The Broad Mind | What’s wrong with the Food Security Bill

By Krupakar Manukonda

The NAC’s Food Security Bill, if read along with the report of the Expert committee (EC) appointed by the Prime Minister, gives a good insight into the structural flaws of the ambitious Bill.

Why does Food Security Bill target so many people?

According to the EC report, FSB is intended to benefit almost everyone — “near universal coverage”, with the stated reason being “danger of under inclusion” (i.e. any other criteria can lead to some of the poor families not being included). However, NAC proposes to segment the targeted people into “Rural/Urban Priority Households” and “Rural/Urban General Households” . The entitlements of Rice, wheat and coarse grains to per person per month to priority households is proposed at Rs 3, Rs 2 and Rs 1 per kg and at 50% of MSP for the general households. Considering the bifurcation of “General” and “Priority” households, the problem of identification still exists — the very reason for which “near universal coverage” was opted for.

Did we understand the magnitude of the problem?

NAC estimates the requirement of food grain at 57.36 million tons for Phase – I and 63.59 million tons for Final Phase. Corresponding figures by EC stand at 64.04 and 68.58 million tons respectively. The report cites the marketable surplus estimate of wheat and rice in 2010-11 at 106.5 million tons and suggests that it is imprudent to assume a procurement of more than 30%. But the requirement for Phase -1 (64.04 mt) itself is more than 60%. Such huge procurement will severely distort the prices of food grains in the open market.

Assuming 60% of the available grain is procured, is the problem solved? No. The report cites NSSO consumption survey, according to which the average consumption per rural household is 10.11 Kg per month. But FSB provides a rural household with only 7 Kg per month and he has to purchase an additional 30% of his food in the open market. The same open market which has been heavily distorted by the very policy that intends to benefit him.

Can India afford such financial burden and market implications?

Recent estimates suggest that the food subsidy is likely to touch Rs. 95,000 crore, an increase of Rs. 27,663 crore. This is a huge fiscal burden on our exchequer. Unfortunately there is more to it. Our storage capacity is little over 42.5 million tons. To meet the requirements of Phase – I, the storage capacity has to be urgently increased by 50%. This requires a huge budgetary allocation.

The distortions caused by procuring 60% of available grain will wreck the open market dynamics. The prices of the remaining grains will skyrocket due to mismatch in demand and supply. There will be cascading effects on products like biscuits, bread and other food products which are dependent on these basic food grains.

If the government wants to keep the procurement at prudent 30% to avoid distorting the open market prices, it has to bridge the shortfall through imports. The report by expert committee rules out this possibility as India’s entry into the international market as a large buyer exerts significant upward pressure on prices.

Was cash transfers/coupons considered before falling on Unreliable PDS?

The entire exercise has to be carried though the Public Distribution System (PDS). A study on India’s PDS shows that the deserving poor receive only 10% of intended benefits from the public distribution system. The EC report too suggests the use of smart cards, since the average procurement cost is Rs.20.43 per Kg and average market price is Rs. 20 per Kg. It makes economic sense to opt for smart cards and direct cash transfers instead of ill-equipped PDS with the concomitant hassles of procurement, storage and distribution.

This also avoids some needless transactions. Imagine a case where a farmer, from whom the government procures at MSP and then again sells it back to him at discounted price of Rs.2 . All these transactional costs can be avoided with cash transfers or coupons.

Practical difficulties with proposed Cooked Meals scheme:

According to the NAC:

Any child below the age of 14, including those that are out-of-school, may approach any feeding facility such as anganwadi centre, school mid-day meals, destitute feeding centres etc., as defined under this Act, for a freshly cooked nutritious meal; no such institution may deny a freshly cooked nutritious meal to such a child on any grounds whatsoever by modalities that will be notified in the Rules.

So the schools are not only responsible for mid-day meals of the students, but they should be ever-ready with a “freshly cooked nutritious meal” for anyone can walk in and have a lunch. What if a school/feeding centre says it is feeding 1000 people every day? How can these irregularities be checked? Well, that is why NAC proposes another Lokpal like institution at State level and at the National Level. The story of wheels within wheels…

If the aim is to eliminate hunger and malnutrition, then there are better ways to do so. The only problem is that they involve hard-work (such as increasing agricultural productivity, improving food supply chain, moving people out of agriculture into industry by reforming labour laws, providing enhanced health care, and creating modern infrastructure for effective social security schemes). The government has chosen the easier, and dare I say, a disastrous path. If the Food Security Bill in its present form becomes an Act, it is unlikely to tackle chronic hunger and acute malnutrition in the country.

Market Risk Analyst by profession, Krupakar Manukonda is interested in public policy and involved in supporting “Child Ashram School”,  a charity organisation which provides food, shelter and education to homeless children. Follow him on twitter at @Krupakar_m

DISCLAIMER: This is an archived post from the Indian National Interest blogroll. Views expressed are those of the blogger's and do not represent The Takshashila Institution’s view.