New Delhi: The ruling United Progressive Alliance (UPA) is embarking on one of the world’s most ambitious government missions—to give 810 million people, or two-thirds of India’s population, the right to food.
Opposition parties see the National Food Security programme as a gambit by the Congress-led UPA to gain political mileage ahead of a general election next year, but serious questions are also being asked about the cost of executing the programme and the government’s readiness and ability to implement it.
The government, which on Wednesday approved an ordinance to launch the marquee programme, has estimated that it will cost Rs.1.25 trillion a year in food subsidy. That is being questioned by experts, including Ashok Gulati, chairman of the Commission for Agricultural Costs and Prices (CACP).
The CACP, which advises the government on price policy related to agricultural commodities, estimates that the actual cost of implementing the right to food and putting in place a sustainable food security programme could be as high as Rs.2 trillion per year for the next three years, Gulati said.
“The government has not taken into account other costs that need to be made to create storage facilities, improving transportation and increasing agricultural production to meet the requirement,” Gulati said. “In addition the cost of agriculture will rise and so will the minimum support prices, thereby adding to the financial burden.”
Trying to refurbish an image damaged by corruption scandals that have dogged it through most of its second term in office, the UPA government risks stretching its already thin finances in underwriting the programme. Rating agency Crisil Research has estimated that this will widen its fiscal deficit to 5.1% of gross domestic product from an estimated 4.8% this year itself.
On the brighter side, the agency said, the programme could leave poor households with more money to spend, encouraging consumption.
Once it is implemented, the ordinance, which will need to be eventually replaced by a law, will arm citizens with the legal Right to Food under the National Food Security programme. Anyone eligible for the subsidized food can approach the courts if he or she is denied the right.
Implementing that could be a daunting task.
Gulati said the cabinet did not discuss a special note prepared by the CACP that spelt out the challenges of making the right to food a legal right.
“It is a high-risk system,” he said. “One cannot rule out the possibility of drought years like 2002-2003 when foodgrain production declined by 38 million tonnes (mt). How will the government meet the legal right then? It could be very dicey making food a legal entitlement.”
Indeed, this would mean the government ends up importing foodgrains to meet its obligation.
A panel led by Gulati has estimated the annual requirement of foodgrains at 70 mt under the programme, compared with the ministry of agriculture’s estimate of 61 mt.
At current levels, the report estimates the government’s subsidy burden at Rs.1.35 trillion. About Rs.1.07 trillion would be needed to meet other expenditure—such as the cost of enhancing agriculture production, infrastructure and logistics, and maternity benefits promised under the programme, which Gulati says are essential to make it sustainable. Financial outflows would add up to about Rs.2.42 trillion.
This estimate is countered by Himanshu, an assistant professor at Jawaharlal Nehru University and a Mint columnist, who says that adding costs of increasing agriculture production, fertilizer subsidy and other infrastructure costs to the cost of the National Food Security programme is misleading.
“The government has to improve agriculture production irrespective of the National Food Security Bill,” he said. “It has been unable to reach its target of 4% growth in agriculture, so to argue that the additional expenditure for improving agricultural production is on account of bringing in the National Food Security (Bill) is flawed.”
Himanshu says the estimate of Rs.1.25 trillion by the government could be higher than what it would cost as only half the targeted population may actually avail of the scheme.
“This estimate takes into account 810 million of the population as its target. But experience shows that not everybody targeted takes the benefit, as there is a transaction cost involved and the product on many occasions is of bad quality,” he argued.
“Even in a food-deficit state like Tamil Nadu, only 80% of the population takes grains from the PDS (public distribution system). Similarly, in Chhattisgarh, where there is universal food security, only 60% avail the scheme. My estimate is that not more than 50% of the 810 million people will go to ration shops.”
On foodgrain availability to meet requirements, Himanshu said: “We procured around 73 mt last year which is way above the requirement of 61 mt. A shortfall like in the year 2009-10 of 10 mt will not affect distribution under the scheme. We have exported around 12 mt of foodgrains last year.”
The Union government procured 72.5 mt in 2012-13, 63.34 mt in 2011-12, and 56.71 mt in 2010-11 of rice and wheat.
The real problem could be ways to identify the beneficiaries. The ordinance has left the framing of the criteria to state governments, many of which have not even initiated the process.
The Union government has not put out the criteria for determining state-wise share of the foodgrains, which the food ministry says the Planning Commission is working on.
Another hurdle is the required changes in documentation.
“The scheme recognizes the lady of the house as the head of the family. Once the changes in the documentation take place, it has to be verified; all these are tough and will take a while. Printing of ration cards for the beneficiaries will be a huge task,” said an official in the food ministry who didn’t want to be named.
Even food minister K.V. Thomas concedes that several implementation challenges will have to be overcome. “The setting up of fair price shops for the distribution of the foodgrains, construction of intermediate storage, constitution of the grievance redressal cells and other logistic are the next hurdles to overcome,” he said. “Once the ordinance is approved by the President of India, rules have to be formed for the implementation.”
India has five million so-called fair price shops that sell subsidized foodgrains, but they may not be sufficient to cope with the increase in people entitled to the inexpensive rice and wheat.
Thomas said a revamp of the PDS was crucial for the scheme’s implementation. States such as Chhattisgarh, Kerala, Karnataka and Tamil Nadu already have a fairly efficient PDS, but others like Uttar Pradesh and Bihar have to catch up.
Thomas said there will be no change in food procurement practices, allaying concerns about changes that could disrupt the system. “The government will continue the procurement as it is and farmers will be guaranteed the minimum support price also. The PDS in fact will be revamped and modernized for effective distribution of foodgrains,” he said.
That will take time, too. The much- talked-about integration of technology and the use of Aadhaar cards being expected to improve efficiency and expedite the documentation process is far from ready for use.
The minister acknowledges that it could take at least two more years to integrate the public distribution system with the Aadhaar (unique identity) numbers.
He also clarified that cash transfers will not apply to the programme—at least, not yet. “As of now, cash transfer is not going to be applied in the food security Bill as it requires at least 90% of the beneficiaries to have bank accounts and end-to-end computerization is needed.”
Starting this year, the government has moved to the direct transfer of benefits, using Aadhaar cards and linked banked accounts, for some welfare schemes.
A report released by Crisil Research makes a case that proper implementation of the food security programme could lead to benefits beyond direct food access.
According to its estimates, the National Food Security programme could generate additional savings of around Rs.4,400 this year for every below-poverty-line (BPL) household that begins to purchase subsidized food, if the Bill is rolled out systematically and efficiently.
The additional disposable money in the hands of the poor may mean business opportunities for companies that target rural areas to sell consumer products, Crisil said.
“Having more disposable income would also encourage BPL households to increase their discretionary spending on items such as household consumables.”
Additional spending money in the hands of consumers will boost categories such as personal care products and spur rural household aspirations, said Krishna Mohan, chief executive, sales, supply chain and human capital, at Kolkata-based packaged consumer goods maker Emami Ltd, manufacturer of Navratna oil and Zandu balm.
“...there would be some additional demand for medicines, cosmetics, detergents and to some limited extent protein-rich food by the rural consumer but there is a lot of uncertainty attached to the extent of such increase (in demand),” said D.K. Srivastava, chief policy advisor at consulting firm Ernst and Young.
“To leverage full potential of this move companies need to increase their reach in rural markets and focus attention on below poverty line.”
Other analysts are more bullish.
Nitin Mathur, a consumer research analyst at brokerage firm Espirito-Santo Securities, explained that a large proportion of rural household spending is typically on food. “It is as high as 50-60% of total spends in some cases,” he said. As incomes rise, spending on food as a percentage of total household expenditure declines, spurring more spending on consumer products, said Mathur.
An increase in discretionary spending through savings on food may help improve penetration as well as accessibility for processed foods, said Mayank Shah, group product manager at Mumbai-based biscuit maker Parle Products.
Consumers could also trade up, or switch to higher-priced products, “specially around the economically and mid-priced products,” said Chitranjan Dar, divisional chief executive, foods, at consumer products company ITC Ltd that owns brands such as Sunfeast biscuits and Bingo chips.
Lack of infrastructure such as electric power in rural areas and the consumer’s propensity to spend on basic household needs mean that spending on consumer durables such as kitchen appliances may not receive a big boost.
“Appliance consumption purchase always depends upon disposable income in the hands of the consumer and is a highly urban-skewed sector,” said Shantanu Das Gupta, vice-president (corporate affairs), Whirlpool of India Ltd.
“Sixty-six percent of our demand comes from the top 40 cities. My sense is the additional money which rural consumers get would still be stretched on basic necessities, for instance better hygiene, using soaps, detergents etc and other medical purposes. It won’t impact appliances in a big way.”