The Cabinet has approved promulgation of an ordinance to give effect to the Food Security Act (FSA). Far from providing food security, the Act will crack at its very foundation.
The FSA guarantees availability of 5 kg of cereals per person per month at R3 per kg rice, R2 per kg wheat and R1 per kg coarse cereals to 67% of India’s population (75% rural and 50% urban). This is an astounding admission that six-and-a-half decades after Independence, nearly 800 million of country’s population is so poor that it needs be given food at ‘close to zero’ prices. The huge gulf between what people can pay for food and the cost of supply (R20 per kg plus) makes a mockery of the much trumpeted ‘inclusive’ development.
Having neglected them all through, for government to now portray that it cares for the poor does not inspire confidence. Any self-respecting person needs ‘means’ to increase his income/ purchasing power, not doles.
Yet the FSA perpetuates the age-old practice of giving doles. The central government is competing with a host of states such as Andhra Pradesh and Tamil Nadu who are already supplying food virtually free (albeit from their coffers). Food security rests on two main pillars: (1) sustained increase in production to required level; (2) fool-proof logistics arrangements for supply and distribution at an affordable price. Alas, under the FSA, both pillars are fragile.
There are around 138 million farm households. Of these, nearly 85% or 117 million are small and marginal farmers, cultivating land of 1-2 hectare and up to 1 hectare, respectively. A majority of them are ‘subsistence’ farmers producing food for self-consumption. When food is available at R1/2/3 per kg, why would they produce at much higher cost? Even surplus producing farmers will be lured in to garnering food supplied by state at throwaway prices and make money by re-selling/trading, instead of toiling on the land.
The spectre of drought continues to haunt farmers. But we have never heard of a man-made drought. The implementation of the FSA could precisely do that. It would give a signal to millions of farmers that it does not pay to grow food. No wonder, we may face decline in food production even when rainfall is normal. In an year when monsoon fails, the FSA and drought could produce a deadly combination—one feeding on the other—to result in steep fall in the domestic production of foodgrains.
Food requirement under the FSA is estimated at over 60 million tonnes per annum. To arrange for this domestically will be next to impossible especially when farmers have no incentive to produce. Consequently, the government will have to take recourse to heavy imports perpetually. It is long since India imported food last. With our entry in international market, prices will shoot up.
Clearly, imports will come at much higher price than cost of domestic supply. This means food subsidy would be much higher than the R2 lakh crore annually (estimated by CACP chief Ashok Gulati, based on price paid to farmers). The budget allocation for 2013-14 is R90,000 crore (R80,000 crore for PDS and R10,000 crore additional due to the FSA). The shortfall will be R1,10,000 crore at bare minimum. This will aggravate if allocation is reduced in following years, in view of the government’s pledge to reduce fiscal deficit from 4.8% (target for current year) by 0.6% every year to reach 3% by 2016-17.
The inadequacy of funds will seriously impair capability of the government to discharge its obligations under the FSA. The deficiency in infrastructure for handling and distribution will make things even worse. Supplies under the FSA will be routed through PDS, which is riddled with inefficiencies and leakages. The leakages are a high of 30%. With no credible plans to plug these, even at 30% a staggering R60,000 crore (2,00,000 x 0.3) will be pocketed by the corrupt.
The trigger for leakages from PDS is primarily much higher market price vis-a-vis sale price of subsidised food. Under the FSA regime, differential would be much more—a minimum of R17-18 per kg (20-2/3).
Hence, diversion/leakages are bound to proliferate. No wonder, we could be facing a horrendous scenario of R1 lakh crore per annum (at 50%) or even more flowing to side channels.
Only under the scheme of the direct benefit transfer (DBT) the government can ever think of eliminating leakages. Under the DBT, subsidy amount is credited to the bank account of the person even as he pays full price/economic cost for his purchases. But the government has no plans to introduce DBT for foodgrains for now. There is not even a road map. Hence, the FSA will be implemented only through the existing mechanism of supply at subsidised prices with all its attendant drawbacks.
With a huge quantity appropriated by the government agencies for the FSA, supplies available for sale through private trade will shrink drastically. This will scuttle development of food market, competition et al. All stakeholders including farmers and consumers will loose; the only gainers will be dubious traders and corrupt officials. Thus, under the FSA, we will have a deadly cocktail of the following:
- No/substantially reduced incentive to produce food;
- Increased incentive to trade in subsidised (heavily) food;
- Increased pilferage from supply chain;
- Increase in imports at much higher cost;
- Monumental subsidy payments.
All this will produce a backlash on the macroeconomic stabilisation programme, downgrade by rating agencies and consequences that will follow. Yet there is no guarantee that the poor will get the intended benefit.
Clearly, grandiose schemes such as the FSA can’t provide succour to the poor. These are fundamentally flawed. Any scheme founded on the premise of giving doles is unsustainable.
The government should shed this approach and instead focus on measures that help persons get jobs and more income on one hand and reduce cost of food supply on the other. Meanwhile, extant PDS needs to revamped and strengthened to work better till the DBT is put in place.
The author is a policy analyst
Published at http://www.financialexpress.com/news/a-recipe-for-disaster/1140322/0