Sunday, 26 January 2014

Problem with Plenty- Is Food Security Bill is the solution?

After much hues and cries, National Food Security Bill was signed into law in September,2013 with retroactive effect from July 5th,2013. The broad aim of the law is to avail food to approximately two thirds of India's population. Passing through many controversies like introduction into the parliament in 2012, promulgation as ordinance in July,2013 and finally enacted as law in September 2013. The major controversial concern was that if the country would have inadequate food to sustain a near-universal food security system offering food for all at subsidized price. Another concern was-"Will this bill really be able to step forward to PDS reforms?"  How much truth it contains, and how far it goes, lets try to make some point out of this.

Before going deep into the scenario in India, lets understand the term- Food security. According to WHO, food security stands on 3 pillars- accessibility, availability and utilization with the definition-"Food security exists when all people, at all times, have physical, social and economic access to sufficient safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life". FAO adds one more pillar that is stability of the above 3 pillars over the time.  

Now lets try to figure out the significance of food security in India where it is a very distressful and complex phenomenon, because even with the slightest increase in the income of people over time they are forced to cut down their food consumption to meet other new demands of health and education which were not of much importance in the past. India's malnutrition figures have not came down despite a number of government programs, says a new report released by World Food Programme. This research point out the need for a revamped and revitalized public distribution system and greater public investment to address the artificial scarcity of food grains. Looking into the past, India achieved self sufficiency in food grains in 1970s and has sustained since then. But this trend has not been percolated to the ground level, to the individual household. Though growing indebtedness and rising suicides among farmer indicates the crisis in agriculture sector of India, but the production growth depicts some other picture. The compound annual rate of growth of food grains production has accelerated from 0.8% during 2000-01 to 2005-06, to 2.9% during 2005-06 to 2012-13. Production in agricultural year 2012-13 is estimated to be 255.4 million tonnes. But the per capita production was just 164.9 kgs in 2011 which was below its peak of 171 kgs in 2008(The net availability of food grains is estimated at 87.5% of gross production due to requirement of seeds, animal feed and waste adjustments). In essence there was no excess production of food grain. The thing which seems to be surprising is that the government has been burdened with a rising stock of food grain, due to its inability to distribute the amount it procures from the farmers. Procurement had reached a record of 64.2 mT(million tonnes) in March 2013 from mere 42.5 mT till 2007-08.Increasing procurement should have helped in increased allocations through PDS. But the reverse happened. Net off -take through PDS fell down from 49.3 mT in 2003-04 to 36.8 mT in 2007-08. Off-take in January still seems to be satisfactory with 53 mT. Still the discrepancy between the procurement and net off take has resulted in an extra accumulation of stocks in government warehouses, where a new problem has risen-storage. Government does not have sufficient warehousing facilities to store the grain. And much of the grain is vulnerable to rotting or attacks from rodents resulting in increased wastage.
The paradox of scarcity with plenty can be understood from the following facts:
  1. The government has chosen to stick with its Minimum Support Price scheme to procure which is calculated on a cost-plus basis and little more than the effective cost. Thus the farmers have been selling their majority of output to procurement agencies. And this is happening because in the open market traders are not finding it adequately profitable to purchase the produce from farmers to trade in the produce. Thus the demand for grain at an MSP-linked issue price do not have adequate takers. So the government subsidy depends on sustaining off-take from the PDS.
  2. On the other hand, Govt is committed to reducing the subsidy on food via 3 ways:
  1. Adoption of TPDS- which separates the population in to a minority of households below the poverty line(BPL) and a majority above the poverty line(APL).
  1. It reduces the subsidy on the sale to APL population, making it unaffordable for the people who are just above the line(APL)
  1. Further, govt restricts allocations to the states of subsidy-linked quotas, where a strong PDS serves APL population well.
The result of all these is that even in periods of reasonable harvest, sale of PDS grain does not rise in proportion to the procurement, and ultimately leading to the discrepancy between procurement and off-take from the PDS. Another question arises- subsidy bill should be lower when grain is not released through the PDS. Is it? No, the subsidy remains high in order to cover the transportation costs, finance the cost of storage and waste and often resulting in subsidize to the trader and intermediaries, who is sold grain at price lower than MSP, and not the consumers.
  1. The another problem is restrictive nature of the BPL list, which left many households excluded. And this exclusion error results in more cost than the inclusion error because the APL quota is treated as a dumping ground for excess food grain stocks.
  1. In recent years, food grain procurement has increased by leaps and bounds, but distribution under the BPL quotas has remained the same, since allocations are fixed and lifting is close to 100% leaving no scope for increase. To moderate this accumulation of excess stocks, the Central Government has been pushing larger amount of food grain into APL quota, which is almost equal to the BPL Quota (around 20 mT in 2012-13). This results in unclear and unstable entitlements of APL households which can also be termed as ad hoc handouts without any accountability. This gives middlemen a free space to work and eat away in between.

As discussed above, as of now and certainly for the near future there is sufficient food grain production and stock with the government. The need is to keep the  stock moving in healthy condition. And it would be only possible when subsidy bill is expanded to make sure that subsidized food is available and affordable while maintaining the MSP to ensure the food production.  And the adverse impact of expanding the scope of scheme on Union Budget deficit can be mitigated by increasing efficiency gains through issue of food stamps, increasing vigilance by reducing leakages. Thus the common requirements to bring transparency, computerization, eliminating red-tap-ism cannot be denied.

Can food security bill bring any change or will it only be a burden to public exchequer?
In real terms, the food bill is a grand scheme and will cost around 1.1- 1.35% of GDP. And there is need for around 62 mT grains. Even if we assume the grain quantity to be fixed each year, the subsidy will keep increasing annually because the rising input cost to the farmers will put pressure on raising MSP. This will increase in effective cost of the grain to the government; and the selling price at the TPDS is unlikely to change and its sustainability comes under a big question mark. But isn't it too exaggerated - The cost of the bill to the government is likely to be Rs. 1.25- 1.30 lakh crore each year. But this entire amount is not a new expenditure for the government. India is already spending close to Rs 1.16 lakh crore on schemes that are listed as -entitlements under Food Security bill like food subsidy, midday meal scheme, Integrated Child Development Scheme(ICDS) and maternity entitlements. Thus additional expenditure of around Rs. 10000 crore will hardly matter when a much bigger amount is wasted annually by rotting food grains stocked under unsafe conditions in the godowns of FCI( that too short in number). 

The food bill is an opportunity to clean up this mess in one way by curing two  basic defects of PDS: large exclusion errors, and the leaky nature of the APL quota. In effect, the bill will abolish the APL quota and gives common entitlement
s to a majority of the population. Indeed, wide coverage and clear entitlements are two pillars of the fair and efficient PDS reforms that have been carried out in many States in recent years. Further, significant savings from the expenditure of the FCI are possible if it rationalizes the process of procurement and distribution policies.

Keeping this is light, the bill can be a good move not only for food security, but also from the point of view of ending a huge waste of public resources under government warehouses and APL Quota.

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