Free Food, Costly System: Why India Should Rethink the Public Distribution Model

India’s food security system is often showcased as a triumph of scale: more than 800 million people receive free rice and wheat under the National Food Security Act. Yet behind this achievement lies an uncomfortable fiscal and administrative truth. “Free” food is anything but free. The economic cost borne by the State raises a fundamental question for the next phase of welfare reform: is delivering grain the best way to ensure food security, or would direct income support work better?

The real cost of “free” foodgrains

Every kilogram of rice or wheat that reaches a ration shop costs the exchequer between ₹28 and ₹40 once procurement, storage, transport, interest and handling losses are included. In FY2024–25, the Food Corporation of India estimated the economic cost at ₹39.75 per kg for rice and ₹27.74 per kg for wheat. The resulting food subsidy bill stood at around ₹2.05 lakh crore.

This is the fiscal reality behind one of the world’s largest welfare programmes. And even this massive expenditure does not guarantee efficient delivery.

Leakages, losses and the logistics burden

Multiple studies estimate that roughly 28% of subsidised grain never reaches intended households. Around 20 million tonnes are diverted or lost annually, imposing a cost of over ₹69,000 crore when valued at government economic cost.

The problem is structural. India’s logistics bill is close to 8% of GDP, and the Public Distribution System (PDS) bears a heavy share of storage and multimodal transport within this. Even when diversion is limited, quality losses remain high. Between 2011 and 2017, more than 62,000 tonnes of foodgrains reportedly rotted in FCI warehouses, often stored under tarpaulins or in ageing godowns.

A simple but disruptive question

If the government already bears the full economic cost of foodgrains, why not transfer that same value directly to vulnerable households? Why run a leakage-prone, capital-intensive supply chain when the objective is consumption support?

This is where technology and policy innovation intersect. Direct income support offers a credible alternative — not by cutting welfare, but by delivering it more efficiently.

How Direct Benefit Transfer could work

The idea is straightforward. Instead of supplying grain, the Centre could transfer an amount equivalent to the true economic cost of entitlements — ₹28–₹40 per kg — directly into Aadhaar-linked beneficiary accounts every month. The transfer would be indexed to cereal inflation and calibrated to National Food Security Act norms.

India already has the infrastructure to do this. The Direct Benefit Transfer (DBT) system handles LPG subsidies, PM-KISAN payments, pensions and scholarships at massive scale. What DBT does is convert an opaque supply-side subsidy into a transparent consumer-side subsidy.

Evidence from States: the Karnataka example

Concerns that cash transfers might undermine food security are not unfounded, but evidence is encouraging. Karnataka’s Anna Bhagya scheme, which offered cash transfers in lieu of grain, found that beneficiaries often used the money to buy better-quality cereals and diversify diets. The programme also nudged households into opening bank accounts, strengthening financial inclusion.

Rather than eroding food security, income support enhanced choice and dignity at the household level.

Why transition must be gradual and voluntary

A nationwide shift cannot be abrupt. A phased, opt-in transition — allowing beneficiaries to choose between grain and cash for 12–18 months — would protect vulnerable regions and populations. Areas with weak retail markets could continue with grain until local supply chains deepen.

Food coupons could act as an interim bridge where banking or retail infrastructure is thin. Indexing transfers to food inflation would safeguard purchasing power during price spikes, a protection that in-kind transfers do not always guarantee.

The larger fiscal and developmental payoff

Replacing PDS with direct income support pegged to true economic cost would sharply reduce leakages and logistics overheads. It would free fiscal space to invest in nutrition diversification, cold chains, modern warehousing and agro-logistics — precisely the systems that make food security sustainable in the long run.

More importantly, it would shift welfare from paternalistic provisioning to empowered choice, strengthening dignity and agency at the last mile.

A reform whose time has come

India’s achievement in feeding hundreds of millions should not lock it into an inefficient model forever. The question is no longer whether the State should support food security, but how it should do so.

A carefully designed transition from grain to cash — voluntary, indexed, and technologically enabled — offers a fiscally prudent and socially progressive path. It keeps food security intact while modernising welfare delivery for a country that can no longer afford leakage as the price of compassion.