National Food Security Bill :- Questions & Answers :- 1. The Food Security Bill imposes a huge financial burden. Can the country afford such a major subsidy at that juncture? In the existing Targeted Public Distribution System (TPDS), based on the 2001 census the (annual) subsidy is Rs. 109,000 crore. The 2011 census is now available and the TDPS would have to be implemented on its basis, which would have pushed up the subsidy automatically to Rs 1,13,000 crore, leaving apart schemes such as Integrated Child Development Services, Mid-Day Meals, etc. If there was no Food Security Bill the subsidy would still have risen. After the Food Security Bill, the burden will increase by just an additional quantum of Rs 10,000 crore a year to Rs. 1,23,000 lakh crore, which is around 1.2% of the gross domestic product (GDP). Under the Food Security Bill and its major emphasis on reforms of the PDS a great deal of corrective action will happen through the linking of food distribution to the Aadhar cards (the process has already begun in several states). There will no longer be individuals with 80 ration cards to their name anymore once more people are linked through the Aadhar cards. That will reduce leakages in the PDS. The government can also reduce the expenditure by cutting down on the buffer stocks of food. At present there are 80 million tonnes of grain stores, vulnerable to rotting in godowns or open storage and being eaten by rats, and adds majorly to the cost of food distribution. If the government cuts down this storage by half, it will reduce the food subsidy further. A large part of the food subsidy today is also wasted on the transport and storage of huge food stocks. With a well-functioning PDS, it will be much easier to coordinate procurement and distribution, so that excess stocks don’t accumulate. This in turn will further reduce costs. In short, the food Bill is sound economics. It will put the entire PDS on a new footing and ensure much better use of the food subsidy. Even the additional subsidy associated with the Bill is partly transfer from the Central to state governments. The net additional expenditure for central and state governments combined is very moderate and eminently affordable. 2. The Food Bill has triggered off fear leading to downslide of the rupee and the markets. Is this fear justified? Aren’t markets driven more by perception than anything else? There does not appear to be a link between the fluctuations in the rupee and stock markets to the Food Security Bill because the impact of the bill will not happen tomorrow but will be felt over a year. The monthly increase (in spending) will be less than Rs 1,000 crore. Moreover, the Ordinance was promulgated two months ago. At that time there was no such reaction. This clearly means some section of people want to create a perception of fear where actually there is none. These are irrational fears caused by widely exaggerated estimates of the financial costs of the Bill in the business media. An impression has also been created that the bill would require a huge expansion of procurement and distribution. Figures such as “3% of GDP” and Rs. 6,00,000 crores” being put out are gross exaggeration. 3. Is there a relationship between subsidies for the Food Security Bill and the rupee’s depreciation? Depreciation of the rupee has little to do with the Food Security Bill. There are other factors that seems to have contributed to the depreciation of the rupee, including major imports of gold, public subsidies for oil imports, changes on monetary policy in the United States, and more recently, the prospect of a military strike on Syria. 4. Will the Food Security Bill bring the rupee down further and raise the current account deficit? No, it will not. The fear that the Food Security Bill is somehow going to make a massive dent in the deficit is entirely misplaced. Our current account deficit is a little over 4% of our country’s GDP. Compared to that, all of our subsidies-oil, food etc taken together are half of that-2% of the GDP. The food subsidies as they stand right now are only 0.8% of the GDP. With the new food bill, this will go up by, at most, another 0.15% increasing the food subsidy to only about 1% of the GDP. 5. If food subsidies aren’t mainly responsible for the deficit, then what is? If food subsidies are not sinking the economy, what is? It is not true that our economy is sinking. Our GDP growth stands at 4.8 to 4.9%. Yes, there was an excellent period for about 5 or 6 years from 2004 to 2010 when our growth rates hovered between 7 and 9%. But it has never been that high in the history of independent India. However it is true that at 4.8%, our growth rate is now at the lower end of the average since 1991 when our economy first opened up to world markets. But even at this growth rate, we are better off than most economies of the world, expect China. We are still in the top 10 and have not been downgraded yet. Our deficit at present is due to current account, the difference between what the country imports and what it exports. It does not have much to do with domestic expenditure, but with our borrowings and imports. This makes us vulnerable to what happens in world market. What contributes largely to our current account deficit is import of vast quantities of gold and oil. 6. Critics believe that India will get trapped into importing food grain to meet the commitment of about 62 million tones envisaged under the Food Bill. Do we produce enough food to meet this commitment? Will India need to import food when the Food Security Bill is fully implemented? Today, the government commits 57-58 million tones of foodgrain to the PDS, ICDS and the mid day meal programme. This will increase to 62 million tones with the Food Security Bill. Our food grain production continues to grow. The government procures about 30-33% of total production and only needs to maintain this ratio. The remaining 67-70% of grain trade in wheat and paddy in the private market will remain unaffected even after the Food Security Bill is implemented. The overall requirement of grain and the share of public procurement in total production will change only marginally as a consequence of the Food Bill. Consequently, the claim that India will become dependent on imports and that the Food Security Bill will lead to higher prices for non-beneficiary households is baseless. Foodgrain procurement has been growing significantly over the years. Last year, procurement reached nearly 75 million tones-a full 13 million tones more than what is required for the bill. The driving force behind growing procurement is not the need to feed the PDS but the steady increase of Minimum Support Prices (MSP). Because of excess foodgrain stocks in its godowns India has been exporting foodgrains recently, and huge stocks are available. Availability of foodgrain to meet the requirements of the Food Bill does not appear to be a problem in the foreseeable future. In fact, in all likelihood, the problem of excess stocks is going to continue for quite a while. The country does not need to import foodgrains. 7. Is high economic growth not essential to fund big welfare spending? Economic growth is important to fund social programmes. However, this does not mean that we should wait for growth to invest in education, health or social security. Countries that have made an early start down that road have tended to do very well, and that applies to Indian States too. 8. There are also fears that so many welfare handouts will turn Indians into an entitled, lazy unproductive society; that people will not seek work; farmers will not produce. Is there any ground to this? It wou;d be hard to provide any evidence to substantiate these claims. In fact, being more secured and better nourished typically helps people to be more productive, not less. It cannot be said that states such as Tamil Nadu or Himachal Pradesh, where the social security system is relatively well developed, have lazy or unproductive populations. On the contrary, their social initiatives have contributed to economic growth as well as to human development. 9. What can the Food Security Bill do for the rural economy? It can bring some security to poor people, including small farmers who are extremely vulnerable to crop failures, illness and other contingencies. Some aspects of the bill, such as maternity benefits and children’s entitlement to nutritious food, can also help to reduce under-nutrition. 10. Is the criticism valid that the Food Bill focuses only on foodgrain distribution with no provisions for addressing under-nutrition? Many feel that the Food Bill cannot do much to reduce under-nutrition, as it only provides cheap cereals. This is because of the overwhelming focus on the public distribution system (PDS) in the public debate. In fact, the NFSO takes a life-cycle approach to food security. o The Food Bill includes maternity entitlements of a minimum of Rs. 6000 per month for pregnant and nursing mothers which could go a long way in ensuring better nutrition in the womb. o It includes supplementary nutrition for children under six through the Integrated Child Development Services (ICDS) scheme, including children in the 0-3 year age group, a crucial period for battling under-nutrition. o Even the PDS can contribute to better nutrition. There is a provision to supply more nutritious grain (for example, millets and maize) instead of wheat and rice. o Some states (Andhra Pradesh, Haryana, Chhatisgarh, Himachal Pradesh and Tamil Nadu) already provide nutritious commodities such as pulses and oil, and the Bill may prompt others to follow. o Households may use the ‘implicit transfer’ from buying cereals at cheap prices to diversify diets and buy more nutritious food items. 11. Is it correct to say that the subsidy earmarked for the Bill is wasteful? The Bill is a form of investment in human capital. It will bring some security in people’s lives and make it easier for them to meet their basic needs, protect their health, educate their children, and take risks. Healthy and well-fed people are more productive than hungry and undernourished ones.
Posted on: Wed, 09 Oct 2013 05:22:39 +0000
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