New Food Security Bill

                                                                                 

        The right to food campaign started when the Rajasthan unit of the People’s Union for Civil Liberties filed a writ petition in the Supreme Court in April 2001 demanding that the country’s food stocks be used to alleviate hunger and malnutrition. The prolonged battle between the PUCL and the Union of India led to many “interventions”, like instituting food commissioners, to ensure universalisation of welfare schemes like mid-day meals for schoolchildren.

Meanwhile, the UPA’s first stint had achieved two very important results that propelled the right to food campaigners to push forward their agenda: The government had passed the National Rural Employment Guarantee Act (now the MGNREGA) and ensured that India grew at over 9 percent for successive years. With the country riding at such a high, the activists had asked the UPA a simple question when it took over the second time in 2009: How can India be among the world’s fastest growing economies and yet have hunger and malnutrition levels worse than that of Sub-Saharan Africa?

It turned out to be a potent argument and, despite much dilly-dallying, the UPA approved the bill in March. The National Food Security Act, 2013 is an Act of the Parliament of India which aims to provide subsidized food grains to approximately two thirds of India's 1.2 billion people. It was signed into law September 12, 2013, retroactive to July 5, 2013.

The priority households (46% in rural areas and 28% in urban areas) covered under the Antodaya yojna are to have a monthly entitlement of 35 Kgs (equivalent to 7 Kgs per person) at a subsidized price of Rs. 1 per Kg for millets, Rs. 2 per Kg for wheat and Rs. 3 per Kg for rice. The general households (39% rural and 12% urban in phase 1 and 44% rural and 22% urban in final phase) to have a monthly entitlement of 20Kgs (equivalent to 4 Kgs per person) at a price not exceeding 50% of the current Minimum Support Price for millets, wheat and rice.

Some facts:

According to an analysis by Standard Chartered, the fiscal impact of the subsidy will not exceed 0.1-0.15 per cent of GDP in FY14, most of which has already been factored into the Budget.

A higher subsidy burden may force the government to look for ways to increase income. It could look at raising tax rates and increasing borrowing. Higher government borrowing could crowd out private borrowing, and interest rates may rise.

The government may look at printing more money to finance the scheme, which will lead to higher inflation. The minimum support price on wheat and rice may also rise. Food inflation may inch up.

Higher food prices and higher inflation will mean lower savings, which in turn would imply lower expenditure on consuming goods and services. Lower savings will also have an impact on the current account deficit.
A lower CAD may reflect a low level of national savings, and India may have to borrow capital from abroad. Dollars will have to be brought to repay the loan.

SCRUTINY

The Food Security Bill has been scrutinized top to bottom, layer upon layer over the past few months. It holds a seemingly instant attractiveness for critics and the convenient provision of an equally instant trigger for those who need a subtle dose of those for turning into critics. What in the plot of one of the most highly debated bills to be passed in the parliament in recent history (the frequency and magnitude of discussion can probably be compared to perhaps that of MNREGA) which (self-proclaimed) pundits, (prudent and succinct) economists and (irritating) panelists have lambasted in unision? (to be fair there were indeed a few supporters but they did not find live television to be a comfortable place for a while).

There are indeed multiple challenges the FSB has had to face, is fighting, and will be struggling with in the future. Following is a list and concise explanation of some important ones:

Suspect Timing

The economic condition of the country was going through a tumultuous economic upheaval at the point of passage of this bill, and symptoms ranged from an inflated fiscal deficit (around 5.4% of the GDP) to a negative CAD (to the tune of $10-15 bn) and waning FDI and other forms of investments. The industry had actually had negative growth rates over a few quarters, with the IIP showing little, if any, growth. At such a junction, questions were raised when a predominantly socialist scheme was being introduced rather than efforts to improve the investment climate and boosting manufacturing.                

The NFSB was debated and passed around late August, early September.

Cost

The food security bill was to supposedly cost the govt somewhere around 25 thousand crore rupees without factoring in the improvement costs for the PDS system. Different sources however quote costs  ranging from the said amount to as high as 3 lakh crore. (A lot of this money would allegedly be lost to the various kinds of corrupt) Hence would it be worth the gamble, even if the corruption aspect were to be ignored? India's total revenue earnings (non tax plus tax) over the year are around 10 lakh crores. Spending even say 60,000 crores extra would mean that 6% of all revenues go into the FSB. Moreover, the money supply increase from FY'12 to FY'13 was around 10 lakh crores. Let us assume that the increase in  money supply for the next FY is 11 lakh crores. Hence, for every new rupee brought into supply, 5.4 paise will go into the implementation of the FSB. Cost much?

Provision of Nutrition or Alleviation of Hunger?

    NSSO data has shown that indians of all economic sections have been shifting to a diet which contains lesser amount of cereals and more of other things like vegetables, pulses etc. Not providing these other dietary necessities may cause inflation in their prices due to increased demand. Moreover, other studies reveal that the indian poor are deprived of vital nutrients like proteins and vitamins which are scarcely present in cereals which have predominantly carbohydrates and fibre. It is not difficult to see that people lack a nutritious diet, because they are known to already lack any form of a filling diet. Therefore, this bill completely ignores the science and goes on to alleviate hunger only through cereals.  To quote eminent economist S. Anklesaria Aiyar:

“Indians suffer from very high levels of anaemia, even among the richest, one-third. Pregnant mothers and children suffer from protein shortages. If drinking water is unclean and bacterial, people cannot absorb additional calories even if fed more food. Clearly, better nutrition requires clean drinking water more than cheap cereals. It also needs additional protein, iron and vitamins. These could be supplied through ultra-cheap soybean flour fortified with iron and vitamins. But solving malnutrition this way will not get many votes. Sonia Gandhi would rather seek more votes through a subsidy covering two-thirds of all voters. Hence the Bill.”

Some States Already Had Better Schemes

Tamil Nadu provides 20 kg of free rice to poor families. Other southern states provide rice at 1 per kg. Chhattisgarh, Madhya Pradesh and Rajasthan offer wheat or rice at 1 per kg. Chattisgarh had gram, pulses and iodised salt (2 kg free) included in their FSB. It is also obvious that when different states have a different constituent population having it's unique demographics, it is best left to the state to devise a suitable food security programme rather than imposing a central one which overrides any existing ones specific to states. (it is not by law imposed, but the states have been asked to procure from the FCI only for the TPDS and rocure for it's own system, if it chooses to continue with one, on it's own for which there wouldn't be much grains left and no subsidy will be given to the states. Previously, the cost of procurement, storage and distribution of foodgrains by the State Governments was fixed by the Government of India through thorough consultations with the state, and the difference between the cost so fixed and the Central Issue Prices under various welfare schemes was reimbursed to the States as food subsidy. This is all in section 40 of the bill.)

Clause 52

The Central Government, or the State Governments, shall not be liable for any claim by persons belonging to the priority households or general households or other groups entitled under this Act for loss/damage/compensation, arising out of failure of supply of foodgrains or meals when such failure of supply is due to conditions such as, war, flood, drought, fire, cyclone, earthquake or any act of God. ”

So all's well in the food security context as long as a situation in which the need for food security is maximum (like drought or earthquake) does not arise. This does not necessarily just pertain to situations in which all efforts of the govt have failed, it can be used as a clause to fall back upon too. Pretty much self explanatory, this problem. 

An Already Inefficient System, Plus Distributed Responsibility Confusion

It is common knowledge that around 40% of the food in the PDS goes waste. Is it best then to drastically enlarge the system rather than first root out its problems? A large proportion of the food grains go to the wrong people due to the exclusion of those who actually qualify for receiving them (this number is put at somewhere around 60%). Moreover, this bill brings a distribution of responsibility between the state and the central govt which may in time turn out to be highly ambiguous and inefficient. The types and forms of reforms in PDS is to be dictated by the government, halting the ones already being implemented in Haryana and Chattisgarh. A Decentralised Procurement System (DCP) was introduced in 1997-98 to substitute the centralised procurement system which worked wonders for states like MP and Chattisgarh (later when it was formed, of course). States like Andhra Pradesh, Kerala, Gujarat, Orissa, Karnataka, Madhya Pradesh,West Bengal, Chhattisgarh, Rajasthan, Tamil Nadu and Uttarakhand, had undertaken the Decentralized Procurement Scheme.

In the FSB, central govt will buy the grains at the MSP and divide it among the states according to a formula. After this, the state will have to identify the eligible households. The centre will transport the grains to the central depots in every state after which the state has to deliver it to each ration shop. The customer who comes to avail the grains therefore is quite unaware that the grains have seen more of the country than s/he probably has.  

This system is financially straining and probably unsustainable.

The Long Term Economic Impacts

Constantly rising food subsidy costs for the govt is likely to be a white elephant. Moreover, it has come at the cost of investment of capital for the betterment of indian agriculture, which is a huge cost considering that investment in agriculture has been known to do much better for productivity than any security scheme.

Too much control by the government is also likely to drive out private investments in agriculture for the long term. Also, large scale procurements will create artificial shortage of grains in the open market.

CCTs – A BETTER ALTERNATIVE?

In the final section of this report, we will try to ascertain whether the conditional cash transfer scheme would have been a better alternative to subsidies.

Conditional cash transfer (CCT) programs aim to reduce poverty by making welfare programs conditional upon the receivers' actions. The government (or a charity) only transfers the money to persons who meet certain criteria. These criteria may include enrolling children into public schools, getting regular check-ups at the doctor's office, receiving vaccinations, or the like. CCTs are unique in seeking to help the current generation in poverty, as well as breaking the cycle of poverty for the next through the development of human capital.

Let us now look at an example of Brazil to see how they have had a successful food security campaign using CCT. Bolsa Família, the CCT scheme introduced in Brazil in 2003, currently gives families with per-capita monthly income below $140 BRL (poverty line, ~$56 USD) a monthly stipend of $32 BRL (~$13 USD) per vaccinated child (< 16 years old) attending school (up to 5), and $38 BRL (~$15 USD) per youth (16 or 17 years old) attending school (up to 2). Furthermore, to families whose per-capita monthly income below $70 BRL (extreme poverty line, ~$28 USD), the program gives the Basic Benefit $70 BRL per month.

This money is given preferentially to a female head of household, through so-called Citizen Cards which are mailed to the family. This card operates like a debit card and is issued by the Caixa Econômica Federal, a government-owned savings bank (the second largest bank in the country). The money can be withdrawn in over 14,000 Caixa locations. This practice helps to reduce corruption, a long problem in Brazil, and helps to dissociate the receipt of money from individual politicians or political parties. The names of every person enlisted in the program and the amount given to them can be found online at the Portal da Transparência, the program's website.

The Bolsa Familia programme is the world’s largest conditional cash transfer program, and has lifted more than 20 million Brazilians out of acute poverty apart from promoting education & health care. These types of social protection systems are now being adopted nearer home too as in Indonesia & Philippines with immense success. Philippines’ ‘Pantawid Pamilyang Pilipino Program’-another CCT scheme- costs less than 0.5% of the country’s gross domestic product, yet reaches 15 million people.

It is generally accepted that for states that have a surplus production of foodgrains, CCTs are going to perform better than subsidies. The income approach rather than the price approach will further ensure that this artificial creation of demand for grains does not adversely affect the agriculture market and a market demand based production approach will ensure prosperity and private investment in the sector, besides providing long term nutrition and food security. Other factors in favour of CCTs are that it motivates parents to enroll their children in schools, look after their health (because only if they invest in their education and health will they get the cash transfers) and this investment will be a fruitful one once it percolates inevitably down to the society as a whole. This is something that simply cannot be achieved by the price approach. It is also easier to minimize the corruption and subsequent lost capital which plagues the current PDS system, because the government shall pay the beneficiaries directly.  

Brazil's Zero Hunger Programme spends much higher per beneficiary than the Indian Food Security Bill. This may be attributed to the lower cost of living in India. The approaches Brazil and India take up differ in principal, the Indian system offers grains at highly subsidised rates without a properly functioning beneficiary identification system in place whereas Zero Hunger involves in Cash Transfers to the beneficiaries but with a stringent identification system in place. The Brazilian government has put this plan in sync with all other government departments by adopting a 4 Point to increase the income of the target group and also the agricultural productivity of the nation so that there is no shortage of grains. In India tons of grains rot in Food Corporation of India (FCI) Warehouses, but there is always a shortage of grains at the PDS Ration Shops, leaving many hungry. Clearly cash transfers are a much more efficient way of transferring the benefit, enabling beneficiaries to purchase grains from the market directly. But Cash transfers cannot be implemented till the time proper identification of the beneficiaries is made. We saw the "Aadhaar Program coming out as a great initiative in this direction wherein every citizen was supposed to be issued an Aadhaar Card and the information collected was supposed to make the identification of beneficiaries and implementation of schemes much better but the programme has been abandoned as a victim of Political Turmoil.