- Food Security Bill: Where's the money for this colossal waste?
"This would perhaps be the biggest ever experiment in the world to distribute subsidised grain to achieve food and nutritional security." "This" refers to the Food Security Bill, [FSB] the brainchild of the National Advisory Council and widely expected to be the route to political nirvana for UPA.
But pray who calls this grand design of distributing food grains to approximately two-thirds of our population at subsidized prices an "experiment?" The Opposition? No. The Media? Never. The Judiciary? Not at all.
In fact, this is the view of the Ministry of Agriculture contained in The Discussion Paper on National Food Security Bill and prepared by the Commission for Agricultural Costs and Prices, Department of Agriculture and Cooperation.
That is not all. The document laments that "The Bill, in its present form, throws up major operational and financial challenges and would have enormous ramifications on the cereal economy/markets and therefore Indian agriculture as a whole."
To appreciate the "enormous ramifications" mentioned above, its consequences and implications on national grain markets a reference to the food grains production as well as procurement and distribution by the Government through the extant Public Distribution System [PDS] needs to be appreciated.
Government as a hoarder
India produces approximately 250 MT of food grains annually. Of this one-half i.e. 120 – 140 MT is estimated to be consumed by farmers and theoretically does not enter the national grain markets. Of the balance 110-130 MT that enters the national grain markets, Government procures approximately half of this for public distribution. The balance – a small portion say 60 MT – enters our grain markets.
It is in this connection this document correctly points out that "The government already procures one-third of the cereals production (which amounts to almost half of marketed surplus of wheat and rice)." That makes the Government a dominant player.
This has profound implications on food grains prices. As we have an open-ended purchase policy, we continue to endlessly purchase over and above our buffer stock requirements. For instance, as against the buffer stock norm of 31.9 million tons of Rice & wheat (as on July 1 of each year), total central stocks were at 80.5 million tons as at July 1, 2012.
Obviously the Government, thanks to its inefficiency, is unable to distribute what it procures. In the process, little do we realise that this is public hoarding by the Government. This in turn robs the common man of grain stocks while artificially inflating its prices. This hoarding by the state is at the root of the extant chronic food inflation and shortage in India.
Food Security Bill simply seeks to amplify this.
Another dimension of the problem is that only a handful of States have marketable surplus. That implies concentrated procurement. And this needs to be distributed nationwide. It may be noted that 70 per cent of rice procurement is done from Punjab, Andhra Pradesh, Chhattisgarh and Uttar Pradesh while 80 per cent of wheat procurement is done from Punjab, Haryana and Madhya Pradesh.
This is a logistic person's nightmare. For instance, moving wheat from Punjab situated in one corner of the country through an archaic transportation system and storage network mechanism into Kerala virtually doubles its cost as it arrives in the point of consumption in Kerala.
Interestingly, the economic cost of FCI for acquiring, storing and distributing food grains is about 40 per cent of the procurement price. Obviously, Food Corporation of India must be a unique organisation that suffers from diseconomies of scale! But who cares? The more it procures, stores or distributes, the more it leaks.
In such a scenario, importing wheat, at times from international markets, theoretically becomes a wiser proposition. But when a country like India enters the international grain markets, (in view of her volumes) instantly international prices spike, making imports practically a non-option. That makes us extremely dependent on the national grain markets to feed our gargantuan population.
Yet, what is galling is the fact that the National Sample Survey [NSS] studies reveals massive leakage of food grains in the Targeted PDS mechanism that aims to deliver food grains for BPL families. This is simply because PDS has virtually collapsed in several states in India due to weak governance and lack of accountability.
In fact, this document by the Ministry of Agriculture demonstrates the dismal performance of this scheme for 2004-05 and 2009-10, the two years for which NSS data on consumption from PDS are available.
In 2004-05, compared to an off-take of 29 million tonnes of rice and wheat by States, only 13 tonnes were actually lifted by households for consumption – suggesting a massive leakage of 54 per cent. In 2009-10, 25 million tonnes was received by the people under PDS while the off-take by states was 42 million tonnes — indicating a leakage in excess of 40 per cent.
Further, the FCI storage facilities are still primitive. For instance, the FCI is facing an acute storage crisis with covered capacity estimated at around 45 million tonnes and Covered and Plinth storage of 17 million tonnes against the stocks crossing 80 million tonnes. This once again adds to the wastage of grains while storing and handling.
There is a yet another piece of data that possibly is hidden from most Indians. Most economists within the establishment have a skewed view of the massive levels of malnutrition and food deprivation. Thus they assume we have a distributional problem. In the process most policies laid out by the Government aim to set right this issue when the challenge lies elsewhere.
The Economic Survey document for 2011-12 reveals that the average daily per capita food grain consumption of an Indian in 1965 was 418 grams and that of pulses, 62 grams. Remember, in 1965 we had a war with Pakistan on top of a deadly drought.
Approximately after five decades of our 'successful' tryst with green revolution, the survey shockingly points out that the average daily per capita food grain consumption of an average Indian in 2010 was a meagre 407 grams and of pulses, a disappointing 32 grams.
It is in this connection it has to be noted the National Institute of Nutrition is reported to have prescribed a minimum of 2,400 calories per day per person. Significant sections of our population do not have access to this minimal requirement. By the way, the average calorie intake available to an inmate at the dreaded Guantanamo Bay daily is well in excess of 4,000 calories.
Obviously, we are not producing enough food grains or pulses now when compared to 1965 on a per capita level. Yet, for the past four decades or so we have been under the mistaken belief that distribution, not production, to be the key to the issue on hand. That explains why we created a monstrous public distribution system in the first place.
Simply put, the Food Security Act is implementable only when we produce food grains in excess of 350 MT. And in such a scenario with massive stocks of food we do not require state intervention. And should we produce less than 350 MT and seek an intervention of the state, it will be a futile exercise.
Crucially, the PM and his economists within the Government assume that this outlandish legislation will settle our production, distribution and storage deficiencies in our farm sector.
But assuming that it can be done what is the cost? Crucially where is the money? The document prepared by the Ministry of Agriculture states that the total financial expenditure entailed will be around Rs 682,163 crores over a three year period.
This works out to in excess of Rs 225,000 crore every year. Given this massive sums of money required to administer this flight of fancy – the Finance Minister of India has allotted a paltry sum of Rs 85,000 crore in the Budget of 2013-14. And should the FM provide money for this food subsidy, his promise to assiduously restructure the finance of the country goes for a toss.
And even if the money is available [remember money can be printed, but not paddy or wheat] how can it be a solution? To improve food security to our people we need to produce more of food.
For decades socialist ideas was all about distributing poverty, not wealth. Food security bill, consequently, is a repetition of our mistakes of the Nehruvian era. Consequently, it is a by-product of dangerous analysis, bad diagnosis and awful prognosis.
The net impact of this silly idea of FSB is that can ruin the farm sector in India, deny food security and dynamite the food grain economics of the nation. No wonder, the document concludes that the FSB's impact on the economy may be adverse.
And is that what the UPA aiming at – destroying the farm sector too completely before demitting office?
PS: My aged father tells me that ordinary cloth was rationed in the mid-forties. But once the production of cloth increased, rationing stopped. Likewise the solution to food shortage is to increase food production. Reducing this to a distributional issue is absolutely foolish.
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