Rama Krishna Vadlamudi,
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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 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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