Governance

The National Food Security Ordinance: Five misconceptions

  • Blog Post Date 07 August, 2013
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Reetika Khera

Indian Institute of Technology, Delhi

reetika.khera@gmail.com

The National Food Security Ordinance was promulgated in July 2013. The public debate that ensued, especially the criticism in the business media, has tended to be either devoid of facts or factually incorrect. This article attempts to correct the terms of the debate with relevant facts.

Misconception 1 - The National Food Security Ordinance (NFSO) will do nothing about under-nutrition: Many feel that the NFSO cannot do much to reduce under-nutrition, as it only provides cheap cereals. This is because of the overwhelming focus on the Public Distribution System (PDS) in public debate. In fact, the NFSO takes a life-cycle approach, half-hearted as it may be, to food security. Even these limited interventions are important for the following reasons. First, the National Food Security Bill (NFSB) includes maternity entitlements (Rs. 1000 or approx. 16.67 USD per month for six months for pregnant women) which could go a long way in ensuring better nutrition in the womb. Two, it includes supplementary nutrition for children under six through the Integrated Child Development Services (ICDS) scheme, including children in the 0-3 year age group, a crucial period for battling under-nutrition. Finally, even the PDS can contribute to better nutrition.There is a provision to supply more nutritious grain (for example, millets and maize) instead of wheat and rice. Some states (Andhra Pradesh, Chhattisgarh, Himachal Pradesh, and Tamil Nadu) already provide nutritious commodities such as pulses and oil, and the NFSO may prompt others to follow. Further, households may use the ‘implicit transfer’ from buying cereals at cheap prices to diversify diets and buy more nutritious food items. What remains true is that the NFSO is only a step ahead, where a leap was required.

Misconception 2 - The NFSO imposes a huge fiscal burden: The NFSO is expected to lead to an increase of about Rs 30,000 crores (4.9 billion USD approx.) in the food subsidy, from the current Rs 90,000 crores (14.7 billion USD approx.) to Rs 1.2 lakh crores (19.6 billion USD approx.), which is around 1.2% of GDP. Estimates such as “3% of GDP” and “Rs. 6 lakh crores over three years” 1 are exaggerations (somewhat unusually, the latter estimate is presented aggregated over three years, whereas the convention is to present them ´per year´.) Note also that the food subsidy is a combination of support to farmers and the consumer subsidy.

The next question is whether we can afford a food subsidy of Rs. 1.2 lakh crores (19.6 billion USD approx.) for the NFSO. To put the cost in context: in 2012-2013, tax revenues foregone amount to more than Rs. 5 lakh crores (82 billion USD approx.) and the increase in the food subsidy (Rs. 30,000 crores or 4.9 billion USD approx.) is less than the subsidy given to the gold and diamond industry (Rs. 60,000 crores or 9.8 billion USD approx.)2 . Currently, the fuel subsidy is higher (Rs. 96,880 crores or 15.9 billion USD approx.) than the food subsidy (Rs. 90,000 crores or 14.7 billion USD approx.) and fertiliser subsidy is of similar magnitude (Rs. 65,974 crores or 10.8 billion USD approx.). It is also reasonably well accepted that the fuel and fertiliser subsidy do not go to the poorest. Viewed in this manner, the affordability of the food bill is ultimately a question of political commitment and priorities. Clearly, fiscal space does exist.

Misconception 3 - The NFSO is "anti-farmer" and will adversely impact agriculture: Today, the government commits 58 million tonnes of grain to the PDS, ICDS and Mid-Day Meal (MDM). This will increase by 5 million tonnes, to 63 million tonnes with the NFSO. The government procures about 30% of total production3 and only needs to continue to do so. The remaining 70% of grain trade in wheat and paddy in the private market will remain unaffected even after the NFSO is implemented. The overall requirement of grain and the share of public procurement in total production will change only marginally as a consequence of the NFSO. Consequently, the claim that India will become dependent on imports and that the NFSO will lead to higher prices for non-beneficiary households is baseless4.

One political party has labelled the NFSB as "anti-farmer”5. When a senior spokesperson was asked to explain how in a televised debate, the only response he could manage was “we will do it in Parliament”! In fact, government procurement through the Food Corporation of India (FCI) is welcomed by farmers as it enhances their choices -to sell in the private market or to FCI. Without FCI, farmers would have no option but to sell to private traders. Some argue that the NFSO will further strain Punjab and Haryana’s agricultural sector. Again, the facts tell a different story: procurement has become more decentralised since 2004-2005 and the combined share of non-traditional states (Andhra Pradesh, Chhatisgarh and Odisha) in paddy procurement has risen to 33-45%.Others feel that if grain is provided at Rs. 1-3/kg (0.2-0.3 USD approx./ kg), those farmers who produce for self-consumption will stop doing so. Chhattisgarh’s experience with decentralised procurement and an expanded PDS does not corroborate this.

Finally, the Bill contains a provision for including millets and maize, so that there is scope for diversification of cropping patterns. That the agricultural sector needs urgent attention and reform is not in dispute, but the NFSO does not hinder that process.

Misconception 4 - The PDS is uniformly ´leaky´ so the grain will not reach the poor: The NFSO will deliver grain and other commodities through the PDS. While it is true that the PDS has been plagued by corruption (between 2004-2005 and 2009-2010, overall leakage declined by 15 percentage points to 40%), some states have shown remarkable improvement – for example, in Chhattisgarh leakages are down to 10% (from 50%) and in Odisha 30% (from 75%) over the same period.Even in states with high overall leakages (for example, in Uttar Pradesh leakages were just under 60%), the Below Poverty Line (BPL) and Antyodaya Anna Yojana (AAY) households seem to get their share.In a survey of BPL and AAY households in 2011, respondents in Uttar Pradesh reported getting 77-88% of their entitlements (see Khera 2011).

Apparently, it is the Above Poverty Line (APL) quota that is leaky. Let us understand why. Between 2000-2008, when APL prices of wheat and rice (Rs. 8-10 per kg or 0.13-0.16 USD approx. per kg) were close to the market price, neither APL card holders nor state governments were interested. Over time, the APL card became not a ‘ration’ card, but a ‘mitti ka tel’ (kerosene) card. Around 2008-2009,market prices of grain nearly doubled (approximately Rs. 15-20/kg or 0.25-0.33 USD/kg) ,and even APL grain became subsidised. Increased offtake under the APL and “special ad hoc” quota in the past four years (ranging between 35-45% of total offtake) reflects renewed state interest in this quota. Many states use it to expand coverage, but in others (like Uttar Pradesh and Madhya Pradesh),APL card holders are unaware of their entitlements are and many PDS dealers do not know that APL grain is being lifted. The lack of clarity and transparency has opened the door to corruption.

In such states, as the NFSO rolls out, many APL card holders will become ‘entitled’ households with clear entitlements (25kg per month at Rs. 1-2-3/kg). Grain flowing through the leaky APL “pipe” will be channelled through a transparent BPL-AAY ‘pipe’, with significantly lower cheating. The NFSO is an opportunity to end the large scale diversion of APL grain.

Misconception 5 – The NFSO requires a big expansion of foodgrain procurement and distribution: As explained above, the foodgrain requirement of the NFSO is around 63 million tonnes, just 5 million tonnes more than the current commitment to the same programmes. Many believe that the NFSO entails a big expansion of procurement. This is not true. The reason why more people can be covered with the same foodgrain requirement is that a very large share of the grain currently is allocated through the APL, ´ad hoc´ and ´special ad hoc´ quotas. And the allocations (and offtake) under these quotas have been rising because the government has too much grain! Because these quotas are not regular allocations, as explained above, in some states, they get misused.

Those who label the NFSO as ‘populist’ seem to confuse the term with ´popular´: as pointed out earlier, the NFSO makes a moderate claim on the budget. And if popular schemes win elections, it can only be regarded as an indication of ‘something gone right’ with India’s democratic system.

Notes:

  1. http://articles.economictimes.indiatimes.com/2011-12-17/news/30528849_1_food-subsidy-subsidised-grain-priority-households
  2. See Table 9 of the Tax Revenue Foregone statement in the budget.
  3. Table 1.17, Economic Survey 2012-2013.
  4. http://www.deccanherald.com/content/213752/food-security-bill-good-politics.html
  5. http://www.business-standard.com/article/current-affairs/samajwadi-party-says-food-security-bill-is-anti-farmers-113060300425_1.html

Further Reading

  • Khera, Reetika (2011), “Revival of the Public Distribution System: Evidence and Explanations”, Economic and Political Weekly, November 2011.
  • Dreze, Jean and Khera, Reetika (2011), ‘PDS Leakages, The Plot Thickens’, The Hindu, 5 September.
  • Dreze, Jean and Khera, Reetika (2011), ‘A Bill that Asks too much of the Poor’, The Hindu, 12 August.
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