Friday, 5 July 2013

Food Security Bill-Hope for the Hungry or Just Hype?-VRK100-05Jul2013






Rama Krishna Vadlamudi, HYDERABAD   05 July 2013

As the cliché goes, India is a kaleidoscope of contrasts. On the one hand you’ve plenty of food grains rotting in government warehouses and on the other millions of hungry and malnourished mouths have been craving for two square meals a day.

Amidst such chaos, the Union Cabinet on 3 July 2013 approved an ordinance on the National Food Security Bill (NFSB) and the President has since given his assent for the ordinance. This bill will have to be ratified by the Parliament. This write-up aims to analyze the issues concerning the NFSB and its consequences.

The Government Version:

The Government of India enlists the objectives of the bill as:

---Up to sixty-seven percent of the population would be provided a uniform entitlement of five kilograms per person per month at highly subsidized prices of Rs 3, Rs 2, Rs 1 per kg for rice, wheat, or coarse grains respectively

---This is a legal right for each individual in the eligible families—covering 75% of the rural population and 50% of the urban population

 ---An amount of 61.23 million tonnes of food grains is needed annually for implementing this programme (as per current estimates)

 ---The subsidy cost to the government is Rs 1,24,700 crore during 2013-14

 ---This will be done thro the current Targeted Public Distribution System (PDS)

 ---There will be a special focus on nutritional support to women and children

 ---The eligible households will be identified by the respective state governments

The Other Version:

Before discussing the merits of the Food Security Bill, let us examine the track record of the PDS, through which the government is aiming to provide food security. Every Indian knows how effective the PDS is in distributing subsidized food to the needy. PDS is a miserable flop. This distribution system is highly corrupt and a substantial portion of the public money is swallowed by fair price shop traders, corrupt officials, etc. Only a small part of the benefits reaches the intended beneficiaries. The leakages from the PDS have been well documented by various auditors and other government arms.  

There is no doubt that unless the PDS is overhauled completely, all the loopholes are plugged and it is made more effective, providing food security to the millions of population will remain a mirage—despite the stated intentions of the government. 

However, some states seems to be more effective in providing food security through the PDS—notable examples being Chhatisgarh, Kerala and Tamil Nadu.

Problem of Buffer Stocks, Storage and Transportation:

To meet the annual requirement of food security bill, we need to keep 61.23 million tonnes of food grains as operational stocks. In addition, we need to have strategic reserves for meeting any output shortfall—arising out of drought or floods or transport problems. It may be recalled that in 2002-03, total output of rice and wheat dropped by 28.5 mt (absolute change) due to drought. Such an output shortfall will lead to severe problems in implementing food security.

As per CACP, the strategic reserves have to be kept either in physical form or in the form of foreign exchange reserves. Foreign exchange reserves are necessary to import food grains during emergencies. So, we need to keep aside some portion of foreign exchange reserves exclusively to meet the import (if any) of food grains.

The current buffer stock norm (for rice and wheat) is 31.9 mt as of 1st July each year. Our actual stocks as on 1.7.12 were 80.2 mt. It is estimated that the actual stocks as on 1.7.13 would be about 82.2 mt. This is against the available covered storage capacity with FCI and State agencies of 53.4 mt. This means that we have only 65 percent covered storage capacity—53.4 mt storage capacity versus the required 82.2 mt. So the governments have completely failed in providing the required storage capacity.

Indian Railways is unable to provide enough rakes to transport the food grains across the breadth and length of the country. On this front also, the government’s failure is clear.

Distorting the Market Dynamics:

Large-scale public procurement will drive the private sector out of the market. The NFSB may lead to some unintended consequences—such as higher support prices, rising food prices, higher labour and input costs, etc. This means that the market prices of food grains will be largely determined by the government procurement and PDS requirements.

Actual Cost of the Bill:

Moreover, the total subsidy cost for the NFSB will be Rs 2,00,000 crore per annum and not Rs 1,25,000 crore as claimed by the government. This has been stated in a discussion paper (No. 6 prepared by Ashok Gulati and Surbhi Jain) put out by the Commission for Agricultural Costs and Prices, or CACP, under the Ministry of Agriculture.

The amount of Rs 2,00,000 crore includes not only the cost of food grains, but also the cost of storage and transportation. Excess buffer stocks should be stored to take care of NFSB—this leads to inefficient allocation of government’s scarce resources. As of now, an amount of Rs 80,000 crore (as per CACP) is locked up in excess stocks without serving any worthwhile purpose. This excess money is injected into the system leading to rising rice and wheat prices, while food grains are allowed to rot in warehouses.

Out of the expected subsidy cost of Rs 1,25,000 crore for the current financial year, the central government had already budgeted for Rs 90,000 crore for food subsidy in 2013-14. So, the government needs to provide an extra Rs 35,000 crore this year.

More bureaucrats will be provided employment for implementing and monitoring the PDS for ensuring food security.

On Balance…

There is an urgent need to ensure that adequate food is made available to the hungry mouths. Renowned and Nobel-Prize winning economist, Amartya Sen, has expressed his views in favour of providing legal entitlement to the malnourished and underprivileged classes of India, though he has pointed out certain flaws in the NFSB.

It’s unfortunate that the NFSB had to be promulgated by the President rather than passed through the Parliament. The central government seems to be having its own reasons for rushing the NFSB through the ordinance route rather than through the Parliament.

In the backdrop of the utterly-failed PDS, insufficient storage capacity, severe transport problems, no noticeable gains in agricultural productivity due to lack of farm investment, huge subsidy burden and inefficient allocation of resources; it is difficult to say whether the food security bill will be able to achieve its desired objective of providing legal entitlement of minimum food grains to the underprivileged. One saving grace is that we have plenty of stocks at present to take care of food security. Let us hope that monsoon will continue be favorable and farm output will be stable in the coming years.

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Abbreviations:

FCI         : Food Corporation of India
mt           : million tonnes
NFSB     : National Food Security Bill

Reference: Commission for Agricultural Costs and Prices (CACP)

Disclaimer: The author is an investment analyst and freelance writer. His articles on financial markets and Indian economy can be reached at:


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