Sonia Gandhi wants the chief ministers of fourteen states in which the Congress party is in power to role out the food security scheme in letter and spirit, and in quick time. Some media reports suggest that the scheme will be rolled out on August 20, which also happens to be the birth anniversary of Sonia's late husband Rajiv Gandhi.
While there seems to be a great hurry to launch the scheme there are some basic questions that the government needs to answer.
a) It has been pointed out time and again that the right to food security is likely to benefit 82 crore Indians. It seeks to cover 50% of the urban population and 75% of the rural population. The trouble is that no clear eligibility criteria for identifying the intended beneficiaries has been specified. It has been left to the state governments. As Jean Drze wrote in a recent column in the Business Standard, "For instance, the identification of eligible households is left to the discretion of the government. In the absence of clear eligibility criteria, no one is really entitled to anything as a matter of right; this defeats the law's purpose."
So the question is how will be the intended beneficiaries be identified? The lack of a mechanism already seems to be causing problems. A report in the Daily News and Analysis points out that a presentation being made Sheila Dikshit, the chief minister of Delhi, was cut short by food minister KV Thomas.
As the report points out "Dikshit's presentation was cut short by food minister, when she mentioned that 32 lakh beneficiaries of existing schemes would be covered by the food security ordinance. She was reminded that in Delhi 72 lakh people are estimated to gain from the food security scheme. She had mentioned that Delhi had 2.62 lakh BPL card holders and 2.21 lakh are in the rehabilitation colonies and other 40,500 are in slums. Even these figures made just 26 lakh persons. Delhi CM then added another 10 lakh beneficiaries covered under the Antyodaya Ann Yojana and Anna Shri Yojana. She was told to undertake a fresh survey and draw the list of beneficiaries."
Haryana Chief Minister Bhupinder Singh Hooda was in a similar situation. "Similarly, Hooda also come out with a figure of just 39 lakh beneficiaries. He was also told that as per the population of his state, he needs to draw a list of not less than 1.69 crore," the DNA reports.
So the calculations of the Delhi chief minister tell her that there should be 36 lakh beneficiaries (26 lakh + 10 lakh beneficiaries under the Antyodaya Ann Yojana and Anna Shri Yojana) of the food security scheme in Delhi. The food minister feels that there are 72 lakh estimated beneficiaries. Dixit has been asked to do a fresh survey and draw up a list of beneficiaries. The gap of 36 lakh (72 lakh minus 36 lakh) need to be filled.
Hooda needs to fill in an even bigger gap of 1.3 crore (1.69 crore minus 39 lakh). Both Hooda and Dixit want to launch the scheme on August 20, which is a little over a month away. How are so many people going to be identified in such a short period of time? And the bigger question is why has no method for identification of intended beneficiaries be prescribed? Sheila Dikshit plans to distribute food security cards to those eligible for the scheme.
b) What is the food security scheme going to cost every year? The finance minister P Chidambaram in the budget speech he made earlier this year said "I have set apart Rs 10,000 crore, over and above the normal provision for food subsidy, towards the incremental cost that is likely under the Act." The total food subsidy in the government budget for 2013-2014 (i.e. The period between April 1, 2013 and March 31, 2014) is set at Rs 90,000 crore. Chidambaram's estimate will be lower for this year simply because the scheme will be launched in large parts of the country only during the second half of the year.
Economist Surjit S Bhalla writing in a column in The Indian Express puts the cost of the food security scheme at Rs 3,14, 000 crore. Bhalla's calculations are fairly simple and straightforward to understand and put across the likely cost of the scheme more than clearly.
The Commission for Agricultural Costs and Prices of the Ministry of Agriculture in a research paper titled National Food Security Bill - Challenges and Options puts the cost of the food security scheme over a three year period to Rs 6,82,163 crore. During the first year the cost to the government has been estimated at Rs 2,41,263 crore. Andy Mukherjee, a columnist for the Reuters, puts the total cost of food security at $25 billion or Rs 1,50,000 crore (assuming $1 equals Rs 60).
And if all these numbers aren't enough there is the original estimate of Rs 27,000 crore when the idea of the Right to Food Security was first mooted in the National Food Security Bill tabled in the Parliament in December 2011. As Jean Drze and Amartya Sen write in An Uncertain Glory - India and Its Contradictions "The additional resources required to implement the Bill were officially estimated, at that time, at Rs 27,000 crores per year."
So how much is the food security scheme eventually going to cost the government and in turn the taxpayers? The estimates as one can see vary anywhere from Rs 27,000 crore to Rs3,14,000 crore. Can the government at least provide us a clear estimate of that? Or would that even be possible for the government to do, given that it has specified no method to identify the intended beneficiaries. Hence, it has no idea of how many people it will eventually end up covering under the scheme. So how does it calculate the cost?
c) The food security scheme aims to provide subsidised wheat and rice to nearly 82 crore people. In order to procure the required rice and wheat the government already has an elaborate procurement system in place. It uses the Food Corporation of India and various other state agencies to buy rice and wheat directly from the farmers. The rice and wheat thus bought will be later sold at a subsidised price by the government.
What does the government plan to do in bad years when the production and/or procurement of rice and wheat are hit? In the current year the procurement of wheat by the government has declined by 33 per cent to 25.08 million tonnes. This has been attributed to aggressive buying by private traders. As of now this is not a reason for worry for the government primarily because of the excess wheat that it had bought during the previous years.
But what happens in a year during which production of rice or wheat is hit. As the CACP research paper cited earlier points out "With 60 percent of India's farmland dependent on monsoon rains, drought years can slash production and force the country to import large quantities. The government already procures one-third of the cereals production and any increase in procurement will have enormous ramifications on the cereal economy/markets and would crowd out private sector operations with a consequent effect on open market prices."
The government has the option of importing grains. But that is easier said than done, specially in case of rice. "Rice is a very thinly traded commodity, with only about 7 per cent of world production being traded and five countries cornering three-fourths of the rice exports. The thinness and concentration of world rice markets imply that changes in production or consumption in major rice-trading countries have an amplified effect on world prices," the CACP paper points out.
Andy Mukherjee of the Reuters explained the consequences of what would happen during a year of bad harvest, a lot more clearly, in a recent column. "When the domestic Indian crop is insufficient, the programme may destabilize a thin global rice market...Once the bulk of Indian consumption bypasses the local open market - where prices can and do rise in years of bad harvest - the full brunt of the country's demand will have to be met by supply from Thailand, Vietnam, Pakistan and the United States. That will in turn cause prices to surge for countries dependent on imports, such as Nigeria, Senegal, Bangladesh, Indonesia and the Philippines," he writes. Not only is the price of rice going to go up in India, the world prices will go up as well. We will start exporting food inflation in the years to come.
d) Are the states really ready to launch the food security scheme? Of the fourteen Congress governments in the country only two have committed to launch the scheme on August 20, 2013, the birth anniversary of Rajiv Gandhi.
The government plans to use the public distribution system (PDS) to distribute rice and wheat. Estimates made by CACP suggest that the currently the system has a leakage of 40.4%. "In 2009-10, 25.3 million tonnes was received by the people under PDS while the offtake by states was 42.4 million tonnes- indicating a leakage of 40.4 percent," the research paper points out. This is a marked improvement from 2004-05 when the leakage was around 54.1%.
Drze and Sen in their book An Uncertain Glory - India and Its Contradictions divide the PDS into 'old-style' PDS and 'new-style' PDS. "Basic features of the old-style PDS include narrow coverage, large exclusion errors, erratic supply of food and massive corruption. The new-style PDS is based on a focused effort to tackle these interrelated problems, and to achieve broad coverage, low exclusion errors, regular supply, and relatively small leakages," write the authors.
States like Tamil Nadu, Chattisgarh, Andhra Pradesh, Himachal Pradesh, Odisha and Rajasthan, are a part of the new style PDS, Drze and Sen point out. But large states like Uttar Pradesh and Bihar are still on the old style PDS. This will ensure a tremendous leakage of rice and wheat that is distributed at a subsidised price in these and other states which still have old style PDS.
e) The government ultimately plans to move food security onto the cash transfer system from the current PDS. So beneficiaries will be paid in cash which they can use to buy rice and wheat from the open market. But what will happen to the elaborate grain procurement system that the government has built through the Food Corporation of India in that case? As Drze and Sen write "If the PDS were to be replaced with cash transfers, the government would have to devise good ways of using all the rice and wheat it procures every year. The procurement system has a momentum of its own, and is unlikely to be dismantled any time soon. Upbeat estimates of massive 'food subsidy' savings in the event of a transition to cash transfers effectively assume a discontinuation (or at least a sharp reduction) of foodgrain procurement, but this assumption is rarely discussed. Nor is the political feasibility of discontinuing food procurement given any room in these calculations."
These are important questions for which the government needs to answer or they will comeback to haunt us in the time to come.
Vivek Kaul is a writer. He tweets @kaul_vivek
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Updated Date: Dec 20, 2014 20:46:18 IST