In India the idea of subsidy is more often than not, driven by the vote bank politics rather than the necessity to good to the weaker and vulnerable sections of the society. In Tamil Nadu, the logic behind providing subsidies of the Dravidian parties is just to win the confidence of the masses -even if it costs the Centre and the State exchequer heavy losses. The states of Kerala and Tamil Nadu have always defied the National Food Security Act (NFSA) introduced by the UPA and continued to draw rice and wheat from the Centre at heavily subsidised prices, but sold them on their own terms. Tamil Nadu, for instance, supplied 35 kg of rice free and at Rs 3 per kg for additional supplies to the Antyodaya Anna Yojana card holders. For another 18.63 lakh BPL cardholders, it supplied 20 kg of rice free and additional supplies at Rs 5.65 per kg. For those above poverty line, the state sold rice at Rs 8.30 per kg. The state had a total of around 2 crore cardholders.
In 1967, it was the offer of three measures of rice per rupee that catapulted the DMK to power. And over the years rice has been effectively used in the successive elections platforms of both DMK and the AIADMK. With the AIADMK government adopting universal subsidization of rice, the state has around 33,222 public distribution system (PDS) outlets as yet. This despite the fact that the Centre has been incurring hefty losses in procuring rice, wheat and other essential commodities at prices decided by the Commission for Agricultural Costs & Prices and supplying these to the state governments at highly discounted prices. Further there have been rampant complaints on the quality of items supplied under PDS and that only a small section of people above poverty line avails them. The system also faces a threat of PDS stocks being diverted to the open market.
Because of such populist schemes, the Centre’s recent decision to hike the price of subsidized rice meant for APL families in TN came as a bold step. It is estimated that Tamil Nadu would have had to bear an additional cost of Rs 2,700 crore if it continued to provide subsidised rice to all ration card holders under its existing scheme. The Centre’s revision has further inflated the already hefty food subsidy bill of the state. But the Centre is in a severe resource crunch and has to allocate more funds as per the recommendation of the 14th Finance Commission, increase in salaries and pensions as per the 7th Pay Commission, and a decelerated growth in tax revenues demand a sharper focus on subsidies.
To avoid the additional cost, the Tamil Nadu government has agreed to adhere to NFSA, but with certain modifications. Under the state’s revised scheme all rice card holders (around 192 lakh) will be eligible for 5 kg of rice per person per month and rice will continue to be free of cost for all rice card holders. The state’s subsidy largesse leaves little for development expenditure. In the TN’s budget three items -salaries and pensions to government employees, subsidies on various welfare measures and debt servicing -cost higher than the total annual revenue receipts. The state mobilizes additional resources through public debt and access to multilateral institutions like the World Bank. This essentially means higher cost of debt servicing in the future. It is estimated that merit and non-merit subsidies together account for 15 percent of the India’s GDP and this leaves little for development expenditure. The state mobilizes additional resources through public debt and access to multilateral institutions like the World Bank. This essentially means higher cost of debt servicing in the future leaving even less for the developmental activities.