India’s Food Disaster Waiting to Happen

Posted on 09/25/13
By KD Singh | Via The Pioneer
Female farmers carry crops on one of the only two roads leading to Kushumhi village in Uttar Pradesh state. India has one of the highest incidence of hunger in the world. (Photo courtesy Gates Foundation)
Female farmers carry crops on one of the only two roads leading to Kushumhi village in Uttar Pradesh state. India has one of the highest incidence of hunger in the world. (Photo courtesy Gates Foundation)

UPA2 regime’s flagship program on the ‘right to food’ is slated to create more problems than it will solve, once it kicks off across the country. A creaky public distribution system and the weak economy will not be able to sustain the scheme

In 2009, the UPA2 Government led by the Indian National Congress promised this country pro-people policies — policies which would first and foremost take into account the needs of the poor. Unfortunately, it has taken this regime almost four years to pass its first major pro-people policy (if we leave out The Right of Children to Free and Compulsory Education Act and the Mahatma Gandhi National Rural Employment Guarantee Act), when the Lok Sabha passed the National Food Security Bill, 2013.

Despite all the political baggage that the food security program is intended to carry for the Congress and the UPA, it truly is a first example of ‘noblesse oblige’ displayed by the government. The program intends to guarantee five kilogram of rice, wheat and coarse cereals per month per individual at a fixed price of three, two and one rupees respectively, to nearly 67 per cent of the population — that is almost 830 million individuals. According to Congress president Sonia Gandhi, this Bill will bring about an “empowerment revolution” fulfilling her party’s promise to wipe out hunger and malnutrition.

At this point, the question needs to be asked: Can the program in its present form actually attain this goal? On top of this, the timing as well as the intent of the Bill are also questionable. The promise of food security was one of the major agendas of the UPA’s 2009 election campaign. Then why was postponed till the end of the term? It only enforces the fact that the Congress-led Government is using this program for some political traction in the coming elections. Also, the way the Bill stands right now; it clearly is just a repackaging of the already present Targeted Public Distribution System.

All this left aside; the Bill to some level is even desirable in our present context. But, as an objective observer you cannot help but notice the obvious cons of this policy. Let’s keep the economic aspect aside and focus first on the implementation side of this policy. The food security program will be implemented through the existing TPDS (Targeted Public Distribution System) infrastructure. It is well-known and supported that our public distribution system is extremely ‘leaky’.

India introduced targeted food subsidies in 1997. In the current TPDS, subsidies depend on whether the household is classified as above poverty-level, below poverty-level or poorest of poor or Antyodaya Anna Yojana. However, improper targeting, inclusion errors and illegal diversion of subsidized grains all add to massive leakages. According to an Asian Development Bank study in 2004-2005, 70 per cent of the poor received no grain through the TPDS while 70 per cent of those who did were non-poor.

In the same year, 55 per cent of subsidized food grains leaked out along the distribution chain. In its decomposition of subsidies in India, the study estimates that income transfer to poor was a meagre 10 per cent; on the other hand the non-poor received 19 per cent . The Commission for Agricultural Costs and Prices also paints a grim picture of the present TPDS. According to them the public distribution system has leakages of 40 per cent.

With this in mind, when in the next few months the food security program is implemented by the States in full swing, the probable outcome would be more leakages. Unless in these few months the government can somehow increase the participation rate of the poor; enhance the fraction of subsidy going to them; trim diversion and excess costs; and ultimately reduce program waste. The problem is, if these goals were not achieved in the past 15 years since the TPDS was first introduced, the addition of this Bill will only exacerbate the present condition. The drafters of the Bill should have taken lessons from successful implementation of food security from States like Chhattisgarh, whose Food and Nutrition Security Act of 2012, has been praised for reducing the amount of grain lost through corrupt practices.

The next important aspect, probably the most crucial one is the economic consequences that the food security program will bring about. The government estimates the burden on the exchequer at Rs 1,25,000 crore (around $20 billion). But this estimate is contested by many. According to the CACP (India’s agriculture prices commission), the government is looking at an expenditure of Rs 6,82,163 crore (Over 110 billion dollars) over a period of three years (Rs 2,27,387 crore/year or around $3.5 billion/year). Others like economist Surjit S Bhalla peg the expenditure at Rs 3,14,000 crore per year (around $5 billion per year), which is almost equivalent to three per cent of India’s GDP.

In fact, the government’s estimates falls woefully short because, during the implementation of a policy, various other costs get associated. Just to name a few, there would be an additional cost on warehousing-related aspects; logistical costs, agriculture production enhancement costs, infrastructural costs for setting up a grievance redressal mechanism. On top of these, costs relating to TPDS leakages and its reform also need to be considered. But, estimating the cost of a policy is not the important point and that is why there is the concept of revised estimates. What is important is the effect of that policy’s expenditure on the economy of the country as a whole.

According to India’s Budget Estimates for fiscal year 2013-2014, total receipts is pegged at Rs 11,22,799 crore (around 180 billion dollars) and total expenditure at Rs 16,65,297 crore (around 267 billion dollars), leaving the country with a fiscal deficit of Rs 5,42,499 crore (around 87 billion dollars). So far, three months into the fiscal year the government has only realized 11.1 per cent of the estimated revenue receipts. If we analyze the government estimate for the food security program, it comes up to 11.13 per cent of the total receipts. The CACP’s estimate puts the cost of food security program at 20.2 per cent. This gives us a fair idea of how large the expenditure under food security program will actually be. Since the government’s realization of receipts has been slow, the percentage of expenditure will only increase.

Given that the economy is on a bearish trend, the biggest concern for the government, as before, will be the fiscal deficit. The expenditures on a large policy such as the food security program will add a sizable chunk to the fiscal deficit, which would need to be financed. There are various ways a government can finance growing fiscal deficit. But, in a slow economy the solutions are even more difficult and can further add to the slump. One way or the other, in the foreseeable future, the introduction of the food security program will hamper economic growth. Its prime goal of eliminating ‘hunger and malnutrition’ remains questionable.

The writer is a member of India’s upper house of parliament, the Rajya Sabha.

This article first appeared in The Pioneer, a leading Indian daily newspaper. Click here to go to the original

 

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