India passed the National Food Security Act (FSA) on September 10, 2013. Envisaged as the biggest ever food subsidy program in the world, it is a legal commitment to distribute more than 61 million tonnes of grains (primarily rice and wheat) to more than 81 crore people (67% of the country?s population, covering 75% of the rural population and 50% of the urban) at almost one-tenth the cost of grains to the government (at R 3/2/1/kg for rice/wheat/coarse cereals). Monthly entitlement of the priority individual is 5 kg while that of the Antyodaya household (poorest of the poor, or AAY) is 35 kg. The issue prices of grains for consumers are fixed for three years in the Act.
The estimated first year cost of this massive programme is R1.25 lakh crore. The budgeted figure for food subsidy, for FY15, is R1.15 lakh crore. In addition, the food ministry estimates R 64,000 crore to be spent on clearing pending food subsidy bills (R50,000 crore from previous years and R14,000 crore expected to be added in FY 15). So, the true cost of food subsidy in FY 2015, is likely to be about R1.79 lakh crore, which is about 1.6% of the GDP.
The states were given 365 days starting July 5, 2013, to identify the beneficiaries and start the FSA implementation. The Socio-Economic and Caste Census (SECC), to be carried out by state governments, is to form the basis of identifying the beneficiaries. The Planning Commission supplies the estimates of the beneficiary strength for each state. As a precursor to the Act?s implementation, there were concerted efforts by the government to improve the targeted public distribution system (TPDS) machinery. Initiated in 2006, and later formalised as a nine-point action plan, these improvements ranged from listing the identified beneficiaries public through digitising TPDS to setting up vigilance committees, social audit, etc.
So far, 11 states have implemented the Act and for the remaining states, the deadline (expired in July 2014) was extended to October 2014. The final list of survey results for SECC is ready for just two states?Karnataka and Manipur. The draft list, however, is supposedly ready for 23 states. Of the 11 implementing states, seven do not yet have the complete SECC findings, which may imply a rather ubiquitous method of rechristening the old TPDS beneficiaries as the NFSA beneficiaries. The situation of unpreparedness was as dire when one looked at the TPDS machinery developments that were needed as a precursor to NFSA implementation.
We do not think that the Act can be implemented in its true spirit in all states by the end of this year or even by the middle or end of next year. If the Centre ?forces? various states to implement the Act without satisfying the various provisions and pre-conditions mentioned in the Act, it will be doing a great disservice to the country. Pouring more grains, this time for a legal entitlement, into an already leaky (Planning Commission and other experts estimates leakage of 30-40%) basket of TPDS may only drain the system of already scarce financial resources.
So, what?s the way forward? The evident suggestion would be not to hurry the implementation of this Act, especially not without satisfying its pre-conditions in each state. Instead, this time should be used to carefully re-visit the Act?s objectives and provisions looking for efficient ways to attain them. After all, the art of economic policy-making is to achieve its objectives at the lowest possible cost.
Our premise is that by giving options to targeted beneficiaries, especially those who are either producers of food or working on farm lands, and re-designing policy instruments towards conditional cash transfers rather than physically disbursing grains through state agencies, the government can substantially reduce leakages and also save at least 25-30% of the resources budgeted for this Act. These savings can be ploughed back in to agriculture and rural areas to create better rural road network, enhance irrigation and agri-R&D, provide better education and health (sanitation) in rural areas. Such investments will give a bigger bang for the buck in terms of reducing poverty and providing sustainable food security to people.
One simple example will clarify the point we are making. Since the Act envisages 75% coverage of rural population, majority of them are likely to be those working on farms, as farming is still the mainstay in rural areas. They will get 5 kg of grain (say wheat) on a per person per month basis at R2/kg. Now think of the wheat farmers, what would they do? They would take all their wheat to sell it to the government at a minimum support price (MSP) of R14/kg, and expect the government to give back the same wheat to them at R2/kg, getting an effective subsidy of R12/kg for 5 kg of wheat per person/per month. The government will be burdened with excessive procurement. But the main problem arises when state agencies procure, store and distribute wheat back to farming community, its cost goes up to R24.75/kg (economic cost of R20/kg and cost of carrying the buffer about R4.75/kg).
Now consider an alternative option of cash transfer: suppose the government says that all those working on farms will get a cash equivalent of R16/kg, and they need not sell wheat to government but keep it for their own consumption or sell in the private market. What this would imply is that the effective price of wheat for the farmer would be R18/kg (as the subsidy is R16/kg = R18/kg-R2/kg). So the farmer would be happy, and is likely to opt for this. In the process, the government also saves R6.75/kg, or nearly 27% of the cost. This is a large saving, a minimum of R33,000 crore, if done at a full scale; besides, there is the benefit from plugging leakages that gets added.
The technology is there to do it. It may take a year or so to prepare the ground for this by dovetailing Pradhan Mantri?s Jan-Dhan Yojana (financial inclusion) with Aadhaar?s unique identification (UID), but savings are large, leakages less, and should make eminent sense to policy makers. This is a low hanging fruit for the new government, and it can go a long way in enhancing people?s ?economic access? to food security. Can anyone in the Modi government champion and steer it?
Gulati is Chair Professor for
Agriculture and Saini is
Consultant, ICRIER
