Data | Why Centre’s denial of rice through OMSS hits Karnataka the most

Ever since the Congress-led Karnataka government assumed power, it has faced challenges in fulfilling its promise of providing five kg of rice to Below Poverty Line (BPL) and Antyodaya card holders. The Centre’s discontinuation of the Open Market Sale Scheme (OMSS), which provided surplus grains, has put the state in a difficult position. This move has forced Karnataka to provide cash instead of the additional rice promised under the Anna Bhagya scheme. Meanwhile, the Food Corporation of India (FCI) has continued to increase its supply of rice for ethanol blending, a process aimed at reducing fuel imports. The amount of rice supplied by the FCI for ethanol blending in 2022-23 was nearly six times greater than the quantity of rice purchased by all states through the OMSS scheme. Karnataka, which was the biggest beneficiary of OMSS, purchased over 50% of the rice sold through the scheme in five out of the eight years between FY16 and FY23. The discontinuation of OMSS not only threatens the Anna Bhagya scheme but also endangers the entitlements of over 39 lakh State priority household cardholders who are not covered under the National Food Security Act (NFSA). Despite concerns, the Centre justifies the move as a means to control inflation and prioritize food supply for the vast population. The retail inflation of rice has remained in double digits for the past eight months, further influencing the decision. On the other hand, the supply of rice for ethanol blending has seen a significant surge, with a substantial increase from 5,500 MT in April 2021 to over 2,50,000 MT in May 2023.

Ever since the Congress-led Karnataka government came to power, it has been struggling to meet one of its major pre-poll promises — the provision of five kg of rice to Below Poverty Line (BPL) and Antyodaya card holders. This would have been in addition to the five kg of rice that is provided under the National Food Security Act. To fulfill its promise, the State government required more rice than usual, which led to a slugfest with the BJP-led Centre.

Until now, a major source of rice for Karnataka was the Centre’s Open Market Sale Scheme (OMSS). Through OMSS, the Food Corporation of India (FCI) had been selling surplus grains. On June 13, the Centre discontinued the sale of grains through OMSS to States to “control inflation”. This put Karnataka, the biggest beneficiary of OMSS, in a fix, forcing it to give cash to beneficiaries instead of the additional rice promised under the Anna Bhagya scheme.

However, the FCI’s supply of rice for ethanol blending has continued to increase. Ethanol blending is a process wherein ethanol is mixed with petrol to reduce the amount of petroleum used. This leads to a decrease in India’s dependence on fuel imports. The amount of rice supplied by the FCI for ethanol blending in 2022-23 was nearly six times more than the quantity of rice that all the States bought through the OMSS scheme.

Under the OMSS, the FCI sells excess rice and wheat to bulk buyers, traders, and States to moderate market prices and to enhance supply during lean seasons. Over 6,800 thousand metric tonnes of rice were sold through the OMSS in the past eight years. Karnataka bought 30% of it — the highest among all States. Chart 1 shows that Karnataka bought over 50% of the rice sold through OMSS in five out of the eight years between FY16 and FY23. The Centre’s discontinuation of the OMSS to States threatens not just the Anna Bhagya scheme, but also the entitlements of over 39 lakh State priority household cardholders who don’t come under the NFSA.

Chart appears incomplete? Click to remove AMP mode

Several States that run an expanded public distribution system (over and above NFSA norms) depend on OMSS to meet the additional requirement. Chart 2 shows the beneficiaries covered under the NFSA and those under State-run schemes.

Karnataka Chief Minister Siddaramaiah tweeted that the FCI had responded to the State’s request for rice via a letter dated June 12, at the rate of ₹3,400 per quintal, just a day before the OMSS scheme was discontinued. In fact, past trends suggest that States have been the largest buyers of rice sold under the OMSS (Chart 3).