Food Security Bill and Its Implications

Food Security Bill & Its Implications on Government finances In September 2013 Indias lower house of Parliament passed sweeping legislation guaranteeing cheap grain for 67% of the countrys population. Under the plan, the government will provide subsidized wheat and rice. The bill will likely create the worlds largest welfare scheme. It has caused much hand wringing amongst political pundits, economists and the media, asking if India, already suffering from a budget deficit and struggling with a slowing economy and a depreciating currency, can afford this extra burden. Perhaps it can. The day after the bill was passed, the rupee slid further and most pundits blamed the passage of the bill for that. But it should not be the case as India already provides subsidized food to a certain section of its population. The new bill will expands that coverage at a cost of about 1.35% of the GDP. It starts April, 2014 and that means it will not impact the fiscal deficit target for this year 2013. Many regional political parties across India do not want UPA government to take all the credit for the bill. The regional parties want to press their point as well, but no one is opposing the bill as no party would like to show its anti-poor face. The calculations for the impact of providing low price grains to a very high number of people in the country have varied from 120 thousand crore to 250 thousand crore. According to a UN report, India is home to a quarter of the world's hungry poor, despite being one of the world's largest food producers. Malnourishment and chronic undernourishment are a major problem in the country. India has the largest number of malnourished children in the world - even higher than Sub-Saharan Africa.

Few Facts and Figures about the Food Security Bill Two-thirds of Indias 1.2 billion population, about 800 million people, will be guaranteed subsidised food under the scheme. It will cover 75% of the estimated 833 million rural population and 50% of the 377 million urban poor. The scheme guarantees 5kg of rice, wheat and coarse cereals at a fixed price of three, two and one rupees per person every month.

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Food Security Bill and Its Implications It also allows pregnant women and new mothers to get free meals for six months, along with children between six months and six years. The government promised to bring in the changes when it came back to power for the second successive time in 2009.

Implications on Government Finances 1. Critics of the scheme have said the food subsidy will be an extra burden on an already sagging economy. They say it will cost the exchequer up to 15.8bn a year. 2. Growth for 2013 has been scaled down to five per cent, which is the lowest in the last 10 years. With additional expenditure the government would be unable to bring down the fiscal deficit from an uncomfortable 5.5%. 3. The food subsidies will be rolled out through the Public Distribution System (PDS), which is riddled with irregularities and corruption. 4. Reports have estimated that 37% to 55% of subsidised rice and wheat are syphoned off and sold on the black markets. In addition, almost 10% of the food rots in warehouses before it is distributed. 5. Farming bodies also oppose the legislation as they believe the government will become the largest buyer, hoarder and seller of food grains. They say it is akin to nationalisation of agriculture and that their bargaining power will be further reduced. 6. The food security bill will have a major impact on the country which has faced sharp criticism from economic experts for doling out subsidies. India has been offering diesel, cooking gas and kerosene oil at lower price. The government has planned to cut the subsidy on diesel and has increased price in the recent times. However, by adding more populist schemes, the government is doing more harm to the economy. 7. India has other problems as well. The number of mal-nutritioned children in India is high. Providing food to the poor section of the country is also important. However, most of such moves come during the election time. The governments otherwise fail to create opportunities for the people to earn better living. Additionally, the government has also failed to keep inflation under control. 8. The Indian currency has declined against USD. India is also facing rating downgrades as the economy has registered lowest GDP growth in the past few years. Most of the developed economies are showing better performance but India is showing signs of slow down. This could have a major impact on the country and its currency. With higher oil import bills, India will not be able to keep its current account deficit in control.
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Food Security Bill and Its Implications

9. The stock markets are trading only 20% lower than their all-time high. If foreign investors exit at this point, Indian markets could face a major downslide. During the times of market fall, Indian mutual funds have been seen selling and they only step in to bottom-fish. Small investors should be careful and should book profit in select stocks, to keep their exposure to Indian market in a comfortable range. 10. The country will have to buy 62 million tons of this food every year. But as rightly pointed out, on the contrary India already buys that much food. It bought 72 million tons of food grain in 2012-13 and 63.38 million tons the year before so the actual implications are yet to be seen.
Closing Note

What is of concern is how much of the food will actually reach those who need it the most and how much will be siphoned off by greedy hands along the way. A lot of critics of this bill say that this is a last ditch attempt by Sonia Gandhi-led Congress to buy votes in national elections due next year. But if along the way a few hundred million starving poor get some food to eat, than its not that bad.

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