Cause for indigestion

Written by Uttam Gupta | Updated: Sep 3 2013, 08:20am hrs
During the debate on the Food Security Bill (FSB) in the Lok Sabha on August 26, 2013, Congress president Sonia Gandhi observed it is time to send out a big message that India can take the responsibility of ensuring food security of all Indians. She added, the question is not whether we have the resources to implement the food Bill; we have to mobilise resources anyhow. She also acknowledged leakages in the PDS and asked the states to strengthen it.

Gandhis observation would appeal to almost all Indians with the promise of subsidised access to food in adequate quantities (though 5 kg a month per person is hotly contested) to all. Thus, even those with the lowest income imaginable would feel hugely enthused and loudly acclaim the governments benevolence that comes with the proposed legislation.

Hidden in it is an admission that most Indians have been kept in a state of acute poverty and deprivation for decades; why would the government promise to supply food at prices almost close to zero Nearly 67% of Indias population or almost 800 million are deemed to be so vulnerable that the government has to give them coarse cereal/wheat/rice at R1/2/3 a kg.

This is reminiscent of rulers in the past who denied the ruled, or shall we say the oppressed, benefits of development for generations, keeping them in abject poverty and then turned up once in a blue moon to distribute doles, get accolades and justify their continuation in power!

The assurance of supplying food at the aforementioned prices is for a period of 3 years only. Thereafter, prices will be linked to MSP which would be several times higher. Is the government pre-supposing that those millions would no longer be vulnerable Is it waiting for something miraculous to happen The complementary statement on resources is no less bewildering. Where is the money the meet the bills

The Commission for Agricultural Costs and Prices has estimated that the cost of implementing FSB over a 3-year period will be R6,80,000 crore or R2,27,000 crore per annum as against a provision of R 90,000 crore for FY14. After netting the throw-forward from the previous year, money available would be only R60,000 crore, just about 1/4th of the requirement.

In the FY14 budget, the government had committed to maintain fiscal deficit at 4.8% of the GDP. Thus, any additional allocation over R90,000 crore will result in slippages, crossing the FMs red lines.

When confronted with the resource gap, the government might hold that the food security programme will be implemented only after a year. The states have been given time until August 2014 to identify persons eligible for the programme. If that is so, why try to pass the Bill now Even so, will the government have the necessary resources by next year As per the fiscal consolidation roadmap laid down in FY13, retained in the FY 14 budget fiscal deficit has to be reduced by 0.6% each year to eventually trim it to 3% by FY17. Hence, from FY15 onwards, there seems no possibility of funding FSB!

The government admits to leakages in the PDS through which it will implement the food security programme. According to Dr Surjit Bhalla, of the R74,000 crore spent on food subsidy in FY12, R30,000 crore was lost to theft/leakages and R30,000 crore went to the non-poor (FE, July 27, http://goo.gl/svXotT). In other words, only 18% reached the beneficiaries.

Now, juxtapose these mammoth leakages/thefts with Gandhis statement we have to mobilise resources anyhow. It leads to a bewildering inference that more resources must be mobilised only to be misappropriated and embezzled. Any talk of steps to curb leakages fails to instil confidence as it has never happened in the past despite tall promises.

One cannot extrapolate from an efficient PDS in Chhattisgarh and Tamil Nadu to surmise that leakages would disappear overnight in other states! Remember the words of Sharad Yadav of JD(U)steeling frameused to describe the culture of implementing any welfare scheme.

The only foolproof mechanism for benefits of a welfare measure to reach the targeted in full, bereft of any leakages, is direct benefits transfer (DBT). While rolling out DBT in January 2013, the government had parked it short of food (and fertilisers) subsidies. FSB has now formally announced its burial.

Some Parliamentarians expressed concern that freezing the MSP for 3 years will be a huge disincentive to farmers, thus restricting production. The government has agreed to remove the cap. But a much bigger disincentive has perhaps gone unnoticed. A farmer is also a consumer of food. In fact, a subsistence-farmer produces food entirely for consumption of his/her household. When the state promises to supply grains at R1/2/3 a kg, why would she/he toil, block money in buying inputs, viz fertilisers, seeds, pesticides, etc, and wait for a government agency to come, buy her/his produce and pay her/him. The agency may not turn up at all, given that the Bill has no guarantee in place for buying the farmers grains. The farmer could thus be forced to make a distress sale, especially with the private trade having access to much cheaper grains via a leaky PDS. Therefore, a safer bet for the farmer would be to find a non-agricultural source of income and buy grains from the PDS at throwaway prices.

The net result would be, in such a scenario, a steep fall in production forcing the government to go for heavy imports. These imports will come at exorbitant prices, further bloating the food subsidy bill. Given the huge demand in our country, we may not even get the required quantities in the international market. The resultant shortfall in supply would lead to a chaos.

The Bill is seriously flawed. It will push the culture of people living on doles to its nadir. It will accentuate leakages and corruption. It will kill farmers commitment to agriculture. It will destabilise the countrys finances. It will push an already existing crisis to its flash point.

Could better sense prevail, though belated, and the passage of the Bill be stalled in the Rajya Sabha

The author is a policy analyst