AAY ration reform: India runs the world’s largest food subsidy programme. The country’s social protection system ensures that every month, nearly 800 million people receive subsidised foodgrain through the Public Distribution System (PDS). While the welfare scheme has its own merits, this safety net comes at a formidable cost to the government. The government spends around ₹2 lakh crore on food subsidies annually. Now, the government is considering an overhaul of the PDS system as the mounting welfare commitment has become a nightmare with the shrinking fiscal room available to the government.
The proposal is to amend the National Food Security Act (NFSA), with a focus on the Antyodaya Anna Yojana (AAY). The reform seeks to target the subsidy benefits to the most vulnerable families, reducing leakages and containing the food subsidy bill. While the measures appear sensible on paper, it is a delicate balance that policymakers will have a hard time striking. The question is – can the government rationalise subsidies as is economically necessary but not weaken food security for the poorest households simultaneously?
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AAY ration reform retains the 35 kg ceiling
The Food Ministry has pointed to a genuine flaw in the present arrangement. A family of two receives 17.5 kg of foodgrain per person, while a seven-member household gets 5 kg per person. The draft seeks to remove this difference.
But the proposed ceiling prevents any increase for the larger household. The disparity is reduced only by cutting the allocation of households with fewer than five members.
AAY was introduced in December 2000 for the poorest families and later expanded to cover 2.5 crore households. Its identification criteria have included households headed by widows, elderly people, persons with disabilities and people without assured means of support.
Such households are often small because they have few earning members. A widow living alone is not less vulnerable than a five-member family merely because her household is smaller. Nor can the food needs of an elderly or disabled person be inferred from the number of names on a ration card.
Foodgrain supplied through the PDS also lowers the amount a poor household must spend in the market. Cutting the monthly allocation therefore reduces an income transfer as well as a food entitlement.
Food subsidy reform has larger cost drivers
The subsidy bill cannot be ignored. The Centre procures rice and wheat at minimum support prices and pays for handling, storage, transport and distribution. It has also committed to supplying NFSA grain free of charge until December 2028. The statutory prices of ₹3 a kg for rice, ₹2 for wheat and ₹1 for coarse grain are not currently collected from beneficiaries.
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Procurement prices have risen while storage and movement remain expensive. Reforming procurement, limiting excess stocks and reducing carrying costs would address the main operations behind the subsidy bill. Reducing the entitlement of small AAY households addresses only a narrow part of that expenditure.
The Centre also has better instruments for removing ineligible or duplicate beneficiaries. Aadhaar authentication, electronic point-of-sale devices and the One Nation One Ration Card system have made ration transactions easier to verify. By the end of 2023, 99.8% of fair price shops had electronic point-of-sale devices.
These systems allow the government to investigate cards that are duplicated, inactive or held by ineligible people. That exercise should not be confused with reducing the statutory entitlement of an eligible AAY household.
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Food security cannot rest on a headcount
India’s nutrition indicators have improved, but deprivation remains widespread. NFHS-6 recorded stunting among 29.3% of children under five and underweight prevalence of 31.8%.
Rice and wheat alone cannot correct malnutrition. But the ration entitlement releases household income for pulses, vegetables, milk, medicine and other expenses. A reduction of 7 kg to 28 kg a month would be substantial for households placed in the country’s most vulnerable welfare category.
A per-person entitlement can be defended if it directs more grain to large families. The proposed Bill does not do that because it retains the 35 kg ceiling. It cuts the allocation of smaller households and leaves larger ones where they are.
The Food Ministry should protect the existing entitlement of small AAY households through a minimum allocation or an equivalent supplement. It should also disclose how many households would lose grain and how much the change is expected to save.
Without these safeguards, the amendment amounts to a ration cut for smaller AAY households. It does not correct the disadvantage faced by larger families and will make little difference to a subsidy bill driven by procurement and distribution costs.