Thursday, 8 August 2013

Food Security or Vote Security??

A government that has done nothing in its two terms to improve agricultural productivity & fails to invest in research & infrastructure suddenly wants to end food insecurity with a bill less than one year before the election. It has randomly decided that 75% percent of rural India & 50% of urban India are below the poverty line & require subsidized food. After 65 years of our proud independence, most of which was ruled by Congress & it’s partners, isn’t such a revelation shameful? Does it not expose the lack of competency of Governance of the Congress party & it’s leaders? What should the Govt. of the day do when it realizes that a major part of the population is hungry & starving? It needs to provide water in their fields, best quality seeds & fertilizer at reasonable price, electricity in their factories, teachers in their schools & doctors in their health centers, provide reliable finance facilities, easy & cost effective transportation facility, warehousing and a market with justified pricing structure for their produce. But instead this Govt. offers subsidized food to almost 65 percent of the population  without an end-date. This is irresponsible populism. If it genuinely cared for the poor, what stopped the Govt. from helping them in phases every year from 2004? By now hunger could have been eliminated to a great extent. The Food Security Bill(FSB) is thus an attempt to fool the electorate before the elections, with the bill being paid by all of us – either as taxes or higher inflation. No one grudges the poor for their food. But the FSB is actually a testimony to the poverty of thinking of this Govt. on food security. Food security comes from ensuring 3 fundamentals -  creating jobs & improving income, ensuring higher food output by increasing productivity & creating a safety net to feed those who can’t do so themselves in difficult situations. A subsidy makes a beggar out of the poor, which is demeaning. An income is what the poor need – though no one denies the need for direct food supply schemes to those who are in distress. There is an old saying that “Give a man a fish & you feed him for a day. Teach a man to fish & you feed him for a lifetime.”

So what is the credibility, effectiveness & implications of the FSB??

It is proposed that the food be distributed through our notoriously corrupt & leaky state-owned PDS. It is estimated that over the years anything between 37% & 55% of the subsidised rice & wheat are illegally diverted from these shops & sold in the open market. So, using these shops to distribute more food, will actually mean encouraging more pilferage & corruption.

Then there is the issue of identifying the beneficiaries. The scheme classifies 2 categories of beneficiaries – the process of which is complex & would also lead to corruption.

By one estimate, India needs 62 million tonnes of food stocks to service this scheme. India does possess a decent production of food grains to serve it’s population. But the leakage, corruption & lack of infrastructure have resulted in wastage of food grains while poor starved. A lot of the food actually rots in decrepit warehouses & in open space, something which Jean Dreze & Amartya Sen described as a "scandalous phenomenon" & a "situation of hunger amidst plenty". The bill proposes layers of administrative mechanisms to feed the poor in the country but fails to reflect on the supply chain management or rather lack of it, which results in inefficiency in warehousing, poor transportation of food grains, inadequate supply chains to offload the stored food grains, lack of processing units & technologies etc. & lastly the absence of fair market operating mechanism to give justified remuneration to the farmers for their produce. The need of the hour is to find remedies & sustainable solutions to these issues. What the bill could have suggested are - opening up retail sector, inviting investments in warehousing & processing domains to attract the best players to ensure the supply chain management & opening up of the agriculture market. That would have resulted in better quality & sustained supplies to the beneficiaries whereas the Government could have saved itself from going into fiscal problems by funding such a poorly managed & leakage prone program.

The food security programme when implemented will be the biggest in the world with the government spending an estimated Rs 125,000 crore annually on supply of about 62 million tonnes of rice, wheat & coarse cereals, covering 67 per cent of the population. This mega program will require a huge food subsidy. The cost of it will go up from 0.8% of GDP to around 1.1% of GDP. This is a serious situation where the government does not have enough resources. Take rice for example - the government purchases it at a cost of Rs.18 ($0.33) per Kg. This includes the price it pays to  the farmers, the cost of stocking the food & distributing it. Under the bill, the government will sell the food to the beneficiaries  at between Rs.1 & Rs.3 per Kg, which is a subsidy of Rs.16 per Kg. The Govt. says it will provide 62 million tonnes of food a year under the bill & the size of the subsidy is estimated around $24 billion. However, even if the quantity of food remains the same each year, the food subsidy bill will surely increase annually as the cost of food goes up (because of wage increases & oil price rises) but the amount  at which the Govt.  sells the subsidized food will remain the same. In reality with rising population, the quantity of the food supplied will also increase. Given the rising costs of the scheme, its sustainability is seriously in doubt.