12 March 2012

Simplifying the National Food Security Bill

A. The Problem In its current form (let us call it Plan A), the National Food Security Bill (NFSB) is confusing, impractical and divisive. It rests on an artificial division of the population into three groups (priority, general and excluded), without any clarity as to how these groups are to be identified. All recent attempts to devise a sound methodology to identify priority households have failed. The Socio-Economic and Caste Census (SECC) is unlikely to perform much better than earlier BPL Censuses in this respect. Exclusion errors are likely to be large, and the entire process is very divisive. Also, Plan A lacks simplicity and transparency these are essential for the success of this crucial legislation. B. Proposed Solution The proposed solution (Plan B) is essentially a simplification of the Bill, as follows: 1. Use exclusion criteria only. 2. Merge the general and priority groups (lets call them aam log). 3. Give every aam household a national assured minimum entitlement (NAME) of 25 kgs per month at Rs 3/2/1 per kg for rice/wheat/millets.1 4. Retain and strengthen the Antyodaya programme, as it is. C. Advantages of this Solution It is eminently feasible. Relatively easy to implement. A sound and durable framework. Poor households will be well protected from exclusion errors. Simple and transparent entitlements that everyone will understand. Avoids the divisive effects of targeting. Antyodaya households are protected from any possible loss of entitlements. End of the poverty line controversy.

D. Clarifications 1. The NAME is a national minimum guaranteed by the central government under NFSB. It does not prevent state governments from providing more, e.g. by giving more than 25 kg to aam households, or by giving something to excluded households. 2. In principle, the NAME need not be the same everywhere, e.g. it could be different in rural and urban areas, or higher in the poorer districts. But the simpler, the better. 3. The Antyodaya programme would be retained and strengthened, either under the NFSB, or simply as a scheme. The SECCs automatic inclusion households (e.g. released bonded labourers) could be automatically added to the Antyodaya list.
If entitlements are in per-capita terms, the NAME would be 5 kgs per person instead of 25 kgs per household. If food entitlements are replaced with cash transfers under Section 18(2)(h) of the Bill, the NAME would be (at least) the monetary equivalent of these food entitlements at local prices.
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E. Resource Requirements If 25% of rural households and 50% of urban households are excluded (as in Plan A), the annual resource requirements (including the required provision for the Antyodaya programme) are as follows (for details see Annexure 1). Grain requirements (million tonnes) 52.4 51.5 Food subsidy (Rs crores)

Plan A Plan B

77,927
81,524

The grain requirements of Plan B are marginally lower than those of Plan A, and the financial requirements are marginally higher. Even after adding a provision for other welfare schemes (about 8 million tonnes of grain), these figures are well within the bounds of feasibility, especially if the National Food Security Act is rolled out over, say, two years. F. The Main Hurdle The main hurdle is that BPL households are currently supposed to be getting 35 kgs per month. So those who are actually getting 35 kgs would seem to be losing from Plan B, compared with what they are getting today. However: 1. Only some states are actually giving 35 kgs per month to BPL households. Many states have already reduced BPL entitlements to expand the coverage of the PDS, to 25 kgs per month or less (see Annexure 2). BPL households in these states would gain from Plan B. 2. Even a BPL household currently getting the official quota of 35 kgs per month at the official central issue prices (Rs 6.15/kg for rice and Rs 4.65/kg for wheat) would get roughly the same subsidy under Plan B because the reduction of price would compensate for the reduction of quantity. This applies, for instance, in UP and Maharashtra. There is still a possible issue in a few states where (a) BPL households get 35 kgs, and (b) the issue price has been reduced (by state governments) substantially below the central issue prices. The main examples are Chhattisgarh and Jharkhand (where BPL households get 35 kgs at Rs 2/kg and Re 1/kg respectively). Note, however, that these states will save large PDS subsidies once the central government itself reduces issue prices to Rs 3/2/1 for rice/wheat/millets. And these saved subsidies could be used by the concerned states to protect the entitlements of households currently getting 35 kgs. Alternatively, a provisional supplement of 10 kgs per BPL household could be provided by the central government to all states that currently give 35 kgs to BPL households, for a limited period of (say) three years. This would be easy to do, since the government has large excess stocks at the moment.2 In short, this hurdle is not a major concern. It seems much better to find a way around it than to give up Plan B, which is much more likely to succeed than Plan A.
Foodgrain stocks stood at 54 million tonnes on 1 March 2012 (the highest-ever level for that date, just before the rabi harvest). They are expected to rise to 74 million tonnes by 1 June 2012.
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ANNEXURE 1:
PLAN A AND PLAN B COMPARED
Coverage PROPORTION COVEREDa (%) Plan A Plan B Rural Urban Rural Urban Excluded 25 (4.2) 50 (3.6) 25 (4.2) 50 (3.6) General 29 (4.9) 22 (1.6) 0 (0.0) 0 (0.0) Priority/ Aam Log 46 (7.7) 28 (2.0) 75 (12.6) 50 (3.6) Total 100 (16.8) 100 (7.2) 100 (16.8) 100 (7.2) a In brackets, absolute number of households (in crores). Entitlements ENTITLEMENTS (kg/month/ household) Plan A 0 15 35 Plan B 0 0 25

Excluded General Priority/Aam Log Grain Requirements

GRAIN REQUIREMENTS (million tonnes) Plan A Excluded 0 General 11.7 Priority/ Aam Log 40.7 Additional provision for Antyodaya 0 Total 52.4 Summary of Resource Requirements

Plan B 0 0 48.6 2.9 51.5

Plan A Grain requirements Total subsidya (crores/year) Additional Subsidy

(over and above current subsidy of approx Rs 60,000 crores)

Plan B 51.5 81,524 21, 524

52.4 77,927 17,927

Based on the following assumptions: economic cost = Rs 20.43/kg for rice, Rs 15.46/kg for wheat; issue price = Rs 3/2 per kg for rice/wheat for Priority/Aaam category, and half of MSP for General category; and rice/wheat ratio of 60/40.
a

Notes: (1) The estimated requirements are actually overestimates, based on 100% offtake. (2) The subsidy requirements can probably be reduced through decentralized procurement and/or inclusion of millets in the PDS. (3) These figures do not include provision for other welfare schemes such as Mid-Day Meals, ICDS, etc. In the NAC proposal, a provision of 8 million tonnes was made for other welfare schemes.

ANNEXURE 2: Current PDS Entitlements of BPL Households State Foodgrain entitlements of BPL households (kgs/month) Wheat/atta Rice Total 0 (4 kg per capita) 20 (max)a 0 10 10 n/a 25 20 n/a 0 (1 kg per capita) n/a 17 10 0 35 25 0 15 10 n/a 35 15 25 n/a 10 15 n/a 35 (4 kg per capita) n/a 3 25 25 0 0 20 20 10 n/a 35 25 35 20 35 35 35 35 20 (max)a 25 20 35 25 35 25 20b (max) 35 20 n/ac

Andhra Pradesh Assam Bihar Chhattisgarh Gujarat Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka Kerala Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tamil Nadu Uttar Pradesh Uttarakhand West Bengal
a

In Andhra Pradesh and Karnataka, PDS entitlements are per capita (4 kgs and 5 kgs per person per month, respectively), with a maximum of 20 kgs per household.
b c

12 kgs for single-person households and 16 kgs for two-person households.

West Bengal has individual PDS cards with a weekly entitlement of 2.625 kgs (1.5 kg rice and 1.125 kg wheat), but the average number of individual cards per BPL family is not clear. Sources: Khera, R. (2011), Revival of the Public Distribution System, Economic and Political Weekly, 5 November 2011; websites of concerned governments; personal communications from knowledgeable persons, state-wise. Figures do not include temporary bonuses distributed in some states in response to recent Supreme Court orders.