh      | 16.7                          | 16.7                 | 0.0        | 0.0%         |
| Goa               | 0.4                           | 0.8                  | 0.4        | 50.0%        |
| Gujarat           | 4.4                           | 15.7                 | 11.3       | 72.0%        |
| Haryana           | 2.2                           | 7.3                  | 5.1        | 69.9%        |
| Himachal Pradesh  | 4.9                           | 6.3                  | 1.4        | 22.2%        |
| Jammu and Kashmir | 8.8                           | 9.1                  | 0.3        | 3.3%         |
| Jharkhand         | 3.1                           | 12.4                 | 9.3        | 75.0%        |
| Karnataka         | 16.2                          | 30.1                 | 13.9       | 46.2%        |
| Kerala            | 11.4                          | 20.1                 | 8.7        | 43.3%        |
| Madhya Pradesh    | 15.5                          | 30.7                 | 15.2       | 49.5%        |
| Maharashtra       | 19.3                          | 42.7                 | 23.4       | 54.8%        |
| Manipur           | 0.0                           | 2.0                  | 2.0        | 100.0%       |
| Meghalaya         | 0.8                           | 2.5                  | 1.7        | 68.0%        |
| Mizoram           | 0.9                           | 1.1                  | 0.2        | 18.2%        |
| Nagaland          | 0.1                           | 2.0                  | 1.9        | 95.0%        |
| Odisha            | 15.4                          | 24.4                 | 9.0        | 36.9%        |
| Punjab            | 3.4                           | 8.7                  | 5.3        | 60.9%        |
| Rajasthan         | 10.1                          | 29.8                 | 19.7       | 66.1%        |
| Sikkim            | N/A                           | N/A                  | -          | -            |
| Tamil Nadu        | 39.5                          | 45                   | 5.5        | 12.2%        |
| Tripura           | 2.7                           | 3.3                  | 0.6        | 18.2%        |
| Uttar Pradesh     | 43.2                          | 82.9                 | 39.7       | 47.9%        |
| Uttarakhand       | 4.6                           | 6.6                  | 2.0        | 30.3%        |
| West Bengal       | 13.4                          | 43.9                 | 30.5       | 69.5%        |
| Total             | 295.5                         | 554.5                | 259        | 46.7%        |

Note:  Data from National Sample Survey 2011-12. Sources:  Table 1, Working Paper 294, "Leakages from Public Distribution System", ICRIER, January 2015; PRS. 

| Procurement    | Offtake   |           | Stocks   |       |
|----------------|-----------|-----------|----------|-------|
| Year           |           | % Offtake |          |       |
| Rice           | Wheat     | Total     | Rice     | Wheat |
| 2004-05        | 24.7      | 16.8      | 41.5     | 23.2  |
| 2005-06        | 27.6      | 14.8      | 42.4     | 25.1  |
| 2006-07        | 25.1      | 9.2       | 34.3     | 25.1  |
| 2007-08        | 28.7      | 11.1      | 39.8     | 25.2  |
| 2008-09        | 34.1      | 22.7      | 56.8     | 24.6  |
| 2009-10        | 32        | 25.4      | 57.4     | 27.4  |
| 2010-11        | 34.2      | 22.5      | 56.7     | 29.9  |
| 2011-12        | 35        | 28.3      | 63.3     | 32.1  |
| 2012-13        | 34        | 38.2      | 72.2     | 32.6  |
| 2013-14        | 31.9      | 25.1      | 57       | 29.2  |
| 2014-15        | 31.6      | 28        | 59.6     | 30.7  |
| 2015-16        | 34.1      | 28.1      | 62.2     | 31.8  |
| 2016-17        | 36.5      | 23.6      | 60.1     | 32.8  |
| 2017-18        | 37.6      | 30.6      | 68.2     | 35    |
| 2018-19        | 42.7      | 35        | 77.7     | 34.4  |
| 2019-20        | 46.1      | 34.1      | 80.2     | 35    |

Sources:  Database on Indian Economy, Reserve Bank of India, as of February 18, 2021; PRS. 

 

Online Allocation 
State/ UT 
Digitisation of 
Ration Cards 
Aadhaar Seeding 
with Ration Cards 
of Foodgrains 
Computerisation 
of Supply Chain 
% of Fair Price Shops 
with Operational ePoS 
Andhra Pradesh 
100% 
100% 
Implemented 
Implemented 
100% 
Arunachal Pradesh 
100% 
57% 
Implemented 
- 
1% 
Assam 
100% 
0% 
Implemented 
Implemented 
0% 
Bihar 
100% 
76% 
Implemented 
Implemented 
96% 
Chhattisgarh 
100% 
98% 
Implemented 
Implemented 
97% 
Goa 
100% 
98% 
Implemented 
Implemented 
100% 
Gujarat 
100% 
100% 
Implemented 
Implemented 
100% 
Haryana 
100% 
100% 
Implemented 
Implemented 
100% 
Himachal Pradesh 
100% 
100% 
Implemented 
Implemented 
100% 
Jharkhand 
100% 
95% 
Implemented 
Implemented 
100% 
Karnataka 
100% 
100% 
Implemented 
Implemented 
99% 
Kerala 
100% 
100% 
Implemented 
Implemented 
100% 
Madhya Pradesh 
100% 
90% 
Implemented 
Implemented 
100% 
Maharashtra 
100% 
99% 
Implemented 
Implemented 
100% 
Manipur 
100% 
82% 
Implemented 
- 
12% 
Meghalaya 
100% 
0% 
Implemented 
Implemented 
0% 
Mizoram 
100% 
93% 
Implemented 
- 
0% 
Nagaland 
100% 
70% 
Implemented 
- 
23% 
Odisha 
100% 
99% 
Implemented 
Implemented 
100% 
Punjab 
100% 
100% 
Implemented 
Implemented 
100% 
Rajasthan 
100% 
97% 
Implemented 
Implemented 
100% 
Sikkim 
100% 
91% 
Implemented 
Implemented 
99% 
Tamil Nadu 
100% 
100% 
Implemented 
Implemented 
100% 
Telangana 
100% 
99% 
Implemented 
Implemented 
100% 
Tripura 
100% 
100% 
Implemented 
Implemented 
100% 
Uttar Pradesh 
100% 
100% 
Implemented 
Implemented 
100% 
Uttarakhand 
100% 
94% 
Implemented 
Implemented 
65% 
West Bengal 
100% 
80% 
Implemented 
Implemented 
92% 
Andaman and Nicobar Islands 
100% 
98% 
Implemented 
Implemented 
96% 
Chandigarh 
100% 
99% 
Direct Benefit 
Direct Benefit 
NA 
Dadra and Nagar Haveli 
100% 
100% 
Implemented 
Implemented 
100% 
Daman and Diu 
100% 
100% 
Implemented 
Implemented 
100% 
Delhi 
100% 
100% 
Implemented 
Implemented 
0% 
Jammu and Kashmir (including Ladakh) 
100% 
84% 
Implemented 
- 
100% 
Lakshadweep 
100% 
100% 
Implemented 
NA 
100% 
Puducherry 
100% 
100% 
Direct Benefit 
Direct Benefit 
NA 
Total 
100% 
90% 
34 
28 
89% 

Sources:  Report no. 3, Standing Committee on Food, Consumer Affairs and Public Distribution, Lok Sabha, March 13, 2020; PRS. 


| Year    | Paddy (common)    | % increase over last year    | Wheat    | % increase over last year    |
|---------|-------------------|------------------------------|----------|------------------------------|
| 2011-12 | 1,080             | 8.0%                         | 1,285    | 14.7%                        |
| 2012-13 | 1,250             | 15.7%                        | 1,350    | 5.1%                         |
| 2013-14 | 1,310             | 4.8%                         | 1,400    | 3.7%                         |
| 2014-15 | 1,360             | 3.8%                         | 1,450    | 3.6%                         |
| 2015-16 | 1,410             | 3.7%                         | 1,525    | 5.2%                         |
| 2016-17 | 1,470             | 4.3%                         | 1,625    | 6.6%                         |
| 2017-18 | 1,550             | 5.4%                         | 1,735    | 6.8%                         |
| 2018-19 | 1,750             | 12.9%                        | 1,840    | 6.1%                         |
| 2019-20 | 1,815             | 3.7%                         | 1,925    | 4.6%                         |
| 2020-21 | 1,868             | 2.9%                         | 1,975    | 2.6%                         |

   Sources:  Commission for Agricultural Costs and Prices, Ministry of Agriculture and Farmers' Welfare; PRS. 

| State          | 2017-18    | 2018-19    | 2019-20    | 2020-21    | Total Arrears    |
|----------------|------------|------------|------------|------------|------------------|
| Andhra Pradesh | -          | 37         | 44         | 91         | 171              |
| Bihar          | 0          | 58         | 85         | 411        | 554              |
| Chhattisgarh   | 2          | 6          | -          | 55         | 63               |
| Goa            | -          | 2          | -          | -          | 2                |
| Gujarat        | 2          | -          | 0          | 1,044      | 1,046            |
| Haryana        | -          | -          | 4          | 670        | 674              |
| Karnataka      | -          | 11         | 49         | 3,585      | 3,645            |
| Madhya Pradesh | -          | -          | -          | 257        | 257              |
| Maharashtra    | 27         | 118        | 0          | 2,030      | 2,176            |
| Odisha         | -          | -          | -          | 22         | 22               |
| Punjab         | -          | -          | 137        | 576        | 713              |
| Tamil Nadu     | 61         | 74         | 30         | 56         | 221              |
| Telangana      | -          | -          | 12         | 114        | 126              |
| Uttar Pradesh  | 34         | -          | 1,406      | 7,555      | 8,995            |
| Uttarakhand    | 75         | 105        | -          | 416        | 596              |
| Total          | 200        | 410        | 1,766      | 16,883     | 19,260           |

Sources:  Lok Sabha Starred Question No. 113, February 9, 2021; PRS. 

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http://164.100.24.220/loksabhaquestions/annex/175/AU1343.pdf. 48 Newsletter of the Department of Food and Public Distribution, Jan-March, 2015, 
49"Cabinet approves comprehensive policy to deal with excess sugar production in the country", Press Information Bureau, Cabinet Committee on Economic Affairs, September 26, 2018. 50 "Cabinet approves soft loan to sugar mills to facilitate payment of cane dues of the farmers for the current sugar season", Press Information Bureau, Cabinet Committee on Economic Affairs, February 28, 2019. Farmers' Welfare, August 2017, https://cacp.dacnet.nic.in/ViewReports.aspx?Input=2&PageId=41&KeyId=622. DISCLAIMER: This document is being furnished to you for your information.  You may choose to reproduce or redistribute this report for non-commercial purposes in part or in full to any other person with due acknowledgement of PRS Legislative Research ("PRS").  The opinions expressed herein are entirely those of the author(s).  PRS makes every effort to use reliable and comprehensive information, but PRS does not represent that the contents of the report are accurate or complete.  PRS is an independent, not-for-profit group.  This document has been prepared without regard to the objectives or opinions of those who may receive it. 