Food Security is Affordable,
Hindu Business Line,
14 April, 2013.
Hindu Business Line,
14 April, 2013.
Food Security Bill is affordable
The subsidies meant for the poor are always under attack, while the rest are able to retain their privileges.
The additional allocation in grain and money terms will neither distort the grain market nor place a burden on the fisc.
Many recent commentators have portrayed the National Food Security Bill (NFSB) as an “unbearable burden” on the exchequer. The facts, however, do no substantiate the claim.
The NFSB has been trashed from time to time in the English dailies. For instance, Business Line (March 21, 2013) published an article titled “Food Security Bill will torpedo Budget”.
Another national daily claims that the Bill has a “fundamental flaw” that places “an unbearable burden” and “distorts agriculture” (Indian Express, March 19, 2013). Quite often, the claims are partly due to a misconception that the government is making new financial and grain commitments under the NFSB.
In fact, the NFSB does little more than turning into legal entitlements pre-existing food security schemes such as the Integrated Child Development Services (ICDS) Scheme, Mid-Day Meal (MDM) Scheme, Public Distribution System (PDS) and maternity entitlements.
Some commentators have said that it is precisely the legal commitment that will lead to problems in the future — for example, the fear of the emergence of a government monopoly in the grain market. This fear is not borne out by the facts.
Under the PDS, ICDS and MDM, the government currently allocates about 58 million tonnes of grain. To meet this commitment, the government currently procures about 30 per cent of grain. The NFSB commits 62 million tonnes, i.e., an additional 4 million tonnes.
The Budget of 2013-14 allocates Rs. 31,000 crore for two children's food schemes — school meals and the ICDS which reaches children under six. The Budget allocation for the food subsidy in 2013-14 is Rs. 90,000 crore.
According to our estimates, the food subsidy will increase from Rs. 80,000 crore (in 2012-13) to Rs. 1,11,221 crore, under the NFSB.
Thus, the NFSB implies an increase of just over Rs. 30,000 crores in financial terms and 4 million tonnes in real (grain) terms.
Can India afford this? Speaking at a panel discussion at IIT Delhi in February, Deputy Chairperson of the Planning Commission, Montek Singh Ahluwalia, said “it would be dishonest” to say that we cannot afford the Food Bill, and that the subsidies that we need to target are those enjoyed by the middle classes (e.g., fuel).
Speaking at the same discussion, Amartya Sen made a pertinent point — that the reason why it is more difficult to reduce subsidies enjoyed by the middle classes (fuels such as LPG, petrol and diesel) is that the beneficiaries of those are more vocal than the rural poor or children under six who benefit from the food subsidies.
This point is well illustrated by the events following last year's Budget. The Budget 2012-13 announced a 1 per cent excise duty on unbranded jewellery and doubled custom duty on gold to 4 per cent. Gold is the country's second biggest import, after crude oil. This burden on the current account deficit was an important reason for doubling the customs duty.
Following this, the All India Gems and Jewellery Trade Federation and others initiated a strike which went on for 21 days. They argued that the industry, including the “large” number of people it employs, and buyers of gold, would suffer. A massive media campaign was launched, following which the Finance Minister withdrew the excise duty.
According to the revenue foregone statement presented along with the Budget 2013-14, the revenue foregone from the gold and diamond industry for the previous financial year was Rs. 65,000 crore.
Such tax breaks are often justified on the grounds of the employment potential of the gems and jewellery industry. According to Invest India, a website of the Ministry of Commerce and Industry, “The sector provides employment to around 1.8 million people. In the next five years, the sector is expected to create additional employment for around 1.1 million people.”
According to the National Sample Survey Organisation, 2009-10, the size of the Indian workforce is between 430-471 million persons. If the gems and jewellery industry employs 3 million people as per the Ministry's target, this would be 0.7 per cent of the workforce.
An industry that employs less than one per cent of the Indian workforce is currently enjoying tax benefits amounting to Rs. 65,000 crore (nearly 20 per cent of all revenue foregone). The Food Bill will benefit 67 per cent of the population at an additional cost of Rs. 30,000 crore, yet it is said that it will “torpedo” the Budget.
If anything, the NFSB does not go far enough. The NFSB tabled in Parliament in December 2011 included special provisions for the destitute and other vulnerable groups (e.g., community kitchens and social security pensions).
These have been discarded in the version cleared by Cabinet on March 19, 2013. In many rural areas, the Block is already too far to go to complain, yet for violations of rights under the NFSB, grievance redressal only begins at the District level.
Viewed in this comparative perspective (for example, it is approximately 1 per cent of the GDP), few can question the affordability or desirability of the NFSB. In absolute terms it is not a small amount. One might argue whether such expenditure is worth it, given the “fact” that the programmes in its ambit, for example, the PDS, are “dysfunctional” (Indian Express, March 19, 2013).
However, recent data from the National Sample Survey of 2004-05 and 2009-10 suggest that while the functioning of the PDS is far from perfect, we do need to update our “facts”. In joint research with Jean Drèze, we show that the implicit subsidy from the PDS eliminates 18 per cent (14 per cent) of the “poverty gap” — or the difference between the poverty line level of income and the median income (or monthly per capita consumption expenditure) of poor households — among poor rural (urban) households.
Again, there are marked inter-State contrasts — in Tamil Nadu the corresponding figure is 60 per cent and in Chhattisgarh and Andhra Pradesh it is nearly 40 per cent.
The real question then is not whether India can afford to have a right to food but as the Food Minister said in a recent interview, “Can we afford not to?”
(The author teaches economics at IIT, Delhi.)
(This article was published on April 14, 2013)