Muddling Through Food Security

Having passed the food security Bill in the Lok Sabha, its ardent proponents are promising freedom from hunger and malnutrition. The skeptics, however, believe that it will have dire consequences on the fiscal situation, further eroding India’s business confidence, slowing down growth, further tumbling of the rupee and higher inflation. To know the reality, however, one needs to dig a little deeper.

    First, one may note, while the FSB promises basically 5 kg of cereal per person per month (pppm), the average consumption of cereals in the country is 10.7 kg/pppm. That means even for cereals, consumers will have to go to the markets for more than half their needs.

    Second, over time, the consumption basket of an average Indian has been diversifying away from cereals and moving towards more vitamins (fruits and vegetables) and protein foods (milk, eggs, meat and fish). All these foods are bought from the open market. So the largest chunk of food of an aam admi will keep coming from the open market, even after the FSB.

    And if cereal inflation in the market is hovering at 18%, vegetables prices soaring at 46% and protein goods at 11% (this July over last July), then where is the ‘right to food’ of the poor? If policy makers really want to help the poor with sufficient and nutritious food, the highest priority should be to bring down food inflation from current level of 12% to less than 4%.

    Third, what would be the Bill’s cost? The estimates of direct food subsidy for a full year hover around Rs 1,30,000 crore at this year’s prices, up from about Rs 80,000 crore last year. By next year, when hopefully the full roll-out takes place, at least 8-10% more can be added on account of rising support prices and costs

of procurement, storage and distribution.

    The full year cost will not be below Rs 1,40,000 crore in FY 2015. And this does not include additional investments that would be needed to store grains, in the railways to move the grains, to modernise the PDS at the state level and, above all, in agriculture to stabilise production of grains. If one adds all these additional costs to make the FSB a meaningful ‘right to food’ Act, the costs will reach Rs 2,00,000 crore a year.

    Fourth, can one really afford this at this juncture? Well, if one is committed to the Bill, one will have to find resources by cutting down some other subsidies, say on energy (power, diesel, gas) and fertilisers. Will the government bite the bullet on this account in an election year? I am not sure. But if that is not done, it will keep the fiscal situation under strain, inflation high, and implicitly tax the poor.

    Fifth, in some quarters, there is a misconception that 5 kg/pppm can solve India’s malnutrition problem. It will not. To address this, research reveals that one needs to focus on supply of clean drinking water, better sanitation and female education, all of which require massive investments which don’t appear explicitly in the Bill. But large food subsides could eat into these potential investments.

    Sixth, how can one make the best of the FSB? Reminding ourselves of what Rajiv Gandhi once said, that only 15 paise for every rupee spent by the government on welfare schemes reach the poor, the first and foremost action should be to plug the leakages in PDS, which hover around 40%. It is doubtful that state governments, which could not achieve this in the last 50 years, will attain the target over the next year. And if one cannot fix these leakages, especially in Uttar Pradesh, Bihar, Jharkhand and Rajasthan, the FSB will turn out to be a very expensive and failed experiment.

    Next, there is a need to rationalise taxes on cereals in procuring states, where they reach as high as 14.5% (as in Punjab), and contain the high costs of operations of state agencies by bringing in the private sector through competitive bidding of tenders.

    But above all, we need to open the way for conditional cash transfers through Aadhaar, starting with 33 cities of more than one million population where there is sufficient banking network, and then extending it to farmers, who need not sell all their produce to the government, say wheat at Rs 14/ kg and then ask the government to give them back the wheat at Rs 2/kg. This is absurd and will unnecessarily overload the system. It will be much better to give them cash support. After all, India is too large to have just one model for all states.

    Finally, the art of policy making lies in achieving the desired ends with minimal costs. The best international practices (Brazil, Mexico) tell us that wisdom lies in using income policy instruments (like conditional cash transfers, and not a price policy of cheap food) to achieve equity ends. This can save at least Rs 40,000 crore a year, without damaging the functioning of agri-markets and/or production structures. Can India steer this transition successfully? Only time will tell.

   (  The writer is chairman of the Commission for Agricultural Costs and Prices. Views are personal. )