Will food security starve small units?

Though the National Food Security Bill?s passage in the Lok Sabha is a joyous moment for the socially conscious, it is not exactly music to the ears for India?s micro, small and medium enterprises.

The MSME sector is already ruing another populist welfare scheme of the Union government, the Mahatma Gandhi National Rural Employment Guarantee Scheme. This scheme has led to a shortage of hands in the sector, especially in manufacturing. Though the scheme’s aim was to prevent rural migration, in many cases, even skilled and semi-skilled workers from urban industrial centres have moved back to their villages. This has even prompted a demand for including textile workers under the MGNREGA. The scheme has also led to widespread labour shortage in the farm sector.

Now the MSMEs fear that the food security programme will further restrict rural migration, since it guarantees essential food to two-thirds of the population. The apprehension is that once the basic needs are met in their hamlets, villagers will have little incentive to move out of their comfort zones. After all, it is in human nature to avoid work to the extent possible.

Will the dual schemes of job guarantee and food security prove a deadly combination for the troubled MSME sector? There are no definitive data to suggest that. In Orissa, which runs a R2 per kg rice scheme, migration of rural workers to other states has only increased in recent years. That is because, since the basic needs of the household are taken care of through the subsidised grain scheme, ambitious farm hands have moved out of the state in search of more stable and rewarding non-agricultural jobs. Many have moved to states like Kerala, where agricultural wages are far higher than in their home state.

A survey by the Indian Institute of Health and Family Welfare in Andhra Pradesh, the state that pioneered the R2/kg rice trend, found that subsidised grain, which afforded the poor a better economic status, had shifted the state?s occupational structure from manual to white collar jobs. This implies an improvement in the education status as well. Studies have also pointed to increased consumption of food, alcohol and clothing from the savings generated by subsidised grains.

However, it is difficult to predict the likely impact of the food security scheme on labour availability nationwide, since the subsidy coverage has expanded almost three-fold to 67% of the population. In such an unprecedented situation, previous data are of not much help.

But it can be certain that fewer people will turn to farm labour?good for the economy since it means increased productivity?though farm related jobs will see a rise from varied infrastructure to be created locally for the storage and supply of subsidised grain, and from a rise in rural consumption. This is likely to reduce rural migration.

It is essential that the food subsidy scheme has to have an integrated approach to prevent it from undermining industrial growth. It seems that the government is largely on track on this count, perhaps by accident.

The Union government has started moving vigorously on skills development, though with the elections in mind, this will to a large extent aid labour migration, since skilled and semi-skilled villagers can take up work in nearby urban centres.

Another mitigating factor is the Right to Education Act, which will also eventually ensure a steady supply of skilled people for industry.

Higher consumption of food and clothing will sustain unorganised retail, while giving a boost to the MSME sector, since any consumption story is good for the sector.

A sore point is alcohol consumption, which gets a high when food is almost free. Though the eldest woman will be the head of the household in the food subsidy programme, there is nothing to prevent the male head from wasting his wages on alcohol. Andhra Pradesh had to briefly resort to prohibition to curb the alcohol menace. Alcohol use can be curbed through pricing, and by restricting availability. Ensuring at least a 20-km distance between booze shops, limiting the number of bar licences and barring a person from carrying more than a litre of liquor will make drinking laborious. Investor interest can be protected via high-end liquor shops at airports. If not accompanied by curbs on alcohol, much of the benefits of the food security scheme will be wasted away.

Entrepreneurs will have to keep their fingers crossed, and wait for the scenario to unfold, at least for a year or more.