By Amit Kapoor and Pradeep Puri and Inputs by Ananya Khurana
India proudly delivers free rice and wheat to more than 800 million people, but the price tag of this generosity is astonishing. Every kilogram that reaches a ration shop costs the exchequer ₹28–₹40, inclusive of procurement, storage, transport, interest and incidental costs. In FY2024–25, the Food Corporation of India (FCI) estimated an economic cost of ₹39.75 per kilogram for rice and ₹27.74 for wheat, and the food subsidy bill was around ₹2.05 lakh crore. This is the fiscal reality behind “free” foodgrains.
Was this level of fiscal pressure ever envisioned? Originally, the Public Distribution System (PDS) was designed to stabilise access to staples for the vulnerable consumers during scarcity and price spikes. In 2013, it evolved into a legal entitlement under the National Food Security Act, which guarantees a supply of cereals, specifically five kilograms per person per month for priority households and 35 kilograms per month for Antyodaya families, for up to 75% of rural India and 50% of urban India. Since January 2023, these grains have been supplied free under Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY). Additionally, the One Nation, One Ration Card system allows the beneficiaries to collect their entitled ration from any fair price shop across India. In physical terms, the FCI thus undertakes distribution operations of breathtaking scale, moving 36–38 million tonnes of rice and 18–20 million tonnes of wheat annually.
But as systems scale, complexity grows. Studies suggest that about 28% of subsidised grain never reaches intended households. Roughly 20 million tonnes are diverted or lost, imposing an annual cost of ₹69,108 crore when valued at the government’s economic cost. Evidently, continuing with a physical PDS regime would normalise a massive, recurring fiscal hole.
Inefficiency doesn’t stop at diversion. Transportation and storage are expensive and vulnerable links as well. Foodgrains move from purchase centres to central and state warehouses before fanning out to over five lakh fair price shops. Each leg imposes transport, handling and inventory-carrying costs that swell the subsidy burden. India’s overall logistics bill is measured at 7.97% of GDP, and the PDS bears a heavy share of multi-modal movement and warehousing within that envelope. Even when the route is well-managed, foodgrains stored under tarpaulins or in traditional godowns face quality risks. Between 2011 and 2017, about 62,000 tonnes rotted in FCI warehouses. This is only a part of the problem. FCI procurement often exceeds the storage capacity limits, forcing open storage under tarpaulin sheets. Around 30 million tonnes of food grains are stored this way, vulnerable to fungus and moisture. This not only deteriorates quality but can also pave the way for deadly diseases. About 1.8 million tonnes are spoiled during open storage and poor handling, raising the probability of contamination and loss. While these are not failures of intent, they are structural inefficiencies in a system designed for a different era.
This invites a simple, urgent question: If the government already bears the full cost, why not transfer the same amount directly to vulnerable households as cash, let them buy food locally, and strip away the leakage-prone logistics chain? This is where technology and policy innovation can offer a way forward.
Specifically in this context, direct income support can be transformational. If the Centre spends ₹28–₹40 per kilogram to deliver cereals, it can execute a Direct Benefit Transfer (DBT) of equivalent value indexed to inflation and calibrated to NFSA entitlements, into Aadhaar-linked beneficiary accounts every month. DBT can convert an opaque supply-chain subsidy into a transparent consumer subsidy, reduce leakages, and empower vulnerable families to make consumption choices. India’s DBT infrastructure is robust, already handling LPG subsidies, PM-KISAN, and pensions at scale. Furthermore, evidence from Karnataka’s Anna Bhagya cash-transfer initiative shows that beneficiaries used the funds to buy better-quality grains and diversify diets, while also opening new bank accounts, furthering financial inclusion.
Such a reform can be scaled up to India’s PDS, but the transition should follow a phased, opt-in approach, allowing beneficiaries to choose between grain and cash for 12–18 months. This would protect vulnerable regions while strengthening local markets. Indexing benefits to cereal inflation will protect purchasing power during price spikes. Moreover, food coupons can bridge the gap while retail infrastructure deepens. Meanwhile, rationalising procurement and nudging food stocks closer to buffer norms will reduce carrying costs. Today, rice stocks are often multiple times the norm, and those surplus tonnes carry real fiscal and storage risks. The government has already started smoothing FCI’s cash flows by releasing subsidies upfront. The next step is to reduce the need for expensive physical stockholding by right-sizing procurement to actual welfare needs.
Undoubtedly, PDS has delivered on its moral promise. It prevented hunger when markets failed. But a programme built for scarcity must evolve when its own logistics and storage costs and persistent leakages are creating a new kind of scarcity. India now spends roughly ₹2,00,000 crore a year on physical grain distribution and still loses the equivalent of ₹69,000 crore to diversion and wastage. Replacing PDS with direct income support, pegged to the true economic cost of entitlements and phased with beneficiary choice, is the fiscally prudent, socially progressive path that India should take. It will keep food security intact, strengthen dignity and agency at the last mile, and free resources to invest in nutrition diversification, retail infrastructure and agro-logistics, the very things that make the promise of “free food” sustainable in the long run.
When you are already paying for the grain in full, the smartest thing you can do is put the money where it matters most: directly in the beneficiary’s bank account. This is not about dismantling a legacy; it is about reimagining it for a future where efficiency and empowerment go hand in hand.
The article was published with Hindu Business Line on December 26, 2025.
