Active Stocks
Mon Mar 18 2024 15:55:53
  1. Tata Steel share price
  2. 149.60 5.69%
  1. Tata Motors share price
  2. 972.20 2.75%
  1. ITC share price
  2. 417.40 -0.51%
  1. State Bank Of India share price
  2. 730.70 -0.18%
  1. ICICI Bank share price
  2. 1,082.00 0.32%
Business News/ Opinion / The dawn of a pernicious legislation
BackBack

The dawn of a pernicious legislation

Serious doubts haunt the national food security law before its launch

Illustration by Jayachandran/MintPremium
Illustration by Jayachandran/Mint

The National Food Security Bill (NFSB) is now just a step away from complete legislative approval. On Monday, the Lok Sabha cleared the Bill. A vote in the Rajya Sabha is due next week and an endorsement is now almost certain. What has not changed are the doubts about the efficacy and costs—both short and long term—of the Bill voiced over the past couple of years. In fact, in the past weeks and months its votaries have highlighted them, even if unwittingly.

First, consider the magnitude of foodgrains required under the NFSB. At different points, different figures have been bandied about at different times. On Sunday, the ministry of consumer affairs, food and public distribution issued a statement in which it hinted at increasing the procurement of foodgrains from the approximate 56.4 million tonnes currently to 61.4 million tonnes after the NFSB is enacted. This is an increase of five million tonnes, which has been estimated just at the starting point. It is likely that as the food law rolls out, this figure will keep on rising. In the debate on the NFSB, it was argued vehemently that the gap between what the government buys from the farmers and what the states take off for distribution under the public distribution system (PDS) has been overstated and that even 61 million tonnes was an exaggerated figure. This has proved to be untrue.

Second, the government is rolling out the food law without undertaking extensive repairs to the PDS. Over the past decades, the PDS has turned into a hugely leaky system. Even optimistic estimates peg the leakages in the system anywhere between 20-30% of what is distributed to eligible citizens. This is unconscionably large.

Finally, the fiscal costs of the programme have been underestimated consistently. It is now common to assert a marginal increase of 25,000 crore every year in the food subsidy bill. But what is interesting is that, of late, strong votaries of the NFSB have begun saying that even if the 25,000 crore figure is breached, surely the solution lies in levying higher taxes on citizens who can afford to pay. (See, for example, “Blaming the poor and the hungry", by Harsh Mander, Mint, 27 August). The merit (and the dangers) of such a solution are too well-known to require amplification.

Of the three issues, it is the first that holds the most ominous possibilities as it connects the weakest link in the food law, that between distribution and procurement. It is worth elaborating. It is a foregone conclusion that availability of cheap foodgrains for a sufficient duration will fuel greater demand. This has been denied in the debate over the past years: there has been a systematic effort to state that demand will not swing wildly. The basis for this assertion is the large gap between existing foodgrain stocks and their offtake by different states. But as noted above, even before the law has been passed, higher demand is being anticipated requiring—for starters—an estimated 9% increase in procurement of grains.

Anyone favouring the food law will say this is a good sign as more citizens are consuming food and that is the goal. One hopes matters are as simple as that. Increased demand of grains will not necessarily mean that final demand—on part of actual consumers—is increasing. There is a very good chance that it may actually be increased demand on part of intermediaries in the system—fair price shop owners selling grains on the black market and corrupt officials anywhere in the procurement to distribution chain.

This is because at such low sale price of foodgrains there is a very good arbitrage opportunity to sell (or re-sell) them in the open market at a higher price. The system can see an increase in demand without benefiting citizens. In effect, there can be two equilibria in the system with high and rising demand: one in which citizens gain the most and one in which the gains largely go to corrupt officials and other intermediaries. And the law will not even consider the two very different problems of hunger and malnutrition. The NFSB, optimistically speaking, will address the issue of hunger, but it will come nowhere near addressing malnutrition. Effectively, the number of adverse equilibria under the law will be greater than an optimal solution.

This issue is linked to the second point, that of leakages in the PDS. A lot has been made of the success of states such as Chhattisgarh and Tamil Nadu in plugging these leaks.

GPS tracking of vehicles, increased surveillance of fair price shops and greater citizen awareness have been held as solutions. The question is one of their replication country-wide and it is here that serious doubts emerge. For example, in Chhattisgarh, the system has worked because the state government has devoted great attention to the matter. This is unlikely in states such as Uttar Pradesh, Bihar and many others where the attention of the governments is so distracted by political problems that PDS will be pretty low on the list of priorities.

Will the national food security law live up to its promise? Tell us at views@livemint.com

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 28 Aug 2013, 08:21 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App