Food Security Bill will destroy India’s economy

By V Anantha Nageswaran on April 3, 2013


The National food Security Bill aims to address the formidable challenge of food insecurity at the micro level in the country. The Congress is pushing the Food Security Bill even as conditional cash transfers (as opposed to physical distribution of subsidised food) have been found to be more efficient in achieving food and nutritional security around the world.

Following are excerpts from the study ‘National Food Security Bill – Challenges and Options’ which can be read in full here. It has been authored by Ashok Gulati, Jyoti Gujral, T Nandakumar with Surbhi Jain, Sourabh Anand, Siddharth Rath, and Piyush Joshi. The paper proves that the Food Security Bill will prove disastrous for the Indian economy.

It leaves no room for experimentation/customization for the States suited to their specific choices, institutional strengths and weakness.

» The NFSB however creates a new statutory framework governing the PDS. PDS systems in States will have to first comply with the NFSB and in the event of a conflict between NFSB and ECA, the provisions, rules, regulations and orders issued under the NFSB will override the provisions, rules, orders issued under the ECA.

» NFSB mandates Central Government to procure for the Central Pool. State Governments are responsible for further distribution. Decentralized Procurement System (DCP) was introduced in 1997-98 in view of the practical difficulties faced by the Central Government/FCI to procure on its own. Under DCP, States were invited to assist in the procurement and distribution of foodgrains under the TPDS. This experiment has been quite successful in Madhya Pradesh & Chhattisgarh as far as augmenting the level of procurement is concerned. Both these states have taken initiative to open large number of procurement centres and dramatically increased the procurement of paddy in Chhattisgarh and wheat in Madhya Pradesh, almost leading to state monopsony in procurement of these crops. NFSB seems to be suggesting a retrogressive step of going back to centralized procurement model which was found unsustainable in the first place.

» According to the latest assessment of ground water situation in India (CGWB 2009-10), 75% blocks in Punjab are overexploited, only 18% are considered safe. As a step towards demand management of water, a gradual shift of these water guzzling crops from North-Western India to Eastern States is required. Under ‘Bringing Green Revolution to Eastern India’ (BGREI), eastern States like Bihar, Madhya Pradesh & West Bengal are emerging as large producers but gross lack of marketing and procurement infrastructure has caused distress to farmers despite record production. This raises doubts on the sustainability of production without commensurate investments in agri-infrastructure, especially marketing..

» India is currently the second largest producer of both wheat & paddy but its productivity levels are still lower than the world average and that of major producing countries, as shown in Table 4. The challenge before India is to raise the productivity of its basic staples like rice & wheat with increasing pressure of urbanization and industrialization on land and water availability (currently more than 60% of cropped area is under grains and more than 80% of water resources is used for irrigation in agriculture23).

» Even in states like Chhattisgarh and Madhya Pradesh, which have recently ramped up procurement of paddy and wheat, respectively, infrastructure for proper procurement and storage is woefully inadequate. This leads to large wastages of grain.

» For the quarter ending March, 2012, FCI employed 1.55 lakh workers out of which 1 lakh are contract workers, 19441 are departmental labour, 30112 are Direct Payment system (DPS) workers and rest were under the ‘no work no pay’ system. The average handling cost per metric tonne for FCI for 2010-11 for contract labour was Rs 41.4 while for departmental labour, it was Rs 311.1 (7.5 times the cost of contract labour) and for workers under the DPS it was Rs 136.9 (3.3 times the contract labour). This indicates contractual labour of FCI were the least expensive. However, the Ministry of Labour and Employment, has prohibited employment of contract labour in the depots of FCI. In years to come, it is quite possible that DPS and contract workers would become part of departmental labour which would raise the costs of labour by 3-7 times.

» With respect to private sector participation in PDS reforms, Madhya Pradesh has taken a significant step and used private sector to put in place a system to computerize the PDS and register beneficiaries with their Aadhaar number and provide the food coupons to the beneficiaries.

» Pooled cost of grain (MSP and bonus) accounts for two-thirds of economic cost of wheat and rice. MSP for paddy & wheat have increased at a compound annual growth rate of 10.9 percent & 8.6 percent over the last five years (2007-08 to 2012-13 marketing seasons). The cost of production of rice and wheat has gone up by more than 45% during last three years (2010-11 to 2012-13 marketing seasons), i.e., on an average, by about 15% per year (according to cost projections made by CACP based on Comprehensive survey done by DES). This is primarily due to sharply rising labour and energy costs, including fertilizers. There is an acute shortage of labour in agriculture that has suddenly cropped up in these three years. In some states, labour costs have gone up by more than 100% over the same period.

» There is a need for a more nuanced food security strategy which is not obsessed with macro-level foodgrain availability. But at the policy level, the Government is still focused on foodgrains and with NFSB is clearly reversing the movement of Indian agriculture from high value items to foodgrains. This will trap the Indian agricultural sector in a low level equilibrium trap as returns are generally higher in high value agriculture. But a faster movement towards high value agriculture needs large investments in infrastructure and risk mitigating strategies. The NFSB is likely to slow down this natural process, and at places even reverse this trend.

» Punjab rice and wheat may not be even globally competitive without large subsidies through free power and water. It is surviving basically on government support and without much value addition. As a result, Punjab’s agri-GDP growth during the decade of 2000 remained pitiably low at less than 2 percent.

Food Security Bill estimates subsidy of Rs 1.23 lakh cr

By Niticentral Staff on April 22, 2013

The Government on Monday said that the implementation of National Food Security Bill (NFSB), aimed at providing legal entitlement to food to around 67 per cent population, is likely to cost the exchequer around Rs 1.23 lakh crore.

“As per the provision of the Bill, estimated annual requirement of food-grains at 2011 population is 60.74 million tonnes and the corresponding estimated food subsidy at 2013-14 costs is about Rs 1,23,084 crore,” Food Minister KV Thomas said in a written reply to Rajya Sabha.

However, he added, the actual requirement would depend upon the final shape of the Bill and the time by which NFSB comes into force.

Finance Minister P Chidambaram had allocated Rs 77,740 crore as food subsidy in the budget estimates for the current fiscal and kept Rs 10,000 crore over and above the normal food subsidy, towards the incremental cost.

The Bill was introduced in Lok Sabha in December, 2011, and then referred to a Standing Committee on Food, Consumer Affairs and Public Distribution for examination.

“The standing committee has given its report. The report has been examined by the government in consultation with the States/UTs based on which the Government proposes to move some amendment to it,” Thomas said.

The proposed amendments in the Bill are mainly aimed at providing a simpler framework and more flexibility to the States besides lowering their financial burden.

In the original Bill, introduced in the Lok Sabha in December 2011, the Centre had proposed 7 kg of rice or wheat or millet a month for priority category at Rs 3, Rs 2 and Re 1 per kg, respectively, while at least 3 kg per person per month for general households at 50 per cent of the support price.


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