Wednesday, July 17, 2013


 PART  1

Tejinder Narang
Sensing lack of parliamentary consensus on the Food Security Bill (FSB), UPA –II decided to promulgate an ordinance on 5th July 2013 and converted the FSB into Food Security Ordinance of 2013 (FSO) , subject to post-facto endorsement of the parliament as per constitutional provisions to make it an Act. Food ministers/ Chief Ministers of Congress ruled states/ and other official spokesmen have declared that there is “no problem” in rolling out the scheme politically and financially. The rule of thumb is that when Governments say “no problem”, apprehend that there is a “serious problem”. Sure there is “no problem” in promise being made at the time of elections. But there could be “serious problems” for the successive Governments to perform at huge national cost to all.
FSO is a doctrine of “paper entitlements” without committed obligation in the real sense, except for the Government to perform on best efforts basis. It does not empower people for food—it simply raises their expectation from the Government to deliver food. The conceptualization of FSB was done by National Advisory Council— a parallel agency under the Chairperson of Sonia Gandhi, President of the Congress party of India (humorously descripted as Non-Accountable Cabinet).   FSO is riddled with archaic ideas to acquire absolute state control of grains; misconceived basis of identification of prospective beneficiaries by ignorance of difference between hunger and poverty; immediate electoral considerations; non-transparency in cost and investments; disregarding statistical data and advice of Government agencies including Planning Commission of India; economically flawed and frustrating; prone to rent seeking, provoking round tripping of grains and nebulous in effectiveness. Since Governments are not rational but political, this FSO is in the danger of being a historical manuscript of highest political gimmickry and socio-economic sham.
 All aspects of this FSB/FSO, including systematic deficiencies are discussed here from A-Z .
Up to 75% of the rural population and up to 50% of the urban population will have “uniform entitlement” of 5 kg food grains per person per month at highly subsidized prices of  Rs 3/kg for rice($0.05), Rs 2/kg($0.03) for wheat and Rs 1/kg ($0.017) for coarse grains(mostly corn) respectively. It will entitle about “two thirds of 1.2 billion populations” to subsidised food grains under the Targeted Public Distribution System (TPDS). 

Determination of eligibility of such households will be the “responsibility of the States” as per the guidelines they may specify but shall not exceed 50% and 75% of urban and rural population respectively of the latest census.

In addition
a.       The poorest households would continue to receive 35 kilograms of grains per month under the “poorest of the poor (“Antyodaya Anna Yojana) at subsidized prices.
b.      States Governments to strengthen their Food and Civil Supplies Departments, set up Grievance redressal machinery at each district, authorise State Food Commissions for hearing the cases and forwarding to Magistrates, undertake audit and establish vigilance departments for ensuring compliance with FSO.

2)      Implications Summarised

a)      Quantitative and financial  
        I.            FSB/FSO enhances maximum per capita monthly consumption of 2.1kg under existing PDS (public Distribution system) to “entitlement” of 5kg (by 235%) per person from 43% to 67% of population with legal remedies. It also reduces the average “subsidized cost” from Rs 5.5/kg to Rs. 2.5/kg (by 55%). System of Central procurement of grains (average economic cost about Rs 22/kg) remains unchanged. 
      II.             Beneficiaries as per the FSO are yet to be identified by the respective States. Planning commission in its draft 12th plan report mentions “One of the important challenges for implementation of NFSB would be proper identification of beneficiaries which may be based on the on-going Socio-economic and Caste Census”.  Caste based identification is another negative novelty-that is hidden under the terminology of “latest Census”.
    III.            NSSO survey of Jan 2013 mentions per capita per month “consumption” of 10.15kg of wheat and rice. FSB/FSO provides “entitlement” of only 5kg. Balance 5.15kg/month still remains to be sourced at open market price from the bazar. FSO neither offers nor provides choices of other food items like fruit, vegetables, pulses, milk etc relating to wholesome nutrition.

    IV.            Total cost to the exchequer remains vague. Government of India (GOI) is projecting only additional estimation of procurement and subsidization. These estimates vary 0.8% ($12 billion) to 3% ($36 billion) of the GDP. It does not take into account collateral investments in agriculture, infrastructure of storage and distribution, establishing and payment to administrative machinery and effect of increased annual acquisition cost (Minimum Support Price). Neither these collaterals are planned or budgeted but mentioned only.

      V.            It burdens the state for setting up additional/doubling the bureaucratic machinery with financial implications that are not considered at this stage


    VI.            With 50% leakages in the Public Distribution System (PDS), it will take 10kg of “delivery” of grains per person per month by FCI to “receive” 5kg at the user‘s end. Leakages are bound to swell due to greed of arbitrage between open market prices vs. Rs1-2-3/Kg under FSB/FSO. Such “pilferages” or sunk costs in the ascending scale every year will be funded by middle/upper class tax payers, who may be excluded under the FSO.

  VII.            Planning Commission is highly sceptical about the present Targeted Public Distribution System (TPDS). In its draft report it reminds that, “Another important initiative required during the Twelfth Plan is the end-to-end computerisation of the TPDS operations with the help of a comprehensive Plan scheme. This should not  only address current challenges (of leakages; emphasis added) but also facilitate proper tracking food grains and lifting by consumers using Aadhaar numbers or adopting innovative methods like smart cards.” Planning commission recommends innovative methods like cash transfers as an alternative to the existing system.

More litigation

VIII.            “Entitlement” does not mean commitment of “delivery or availability” to the beneficiary. It merely ensures a legal right to a “hungry” person for enforcement of his claim in a Magisterial Court, after following an elaborate procedure of lodging the complaint/ enquiry against Food and Civil supplies unit through State Food Commission.  It may then be followed up at High court and Supreme Court for final adjudication. Who incurs the cost of litigation is ambiguous. Are we promoting intent to litigate on 5kg of grains –theory of absurdity.

    IX.            Litigation in India gets extended till decades in overburdened Indian Judicial system where 32million cases till 30.9.2010 are pending as per details revealed by the Supreme courts in June 2011.  Justice delayed is justice denied and promotes criminality / corruption both in police and judiciary.

b) Monopoly

      X.            Contrary to the market reforms initiated in 1990-91, FSO restores the system of socialistic economy of 1960-70’s in the grain chain. Government monopoly of grain trade extends from 30%-35% as of now to potentially 95% under open procurement system (keeping 5% for seed). Private sector is crowded out all the more.   

    XI.            All monopolies are inherently inefficient due to lack of competition, plethora of rules/ regulations and absence of commitment on delivery of goods/services. Monopoly collapses if the employees of organisation decide to go on strike or avail mass leave or go slow or services of their union leaders are terminated for fraud /indiscipline.

  XII.            GOI has set up Competition Commission of India for “eyeing and ensuring” greater competition and demolition of monopolies but demits itself of that very concept in letter and spirit. Private sector is penalized for cartelization while Government/State continues to misappropriate and manipulate the monopoly under the umbrella of FSO.  

c) Discouraging diversification   

XIII.            FSO sends negative signals for  diversification of production of other food items like oilseeds, pulses where there is very high import dependency (approx. $15billion and rising), nor incentivizes higher growth of horticulture. FSO fortifies its overwhelming leaning for wheat and rice production and procurement by the Government at a remunerative price from farmers and then given back to them at 90% of the subsidised cost.

XIV.            Farmers of crops ‘other’ than wheat and rice stand excluded from the assured procurement by the Centre/ State and also of assured income, which may promote rural divide. This defies principle of inclusive growth.

d) Force Majeure

  XV.            Under force Majeure, when there may be draught or other natural calamities, no safeguards are proposed or defined in FSB/FSO. Extensive imports under such emergencies may have to be undertaken at exorbitant cost and then subsidised. Indian ports/roads/railways are not geared to handle massive import of grains. Even if grain import is prioritized, other essential imports like fertilizer, coal will suffer and exports slowed down

e) Political overreach

XVI.            All states are encouraged to extend further subsidy for wheat and rice and fix the price to Rs 1/kg—virtually free (instead of Rs 2/kg or Rs 3/kg) for electoral gains. Funding gap may either have to be borne by the Centre or the states—leading to higher fiscal deficit and inflation.

XVII.            Such a heavy subsidised price (90%), once introduced through FSO of parliament can be modified or enhanced only through another parliamentary amendment. That may be a political hot potato. SC/ST reservations though initially introduced for a limited period now cannot be reversed even they these classes have graduated to much higher income groups.

XVIII.            Due to coalition politics at the Centre and the States, polarization of political parties, multiplicity of socio-economic agenda, absence of any legislated funding for elections—cereals will be used for creation of currency for electoral agenda.
f) Exports      

 In principle exports of grains should crumble. But in practice they may remain stable or slightly be higher owing to leakages in the market—another route for promotion of fraudulent activity through the FSO. However the cheaper, almost free grains could be illegally diverted at slightly better prices to Bangladesh, Nepal, and Myanmar which might discourage regular exports.
contd AS PART 2

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