Food Security Bill: Good politics to deliver bad economics

Annapurna Singh

A bill duly tabled in Parliament promises to give legal right to subsidised food to two-thirds of the countrys 1.2 billion population. The ambitious proposal should be seen in the context of India being home to roughly one third of the worlds poor; where over 70 per cent of children are malnourished and about 10 million or more people die of chronic hunger or hungerrelated diseases every year. The Food Security Bill, the UPA-IIs flagship scheme, envisages the distribution of wheat, rice and coarse grains at just Rs 2, Rs 3 and Re1 a kilo each to about 65 per cent of the population 75 per cent of them in rural areas and the rest in cities and towns. Add to that, some entitlements to special groups, like destitutes or homeless persons, who will be entitled to at least one meal a day. Through this worlds largest experiment of providing food grain to poor, the government plans to double its food subsidies to 2 per cent of the GDP. If the government machinery is able to deliver on Congress chief Sonia Gandhis pet project, it could mean the end to countrys widespread malnutrition and poverty relatively soon!

Its a most thoughtful and timely action, in the light of coming UP elections and thereafter the 2014 general elections, said Prof B B Bhattacharya, eminent economist and former vice -chancellor of Jawaharlal Nehru University. Then what is the clamour all about? Why are some people hell-bent on opposing it? The general view is that if the government can pull it off, it can be the biggest trump card for the UPA government, at a time when nothing seems to be working in its favour at the moment - neither politics nor economics. Bad economics But, one very important factor worth taking notice is: the scheme can severely impact on Indias economic growth prospects, should the populist measure be brought into force. The proposed Food Security Bill came on a day (Thursday) when the Reserve Bank of India also came out with its Financial Stability Report, which categorically states that Indias inflation risk remains high and a slowdown in revenue collections and higher spending on subsidies may make it challenging for the government to achieve the fiscal deficit target of 4.6 per cent of the Gross Domestic Product (GDP) this financial year (2011-12). It also said that Indias trade deficit for this fiscal is expected to widen sharply to between $155 billion and $160 billion from a little above $104 billion a year ago. Economy watchers say, both these deficits will only bloat immensely in due course, should the bill be passed and implemented. But, it is the trade deficit, which will soar manifold since the government will have to resort to large scale import of food grain as our own grain output is not adequate to handle such a voluminous expenditure programme.

It will worsen the fiscal deficit situation, but more than that it is Indias trade deficit which will be hit hard as the programme will require 70-80 million tonnes of more food grain every year. India obviously does not produce that much and the shortfall will have to be met from imports, said Prof Bhattacharya. The country produces 225-230 million tonnes of food grain every year barring a bumper crop year when the output surges by a few million tonnes more. Where will the rest come from, if not from overseas market! Economists opine, it will increase food inflation. Analysts at Kotak Mahindra Bank said that besides skewing the food inflation to a higher side, the move will also result in rise in prices of food grain for non-beneficiaries of the programme. There will be pressure on prices of food for those outside this scheme, an economist of Kotak said. Procurement problem As regards the increased requirement of food grain for distribution under the Act, Union food minister K V Thomas said only 15 per cent more supplies would be needed as the Centre is already distributing 526.8 lakh tonnes through public distribution system, while the estimated demand under the Act will be 607.4 lakh tonnes. He said government can even procure more for the purpose. Currently, government procures only 30 per cent of the total production. But, what about governments delivery mechanism? If the government goes in for enlarging the public distribution system without revamping it, where is the guarantee that the intended food grain will reach the poor?, Bhattacharya asked. Then there is problem of storage. Currently, the state -run Food Corporation of India and the Central Warehousing Corporation have the capacity to store 87 million tonnes of grain. The CWC has 487 warehouses with a capacity of 10.6 million, while the FCI, with 1,500 godowns, accounts for the rest. The new measure, according to experts, will cost an additional sum of Rs 27,000 crore annually to the exchequer, while the government puts it at Rs 21,000 crore by way of subsidies. But, the question is: can a government, burdened with whopping food, fuel and fertiliser subsidies, afford such a large expenditure programme, especially when the Mahatma Gandhi National Rural Employment Guarantee Scheme is already drilling a large whole in the nations kitty? Policymakers say that the government can find resources provided it cuts down or ends the oil subsidy to offset the additional burden arising out of the Food Security Bill. But the government is unlikely to do that, as it will not go down well among the voters in an election year.
What Food Security Bill means for India's subsidy burden A huge percentage of the Indian population lives below the poverty line where getting one square meal a day is a challenge. The food security bill aims to satisfy this basic want and in that sense although it encourages welfare economics, the intention is noble. This is what would need to be weighed against other economic considerations. Microsoft Dynamics Business Solutions as Unique as You Are. Learn About Dynamics Today! microsoft.com/dynamics Ads by Google Source: Moneycontrol.com SHARE . EMAIL . PRINT . A+ By Dhanraj Bhagat The National Food Security Bill 2013 was recently passed as an ordinance by the Union Cabinet. The bill aims to provide 5 Kg of food grains per person per month at subsidised prices from State Governments under the targeted public distribution system. The eligible households will be entitled to food grains at a subsidised price not exceeding Rs 3 per Kg for rice; Rs 2 per Kg for wheat and Re 1 per Kg for coarse grain. Implications: Welfare economics: A huge percentage of the Indian population lives below the poverty line where getting one square meal a day is a challenge. The food security bill aims to satisfy this basic want and in that sense although it encourages welfare economics, the intention is noble. This is what would need to be weighed against other economic considerations. Rising Subsidy burden: To gain a perspective on the subsidy portion let us look at the per kg price. Government procurement price would be approximately Rs. 13.45 per Kg for rice and Rs.

12.85 per Kg for wheat. The subsidy portion works out to Rs. 10.45 per kg of rice and Rs. 10.85 per kg of wheat. When we take into account the total number of beneficiaries and the quantity of food grains that would be distributed, the burden on the exchequer is projected at a whopping Rs. 1.3 lakhs crores per year. The increase in subsidy burden will only add to the current fiscal account deficit woes. Inflationary pressures: Procurement by the government of such huge quantities of rice, wheat, and other grains would result in less quantity available in the open market, thereby pushing up food prices. This would be further aggravated in a year of low production which would necessitate procurement through imports, which in turn will again push prices up. Public distribution system and leakages: The current system of distribution is though the approximately 5 lakh fair price shops spread across the country. In addition there are logistics issue of picking up the food from the source, storage and onward transportation. Leakages on account of pilferage, rotting of grains and logistics inefficiencies account for nearly 40% to 50% of the total food stock. Should this trend continue, the incremental losses on account of additional procurement under the Bill is something we as a nation can ill afford. Agriculture opportunity: With additional demand the agriculture sector would receive a boost and this could lead to more investments in improving agriculture productivity and making it more competitive. Infrastructure opportunity: To overcome the inefficiencies in the distribution of grains, substantial investment would be required in creating infrastructure like warehousing and storage facilities, roads, improving rail connectivity etc. This could create a huge opportunity for the private sector which could turn out to be one of the catalysts for a renewed economy. (The writer is Partner, Transaction Advisory Services, Grant Thornton India LLP) Read more at: http://www.moneycontrol.com/news/economy/what-food-security-bill-means-for-indias-subsidyburden_921785.html?utm_source=ref_article

In 1948 when the United Nations passed the covenant ensuring the right to food, vis--vis the right to proper livelihood, to which India became a signatory, it did not envisage that the whole issue would be caught up in such an imbroglio political and economic as one witnesses today. The original covenant in article 25 ensures the right to work and livelihood and right to food was only an ancillary issue. But, the implication was always there. It is such a shame that more than six decades after independence, we still are dabbling with an issue that is so very vital to the very existence of India as a sovereign nation. There are very crucial issues related to the Food Security Bill (FSB) that is in Parliament now, pending passage. Whatever disagreement on the FSB, because of political expediency which drove it, the magnitude of the fiscal burden that it would impose on the national exchequer cannot be lightly brushed aside. Data from the Reserve Bank of India (RBI) clearly show that the food security bill will lead to empty coffers. India has already recorded a gross fiscal deficit (GFD) of Rs 5,20,925 crore (5.2 per cent of Gross Domestic Product, GDP) in 2012-13, which is expected to increase to Rs 5,42,499 crore (4.6 per cent of GDP) in 2013-14. And the food subsidy, according to budget estimations, will increase from Rs 85,000 crore to Rs 90,000 crore over this period. The expert committee headed by C Rangarajan had indicated in 2011 that the cost implications of the FSB would be quite large. The Commission for Agricultural Costs and Prices (CACP) provided a starkly high estimate, meticulously calculated in its discussion papers released in December 2012 and May 2013. CACP estimates an expenditure of Rs 6,82,183 crore in the first three years of launching the FSB, with Rs 2,41,263 crore in the first year itself. If the scheme is initiated in 2013-14, which the United Progressive Alliance (UPA) is in a great hurry to, the GFD of the central government would shoot up to 6.7 per cent of the GDP, a level reached in 1993-94. This is only an optimistic level, given the lackadaisical performance on the industrial front. What additional burden the FSB would leave on

Indias economy is anybodys guess. Given the grim national industrial production, depressing external environment and International Monetary Fund forecasts, revenue from direct and indirect taxes could be lower than budget estimates. Indias industrial production contracted 2.2% in June, more than expected from a year earlier. International investors and rating agencies closely watching the Indian economic scenario and the fiscal trends will be unforgiving in their decisions, which will ultimately adversely impact foreign investment in the country, especially reliable foreign direct investment (FDI). To add to fiscal burden, fiscal health of some states, irrespective of the party in power, is clearly shaky. RBI data are clearly worrisome. These figures exclude impact of government guarantees, which every state government has extended. Hence, initiating the FSB in select states will spiral the nation into competitive political populism, given the election year, and may imply an irreversible nosedive into the countrys fiscal abyss. The FSB needs reconsideration in view of the recently released National Sample Survey Organisation data showing that population below poverty line has declined from 37.2 per cent in 2004-05 to 21.9 per cent in 2011-12. To meet the governments target, New Delhi has to procure a lot more grain from farmers, and, perhaps resort to imports as well. To be self-sufficient, farmers must be ensured a definite incentive to produce more, reflected in higher procurement prices and access to better farming methods. The latter is a big question mark, despite the countrys heavy investments in agricultural research. Look at the varieties of principal cereals like rice and wheat. Each year an agricultural varsity or research institute supported either by the Indian Council of Agricultural Research or state governments claim that so many new varieties have been released for commercial cultivation by the Central Varietal Release Committee. A critical appraisal shows they differ from one to another only marginally. There is no variety that stands out spectacularly. When the super cyclone Aila swept the Sunderbans in eastern India in May 2009, thousands of hectares of rice were ruined overnight, and the area was completely submerged in salt water. Traditional farmers who had sown three salt-tolerant rice varieties from the meticulous collection of Dr Debal Deb, a very committed rice agronomist working in a sleepy hamlet in Odishas Rayagada district, only could harvest some rice following the winter. All the so-called miracle hybrid rice varieties being peddled by research experts were down under the water. The Rangarajan committee constituted by the PMO to review the National Advisory Councils version of the FSB had suggested the government should procure only 30 per cent of the countrys total food (grain) production from farmers, and anything more than this will result in distortion of food prices in the open market. Against the backdrop of the countrys lackadaisical R&D efforts on the food front this is wishful thinking! Ironically, the UPA is yet to pay farmers market prices, leave alone above them. Assuming the UPA does it for smooth FSB passage, the G33 proposal is unlikely to gain any traction at the World Trade Organisation (WTO) negotiating table. The European Union, led by France, is unrelenting to bring down agricultural subsidies. The UPA has finally realised that the FSB cannot work without resolving both these concerns. Its hectic efforts to curry favour with the WTO will be unsuccessful.

The US will staunchly oppose the G33 proposal at the forthcoming Bali meet in December. Without WTOs sanction, India cannot incentivise its grain farmers, without stumbling on its international commitments. If India determinedly goes ahead, the West is certain to raise the crippling trade counter measures. With the EU-India free trade agreement waiting to be inked, Europe will push through its cheap import of agricultural and dairy products into India, and, our farmers will be crippled economically a very daunting scenario. Admittedly, the FSB has lofty intentions, but New Delhi has to grapple with serious economic implications that go with it. I have only narrated the most worrying ones. Political populism is no substitute to down-to-earth pragmatism.

All you wanted to know about the national food security bill
Comment Share
July 04, 2013 21:12 IST

Text size: A A

Nowhere on the planet, nowhere in mankinds history has such an idea taken the concrete shape in form of a law. The National Food Security Bill, which will come via ordinance and not after the debate in Parliament, is an incredible economic tool to tackle the hunger of poor Indians. Also, it has already been condemned widely as a political gimmick. According to estimate of the government, The total estimated annual foodgrains requirement is 612.3 lakh tonnes and corresponding estimated food subsidy for the bill at 2013-14 costs is about Rs.1,24,724 crore. Nowhere at such a large extent has any government taken up responsibility of providing food almost for free. The national food security bill passed on Thursday by Prime Minister Manmohan Singhs Cabinet has done something impossible for any rational economist to even conceive. The ordinance is waiting for signature of President Pranab Mukherjee which will open a new chapter in history of economies of world.

Congress president Sonia Gandhi has kept up her kind of politics and pushed for the food security for the entire nation. Judging it from the strong opposition to ordinance route including from Bharatiya Janata Party and Left parties it is clear that Congress has scored political advantages. Keep aside its negative or positive aspects but the Food Security Bill is a historic move because government is undertaking, legally, food and nutritional security of the Indian people. The first time, ever. The government says, It gives right to the people to receive adequate quantity of foodgrains at affordable prices. The food security bill has special focus on the needs of poorest of the poor, women and children. In case of non-supply of foodgrains now people will get food security allowance. The bill provides for grievance redressal mechanism and penalty for non compliance by public servant or authority. According to governments calculation, it will cover two-thirds of Indian population. The government is saying through the bill we will provide you highly susidised foodgrains. In terms of numbers it says, Up to 75 per cent of the rural population and up to 50 per cent of the urban population will have uniform entitlement of 5 kg foodgrains per month at highly subsidized prices of Rs 3, Rs 2, Rs 1 per kilogram for rice, wheat, coarse grains, respectively. It will entitle about two thirds of our 1.2 billion population to subsidised foodgrains under the Targeted Public Distribution System (TPDS.), it says. There are many grey areas and lot many confusion, though. Before the ordinance is put before Parliament for its approval, its likely that many more clarifications would come. In fact, these numbers look scary to economists but its likely that many existing government schemes will be merged or tied up with the food security entitlement. Although the fears of inflation and burden to Indian economy is real but in all likelihood if the various current schemes are taken into account then practically speaking, much less will be spent then those huge figures quoted in various assessments. However, the actual spending will be clear when the debate in Parliament takes place. The source in government said, The poorest of the poor will continue to get 35 kg grains per household under the Antyodaya Anna Yojana at subsidised prices of Rs 3, Rs 2 and Rs 1.

It is also proposed to protect the existing allocation of foodgrains to the States/Union territories, subject to it being restricted to average annual off-take during last three years, it says. This means that the poorest of the poor will have food under both plans but duplication will be avoided for some other categories. It is not yet made crystal clear, yet, that how and which one of existing schemes will be merged into the food security bill. Also, the food security set up will take a long, long time to fructify. To begin with, eligible households to have cheap food will be identified by the states. The rule will be that, Corresponding to the coverage of 75 per cent rural and 50 per cent of urban population( which is covered under the food security bill) at an all-India level, State-wise coverage will be determined by the Central government. Under the new scheme, the states may frame their own criteria or use social economic and caste cens us data, if they so desire. There will be a huge fight over these numbers between the States and the Centre. The scheme has a truly admirable feature that says that the government is now bound to give, A special focus on nutritional support to women and children. Pregnant women and lactating mothers, besides being entitled to nutritious meals as per the prescribed nutritional norms will also receive maternity benefit of at least of Rs 6,000. Children in the age group of 6 months to 14 years will be entitled to take home ration or hot cooked food as per prescribed nutritional norms. In the country where the mortality rate, discrimination against women and child malnutrition is at a shameful level, the guarantee by states is a great leap forward. If not in action, even if the intention is expressed well by the government, it must be lauded. In the Indian federal structure, States fail the Centres schemes many times. Here, that tension is taken care of as far as supply of the food is concerned. As per the new bill, The Central Government will provide funds to States/UTs in case of short supply of food grains from Central pool, In case of non-supply of food grains or meals to entitled persons, the concerned State/UT Governments will be required to provide such food security allowance as may be prescribed by the Central Government to the beneficiaries.

This is an unbelievably popular idea. Its potential to attract corrupt practices will be high, but poor families in the hinterland of India could not have, even, dreamt of food security allowance in absence of supply of ration. There is provision for the States, To get assistance for intra-State transportation and handling of foodgrains. Also, the food security plan, To address the concern of the States regar ding additional financial burden, the Central government will provide assistance to the States towards cost of intra-State transportation, handling of foodgrains and FPS dealers margin, for which norms will be developed. This will ensure timely transportation and efficient handling of foodgrains. The government source said, The bill also contains provisions for reforms in the public distribution system through doorstep delivery of foodgrains, application of the information and communication technology including end to end computerisation, leveraging Aadhaar for unique identification of beneficiaries, diversification of commodities under TPDS etc for effective implementation of the Food Security Act. Some of these reforms are already underway. One of the most off-beat idea to be implemented in a highly patriarchal society like India is that, Eldest women or women of 18 years of age or above will be head of the household for the issue of the ration card, and if not available, the eldest male member is to be the head of the household. After the Anna Hazare movement, grievance redressal has become important. Under the Food Security Bill, it is proposed that, There will be State and district level redressal mechanism with designated officers. The States will be allowed to use the existing machinery for the district grievance redressal officer, the state food commission, if they so desire, to save expenditure on establishment of new redressal set up. Redressal mechanism may also include call centers, helpline etc. Social audits and vigilance committees to ensure transparency and accountability. Provisions have also been made for disclosure of records relating to PDS, social audits and setting up of vigilance committees in order to ensure transparency and accountability. it proposed. The above provision should be used by the aware citizen to address the most likely corruption in the food security mechanism. This Bill, Provides for penalty to be imposed on public servants or authority, if found guilty of failing to comply with the relief recommended by the district grievance redressal officer.

Complied by Sheela B

1. Preliminaries The Bill extends to the whole of India and shall be deemed to have come into force on the 5th day of July 2013. [NB: This is the date when the National Food Security Ordinance 2013 came into force.] 2. Entitlements Public Distribution System (PDS) Priority households are entitled to 5 kgs of foodgrains per person per month, and Antyodaya households to 35 kgs per household per month. The combined coverage of Priority and Antyodaya households (called eligible households) shall extend up to 75% of the rural population and up to 50% of the urban population. The PDS issue prices are given in Schedule I: Rs 3/2/1 per kg for rice/wheat/millets. These may be revised after three years. Childrens Entitlements For children in the age group of 6 months to 6 years: an age-appropriate meal, free of charge, through the local anganwadi. For children aged 6-14 years, one free mid-day meal every day (except on school holidays) in all government and government-aided shools, up to Class VIII. For children below six months, exclusive breastfeeding shall be promoted. For children who suffer from malnutrition, meals will be provided to them free of charge through the local anganwadi. Entitlements of Pregnant and Lactating Women Every pregnant and lactating mother is entitled to a free meal at the local anganwadi(during pregnancy and six months after child birth) as well as maternity benefits of Rs 6,000, in instalments. [Notes: (1) Meal is defined as hot cooked or pre-cooked and heated before its service meal or take home ration, as may be prescribed by the Central Government. All meals have to meet nutritional norms specified in Schedule II. (2) The entitlements of women and children are to be delivered by state governments through schemes in accordance with guidelines to be prescribed by the Central Government.] 3. Identification of Eligible Households The Bill does not specify criteria for the identification of households eligible for PDS entitlements. The Central Government is to determine the state-wise coverage of the PDS (proportion of the rural/urban population). Then numbers of eligible persons will be calculated from Census population figures. The identification of eligible households is left to state governments, subject to the schemes guidelines for Antyodaya, and subject to guidelines to be specified by the state government for Priority households. The identification of eligible households is to be completed within 365 days. The lists of eligible households are to be placed in the public domain and displayed prominently. 4. Food Commissions The Bill provides for the creation of State Food Commissions. The main function of the State Commission is to monitor the implementation of the Act, give advice to the states governments and their agencies, and inquire into violations of entitlements. State Commissions also have to hear appeals against orders of the District Grievance Redressal Officer and prepare annual reports. 5. Transparency and Grievance Redressal

The Bill provides for a two-tier grievance redressal structure, involving the District Grievance Redressal Officer (DGRO) and State Food Commission. State governments must also put in place an internal grievance redressal mechanism which may include call centres, help lines, etc. Transparency Provisions Mandatory transparency provisions include: (1) placing all PDS-related records in the public domain; (2) conducting periodic social audits of the PDS and other welfare schemes; (3) using information and communication technology to ensure transparent recording of transactions at all levels; (4) setting up vigilance committees at all levels to supervise all schemes under the Act. District Grievance Redressal Officers DGROs shall be appointed by state governments for each district to hear complaints and take necessary action according to norms to be prescribed by state governments. If a complainant is not satisfied, he or she may file an appeal before the State Food Commission. Penalties and Compensation The Food Commissions have powers to impose penalties. If an order of the DGRO is not complied with, the concerned authority or officer can be fined up to Rs. 5,000. The Commission can authorise any of its members to act as an adjudicating officer for this purpose. In case of non-supply of the entitled quantities of foodgrains or meals to entitled persons, such persons will be entitled to a food security allowance from the state government, as prescribed by the central government. 6. Other Provisions PDS Reforms In Chapter V, the Bill states that central and state governments shall endeavour to progressively undertake various PDS reforms, including: doorstep delivery of foodgrains; end-to-end computerisation; leveraging aadhaar (UID) for unique identification of entitled beneficiaries; full transparency of records; preference to public institutions or bodies in licensing of fair price shops; management of fair price shops by women or their collectives; diversification of commodities distributed under the PDS; full transparency of records; and introducing schemes such as cash transfer, food coupons or other schemes to the targeted beneficiaries in order to ensure their foodgrain entitlements as prescribed by the central government. Obligations of Government and Local Authorities The main obligation of the Central Government is to provide foodgrains (or, failing that, funds) to state governments, at prices specified in Schedule I, to implement the main entitlements. The Central Government has wide-ranging powers to make Rules in consultation with the state government. The main obligation of state governments is to implement the relevant schemes, in accordance with the Central Government guidelines. State governments also have wide-ranging powers to make Rules. They are free to extend benefits and entitlements beyond what is prescribed in the Bill, from their own resources. Local Authorities and Panchayati Raj Institutions are responsible for proper implementation of the Bill in their respective areas, and may be given additional responsibilities by notification. 7. Schedules The Bill has four schedules (these can be amended by notification). Schedule I prescribes issue prices for the PDS. Schedule II prescribes nutritional standards for midday meals, take-home rations and related

entitlements. Schedule III lists various provisions for advancing food security. Schedule IV specifies a minimum foodgrain allocation for each state; in the case of states that might lose otherwise under the Act, this essentially means a continuing of existing allocations. Summary of National Food Security Bill 2013 prepared by Jean Drze on behalf of TEHELKA
Tehelka Bureau More by the author >

For all updates on THiNK2013 visit thinkworks.in

76 Tags: Central government, National Food Security Bill, Public Distribution System (PDS)

MORE IN CURRENT AFFAIRS

Azam Khan engineered the Muzaffarnagar riots, says UP BJP President Why Should An Army General Be Motivated To Destabilise A State Government? Why should an army general be motivated to destabilise a state government? Caught in the crossfire Power Bites
LATEST ON TEHELKA

CBI closes DA case against Mulayam Singh Azam Khan engineered the Muzaffarnagar riots, says UP BJP President [Film Review] Phata Poster Nikla Hero The Lunchbox endears with poignant silences and intricately defined characters Why Should An Army General Be Motivated To Destabilise A State Government?