Current Affairs Focus Classes

Indian Economy
Class-II
1 Reverse Auction in Wind Energy to end

Public Distribution System- Objective, Functioning, Limitations and Strategies

2
needed
3 Gap between GDP and GVA

4 Prelims Questions for Practice

Mains Questions for Practice

4 a. Salient features of NFSA (Mains 2021)
b. Open Ended Procurement Policy- Challenges
 Topic 1: Reverse Auction in Wind Energy to end
Context: Recently, the Government has announced that it would put an end to the Reverse Bidding for the wind Energy projects
to increase the wind energy capacity in India.
Feed-in Tariff
Earlier, the Government used the Feed-in-Tariff mechanism to determine the tariffs for the wind energy projects. Under this
mechanism, the State Electricity Regulatory Commissions (SERCs) used to determine the tariffs depending upon the cost of
generation and risks involved.
Benefits: Ensured Financial viability of the projects + Provided stable revenues for the private wind energy developers and hence
attracted more investment.
Challenges: Limited role of Private sector in fixing tariffs + Higher Tariffs for the DISCOMs.

Reverse Auction
Mechanism: Under Reverse Auction, there are multiple sellers and single buyer. In case of wind energy, the Government acts as
single buyer and multiple private sector developers act as sellers. Whoever is willing to sell wind energy at the lowest prices to the
Government gets the contract.
Benefits: Decrease in Tariffs due to competitive bidding.
Challenges: Aggressive bidding makes the Renewable energy projects unviable.

Topic 2: Public Distribution System- Objective, Functioning, Limitations and Strategies needed

Various Components of Food Management

Procurement: Cost incurred by FCI for the procurement of food grains is referred to as Economic Cost of Food grains. It comprises
of 3 components - Pooled cost of grains (weighted MSP of stock of food grains), Procurement incidentals (Labour charges, Transport
charges, storage cost etc.) and cost of distribution.
States have also been encouraged to undertake the procurement of food grains on their own through the Decentralised
procurement scheme.
Food grain stocking norms: It has 2 components:
 Operational Stocks: For meeting monthly distributional requirement under TPDS and other welfare schemes.
 Strategic Reserves: To meet emergency situations. (Presently it is 5 MT)
Distribution of Food grains: NFSA Act, 2013: Salient Features
Coverage: Up to 75% of rural population and 50% of urban population (67% of total population)
Entitlement:
 Priority households: 5 kg/person/month
 Antyodaya households: 35 kg/household/month
Subsidized prices of Rs. 3/2/1 per kg for rice, wheat, and coarse grains.
Nutritional Support: Meals for Pregnant women and lactating mothers (PWLM) and children (6 months-14 years).
Maternity Benefit of Rs 6000 for PMLM.
Women Empowerment: Eldest woman (18 years and above) considered as head of household for issuing ration cards.
Grievance redressal at the District and State levels.
Accountability through social audits and Vigilance Committees.
Food Security Allowance in case of non-supply of food.
Note: The Central Issue Price is the price at which centre allocates food grains to the states. It can be considered as the price at
which food grains are sold through the network of fair price shops.
 Increase in the Food Subsidy Bill
The Food subsidy bill is calculated as the difference between Economic cost of Food grains and Central Issue price (CIP). The Food
subsidy bill of the Government has been increasing consistently such that it has become financially unsustainable. In 2021-22, the
food subsidy bill stood at Rs 2.9 lakh crores.
Reasons for increase in Food Subsidy Bill:
Increase in Economic Cost of Food grains
 Higher coverage of beneficiaries under NFSA as compared to erstwhile TPDS
 Increase in MSP (Increase of one unit in real MSP leads to 0.48 unit increase in real economic cost procurement)
 Higher procurement of food grains as against the stocking norms (due to Open Ended procurement Policy)
 Increase in storage cost
Problems with Central Issue Price (CIP)
 The CIP for NFSA beneficiaries has not been revised from Rs 200/quintal in case of wheat and Rs 300/quintal in case of
rice. These rates were fixed under the Act initially for a period of three years from the date of commencement of the Act
and thereafter were to be fixed by the Central Government from time to time, while not exceeding the minimum support
price. However, it has not been revised since 2013. This has resulted in widening of the gap between the economic cost
and CIP
 Uniform CIP for BPL and APL households
Recommendations to Improve PDS
NITI Aayog: Reduce the percentage of beneficiaries under NFSA in the rural (from 75% to 60%) and urban areas (from 50% to 40%).
Accordingly, the number of beneficiaries under the NFSA will drop from 81 crores to 71 crores. This will lead to annual reduction in
the Food subsidy bill by Rs 48,000 crores.
Shanta Kumar Committee:
Need for End-to-End Computerization: Given that leakages in PDS range from 40 to 50 percent, Government should defer
implementation of NFSA in states that have not done end to end computerization.
Reducing the Coverage: Reduce the current coverage of 67% of the population under NFSA to 40% (comfortably cover BPL families
and some even above that)
Increasing the Food grains: The amount of food grains should be increased to 7kg/person from the present 5kg grain per person.
Pricing: Antyodaya households can be given grains at Rs 3/2/1/kg for the time being, but pricing for priority households must be
linked to MSP, say 50 percent of MSP
Economic Survey 2020-21: The Central Issue price (CIP) should be revised upwards; Coverage of the beneficiaries under NFSA
should be reduced.
SC Appointed committee on Farm laws: Replace Open-ended procurement policy with closed ended procurement policy.
 Topic 3: Gap between GDP and GVA
Calculation of GDP at 3 different levels
The GDP is calculated by taking into account three different prices:
Factor Cost: Cost of factors of Production such as land, Labor and Capital
Basic Price (Price expected to be received by Producer): Factor Cost + Production Taxes- Production Subsidies
Market Price (Price expected to be paid by consumer): Basic Price+ Product Taxes- Product Subsidies

Hence,
GDP/GVA at Basic price = GDP at factor cost + Production taxes - Production Subsidies
GDP at Market price= GDP at Basic price + Product Taxes- Product Subsidies

Gap between GDP and GVA

GDP at Market Price = GVA at Basic Price + Product Taxes – Product Subsidies
or
GDP at Market Price = GVA at Basic Price + Net Indirect Taxes

The Net Indirect taxes is usually positive i.e. Product Taxes is higher than Product subsidies. Hence, in terms of absolute value,
GDP at market price is usually higher than GVA at Basic Price.

If Net Indirect taxes reduces Gap between GDP at Market Price and GVA at Basic Price reduces.
If Net Indirect taxes increases Gap between GDP at Market Price and GVA at Basic Price increases.

Recent Trends in the Gap

In 2020-21, Product taxes reduced and Product subsidies increased on account of COVID-19. Hence, Net Indirect taxes reduced.
Due to which, Gap between GDP at Market Price and GVA at Basic Price reduced.

In 2020-21, Product taxes increased and Product subsidies reduced due to pick up in economic activity. Hence, Net Indirect
taxes increased. Due to which, Gap between GDP at Market Price and GVA at Basic Price increased.

Prelims MCQ
1. The economic cost of food grains to the Food Corporation of India is Minimum Support Price and bonus if any) paid to
the farmers plus (Prelims 2019)
(a) transportation cost only
(b) interest cost only
(c) procurement incidentals and distribution cost
(d) procurement incidentals and charges for godowns

Answer: c

2. With reference to the provisions made under the National Food Security Act, 2013 consider the following
statements: (Prelims 2018)
1. The families coming under the category of ‘below poverty line (BPL)’ only are eligible to receive subsidised grains.
2. The eldest woman in a household, of age 18 years or above, shall be the head of the household for the purpose of
issuance of a ration card.
3. Pregnant women and lactating mothers are entitled to a take-home ration’ of 1600 calories per day during
pregnancy and for six months thereafter.

Which of the statements given above is/are correct?

(a) 1 and 2 only
(b) 2 only
(c) 1 and 3 only
(d) 3 only

Answer: b
3. Which of the following factors/policies were affecting the price of rice in India in the recent past? (Prelims 2020)
1. Minimum Support Price
2. Government's trading
3. Government's stockpiling
4. Consumer subsidies

Select the correct answer using the code given below:

(a) 1, 2 and 4 only
(b) 1, 3 and 4 only
(c) 2 and 3 only
(d) 1, 2, 3 and 4

Answer: d

4. Consider the following statements: (Prelims 2020)

1. In the case of all cereals, pulses and oilseeds, the procurement at Minimum Support Price (MSP) is unlimited in
any State/UT of India.
2. In the case of cereals and pulses, the MSP is fixed in any State/UT at a level to which the market price will never
rise.

Which of the statements given above is/are correct?

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: d

5.Which among the following can be considered as the problems with the Open-ended procurement policy of the
Government?
1. Increase in Central Issue price (CIP) of Food Grains
2. Inability of the Government to meet its food buffer stock norms.
3. Shortage of agricultural commodities in the Open market.

Select the correct answer using the code given below:

(a) 1 only
(b) 1 and 2 only
(c) 3 only
(d) 2 and 3 only

Answer: c

6. Which among the following factors have contributed to increase in Food Subsidy Bill in the recent years?
1. Increase in MSP
2. Higher Buffer stocks
3. Decentralized procurement scheme
4. Open ended Procurement Policy
Select the correct answer using the code given below:
(a) 1 and 2 only
(b) 1, 2 and 4 only
(c) 1, 2 and 3 only
(d) 1, 2, 3 and 4

Answer: b

7. Which among the following are the components of Food grain stocking norms as defined by the Government?
 1. Strategic Reserves of Food grains
2. All the Food grains procured by the Food Corporation of India
3. Food grains for meeting the monthly distributional requirement under TPDS

Select the correct answer using the code given below:

(a) 1 only
(b) 1 and 2 only
(c ) 1 and 3 only
(d) 1, 2 and 3

Answer: c

8. Consider the following statements:

1. The Central Issue Price (CIP) is the price at which the Centre allocates food grains to the states.
2. The Food subsidy is the difference between the Economic cost of food grains for the FCI and Central Issue Price.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: b

9. Which among the following statements related to National Food Security Act (NFSA), 2013 is incorrect?
(a) The NFSA seeks to provide food security to 75% of rural population and 50% of urban population.
(b) All the households covered under NFSA are entitled to get 35 kg of food grains per month at subsidised prices.
(c) The NFSA seeks to provide for maternity benefit of Rs 6000 to pregnant and lactating mothers.
(d) Eldest woman (18 years and above) would be considered as head of household for issuing ration cards under
NFSA.

Answer: b

10. Which among the following is/are included in the Economic Cost of Food grains for the Food Corporation of India
(FCI)?
1. MSP paid to the farmers.
2. Procurement incidentals such as Transportation, storage and labour costs.
3. Cost of Distributing Food grains.

Select the correct answer using the code given below:

(a) 1 only
(b) 1 and 2 only
(c) 1 and 3 only
(d) 1, 2 and 3

Answer: d

11. If the Gap between Gross Value added (GVA) at basic prices and Gross Domestic Product (GDP) at market prices
increases, what does it necessarily denote?
(a) Negative Rate of Inflation
(b) Increase in cost of raw materials
(c) Increase in Net Indirect Taxes
(d) Increase in Subsidies

Answer: c

12. Which among the following factors are taken into consideration for the calculation of Gross Domestic Product (GDP)
at basic price?
1. Cost of Factors of production
2. Production taxes and subsidies
3. Product taxes and subsidies

Select the correct answer using the code given below:

(a) 1 only
(b) 1 and 2 only
(c) 2 and 3 only
(d) 1, 2 and 3

Answer: b

13. With reference to GDP estimation in India, consider the following statements:
1. The GDP at all India level is estimated at Market prices instead of Factor cost.
2. The sector-wise contribution of different sectors is estimated at GVA at Basic Prices.
3. The GDP is estimated by the National Statistical Office (NSO).

Which of the statements given above is/are correct?

(a) 1 and 2 only
(b) 1 and 3 only
(c) 2 and 3 only
(d) 1, 2 and 3

Answer: d

14. Which among the following correctly depicts the nature of relationship between the GDP at Factor Cost, Basic Price
and Market Price?
1. GDP at Market Price = GDP at Factor Cost + Product Taxes – Product Subsidies
2. GDP at Basic Price = GDP at Factor Cost + Production taxes – Production Subsidies
3. GDP at Market Price = GDP at Basic Price + Product Taxes – Product subsidies

Select the correct answer using the code given below:

(a) 1 only (b) 1 and 2 only
(c) 3 only (d) 2 and 3 only

Answer: d
 Mains Question for Practice
1. What are the salient features of the National Food Security Act, 2013? How has the Food Security Bill helped in
eliminating hunger and malnutrition in India? (MAINS 2021)

The National Food Security Act (NFSA), 2013 provides food and nutritional security by ensuring access to adequate quantity
of quality food at affordable prices. Thus, it strengthens Article 21 enshrined in Constitution.

NFSA Act, 2013: Salient Features

Coverage: Up to 75% of rural population and 50% of urban population (67% of total population)
Entitlement:
 Priority households: 5 kg/person/month
 Antyodaya households: 35 kg/household/month
Subsidized prices of Rs. 3/2/1 per kg for rice, wheat, and coarse grains.
Nutritional Support: Meals for Pregnant women and lactating mothers (PWLM) and children (6 months-14 years).
Maternity Benefit of Rs 6000 for PMLM.
Women Empowerment: Eldest woman (18 years and above) considered as head of household for issuing ration cards.
Grievance redressal at the District and State levels.
Accountability through social audits and Vigilance Committees.
Food Security Allowance in case of non-supply of food.

Role of NFSA in eliminating hunger and Malnutrition

Improved Coverage (67%) in comparison to TPDS. Out of maximum coverage of 81.34 crores, 80 crore people covered so
far.
Improved outcomes
 Undernourishment reduced from 22% to 15% in last decade (FAO’s “State of Food Security and Nutritional
2021”)
 Percentage of stunted children reduced from 38% (NFHS-4) to 35% (NFHS-5)
Paradigm Shift from welfare to rights-based approach.
Life-cycle approach by guaranteeing access throughout the life cycle beginning from pregnancy to old age.
Addresses 3 dimensions of Food security- Availability, Accessibility and Affordability.

However, NFSA still faces number of challenges as evident in India’s lower ranking (101) on GHI, Global Food Security
Index:

The NFSA has the potential to be a game changer. However, the Government must implement recommendations of
committees such as Shanta Kumar, Nandan Nilekani etc. to streamline distribution and make it more efficient.
2. The Open Ended Procurement policy needs to be replaced with Closed ended procurement policy to benefit both the
Farmers as well as Indian agriculture. Analyse ( 10 Marks, 150 Words)

Presently, Government is following open-ended procurement policy to offer fair and remunerative prices to farmers and
prevent them from distress sale. However, apart from making food grain management unsustainable, this policy has
neither benefitted farmers nor agriculture.

Presently, there is no limit on procurement of food grains such as Rice and Wheat leading to higher procurement. For
instance, Food grain stock of Rice and Wheat (65 MT) is almost 110% more than buffer stock requirements (30 MT).
Implications:
1. Higher economic cost for FCI (Rs 50,000 crores) leading to higher debt burden.
2. Artificial scarcity of food grains in open market leading to increase in prices.
3. Higher emphasis on procurement of water-intensive crops such as Rice and Wheat is adversely affecting
agriculture- skewed cropping pattern, higher water usage, soil erosion, lack of diversification etc.

Hence, as recommended by CACP, open-ended procurement has to be replaced by closed-ended procurement wherein
FCI should impose limits on procurement. Adoption of such a policy should also be accompanied by DBT to compensate the
farmers if they sell food grains in market below MSP.