Download the latest issue of Business Today Magazine just for Rs.49
Budget 2013: What does the Food Bill mean for govt's finances?

Budget 2013: What does the Food Bill mean for govt's finances?

The National Food Security Bill has the backing of Congress President Sonia Gandhi, and the government aims to table the Bill in the Budget session of Parliament.

Subsidised grain being sold at a shop in Andhra Pradesh's Ranga Reddy district Subsidised grain being sold at a shop in Andhra Pradesh's Ranga Reddy district Photo: A . Prabhakar Rao Subsidised grain being sold at a shop in Andhra Pradesh's Ranga Reddy district Subsidised grain being sold at a shop in Andhra Pradesh's Ranga Reddy district <em>Photo: A . Prabhakar Rao</em>
Most days, around half a dozen middleaged men in Tamil Nadu's Nemam village head for a slushy pond. They are farm labourers who have had little work for the past few months because of a drought in their Tiruvarur district. As an alternative they catch fish, but the income from it is not enough to survive on. "But for the free rice and other essential commodities we get at subsidised rates from the state government, we would have had no option but to commit suicide," says one of them, A. Sunderaj.

About 900 km away, Sheikh Mehboob is in a slightly better situation - but only slightly. Mehboob earns up to Rs 6,000 a month as a construction worker in Andhra Pradesh's Ranga Reddy district. He says nearly two-thirds of his income is spent on food. The balance goes towards rent for the single room he lives in with his mother, wife and three children, and on medicines. How do they get by? The 20 kg rice they get from the ration shop every month helps. "Still, it is inadequate for our family of six," he says, as he waits in a queue outside a fair-price shop. "We have to often buy up to 30 kg rice from the open market at Rs 35 to Rs 40 per kg."

Sunderaj and Mehboob are among the millions of poor people across the country who benefit from the food subsidy and other welfare programmes of the central and state governments. Now, the Centre wants to go a step further. The United Progressive Alliance (UPA) government plans to enact legislation that will confer a legal right on the poor to get subsidised foodgrain.

The National Food Security Bill has the backing of Congress President Sonia Gandhi, and the government aims to table the Bill in the Budget session of Parliament. The Bill has been in the works for the past couple of years, but there is greater urgency now to push it through Parliament as the government faces general elections by May 2014.

Jean Dreze, Economist
The extra cost should not be seen as a financial burden but as an excellent investment: Jean Dreze
Critics, however, say the proposed law will increase the already high subsidy burden. Rising food subsidy could worsen the government's finances, especially at a time when the economy is growing at its slowest pace in a decade. The Centre's food subsidy has more than tripled in the past six years, from about Rs 24,000 crore in 2006/07 to an estimated Rs 88,977 crore in 2012/13. The sharp jump is the result of consistent increases in the cost of procuring and distributing foodgrain while selling prices remained almost unchanged.

The overall subsidy burden has risen as well, and at a pace faster than the increase in overall government spending. Since 2004/05, when the UPA presented its first Budget, total subsidies on oil, fertiliser, food and other items have increased four times to Rs 1.93 trillion (one trillion is 100,000 crore) in 2012/13. During the same period, the government's total expenditure has grown 2.9 times. But, while measures such as an increase in diesel prices suggest that the government aims to pare down oil subsidies, there is no indication of any intent to contain food subsidies.

{mosimage}'Building consensus is the main challenge'

The National Food Security Bill is the most ambitious social welfare programme of the United Progressive Alliance government. But the government faces several challenges in enacting the proposed law. In an interview, Food Minister K.V. Thomas spoke with Sebastian P.T. on the proposed law and the problems coming in the way of pushing the Bill through Parliament.

Q. The Standing Committee on Food, Consumer Affairs and Public Distribution has made recommendations that significantly vary from the original National Food Security Bill. How do you react?
A. The coverage of the proposals suggested by the panel is much more than the government Bill. The Bill envisaged coverage of 75 per cent of rural areas and 50 per cent of urban areas, with the percentage of priority households being 46 and 28 per cent, respectively. The Committee suggests no distinction within the coverage. This would mean inclusion of 67 per cent of the population as priority. Due to the increased coverage, instead of the seven kilograms of foodgrains per individual, the panel suggests five kilograms.

However, under the Antodaya Anna Yojana (AAY), 35 kg of foodgrains are being provided now. The stand of UPA Chairperson Sonia Gandhi and the National Advisory Council (which she heads) is that the AAY should continue. Also, our Bill was for 90 per cent coverage for 13 states that include the north-eastern states and Jammu and Kashmir; and 250 backward districts across the country having 75 per cent coverage.

These are also not there in the panel's proposals. We have to sort out these issues. If we accept the AAY and these 13 states and 250 districts, then the coverage would go beyond 70 per cent, instead of the 67 per cent proposed by the committee.

Q. Would you be passing on costs such as on transport to consumers?
A. The government's proposal is to provide rice, wheat and coarse grains at three rupees, two rupees and one rupee per kg, respectively. The Committee wants transport and distribution commission charges to be passed on to the consumer. Now, if this is done, then the price of the grains will obviously go up. Our stand has been that these costs should be borne by either the Centre or the states. Also, the issue of states footing the cost on grievance redressal and the like has to be discussed, too.

Q. What will be the criterion to identify priority households?
A. It would be left to the states to decide how they want to select the 67 per cent of their populace as priority, according to the Committee. Another proposal by the National Advisory Council has been that it be decided by the Planning Commission in consultation with other concerned ministries. We have to consult the Planning Commission on this.

Q. How long will it take to sort out all the issues relating to the proposed food security law?
A. We are moving fast on all these issues. We are holding a meeting of state food ministers on February 13. I will then know what is in their minds and take forward their proposals. We hope to table the (reviewed) Bill in the last week of the first half of the Budget session (March 18-22). We are working on this target.

Q. The Standing Committee fears shortfall in foodgrain availability in the central pool in 2025/26. Have you factored in possible shortages of foodgrains that may arise once the law is passed?
A. We have worked out the entire scheme based on the projections by the agriculture ministry up to the year 2040. We will have no scarcity at all and, in fact, will be able to export some grains as well. However, this will be a success story only if farm production will continue to be good.

Q. There is a fear that poorer states could be at a disadvantage if a proper formula is not implemented for allocation of foodgrains...
A. The states will only benefit further when the Bill is implemented. Whatever the states are getting now will be ensured so by an executive order.

Q. What is your single biggest challenge at the moment?
A. Building consensus on all the issues.

Food Minister K.V. Thomas, however, dismisses suggestions that the proposed law will impose a severe burden on the exchequer. "The implementation of the food security legislation will not mean a substantial increase from the existing subsidy bill," he told Business Today.

The food ministry says existing subsidy estimates are based on the 2000 population numbers and need to be updated according to the 2011 Census. It maintains that, taking into the account the 2011 census, food subsidy will be Rs 1.24 trillion for 2013/14 under the current welfare programmes. The subsidy will increase only marginally, to Rs 1.26 trillion, if the food security legislation is implemented (see Extra Burden? Not Much).

"The extra cost, which is very moderate, should not be seen as a financial burden but as an excellent investment," says economist Jean Dreze. He was part of the team which drafted an early version of the food bill for the Sonia Gandhi-led National Advisory Council (NAC).

N.C. Saxena, a member of the NAC, says that, if higher subsidy is the main concern, selling prices could be raised from the current proposal of three rupees per kg for rice, and two rupees per kg for wheat. "Most poor people would not mind buying foodgrain for five to six rupees per kg," he says. "What should be ensured is quality and certainty of foodgrain."

There are many other issues as well that the government will have to settle before the food security legislation can be passed in Parliament. The Standing Committee on Food, Consumer Affairs and Public Distribution, in a report submitted last month, made several recommendations which the government may not agree with.

The Bill proposes to include up to three-fourths of rural folk and half of the urban population as beneficiaries. It says that 46 per cent of rural and 28 per cent of urban beneficiaries will be 'priority households'.

Food Minister K.V. Thomas
Food Minister K.V. Thomas
Individuals from this segment would get seven kg of grain per month with rice, wheat and coarse grain costing them three rupees, two rupees and a rupee per kg, respectively.

The remaining beneficiaries, or the 'general households', will get at least three kg of grain at half the price the government pays to farmers to procure grains. The government's calculation of the subsidy bill at Rs 1.24 trillion for 2013/14 was based on this.

However, the panel recommends removal of any distinction between the beneficiaries. "So, the entire 67 per cent (the rural and urban beneficiaries put together) will now become the priority sector as per the panel," says Thomas. If implemented, this could substantially increase the food subsidy. Also, the very poor who at present get benefits under the Antodaya Anna Yojana will end up getting less than the 35 kg of grain they get now if the committee's suggestions are accepted.

Thomas hints that the government plans to retain the scheme as it is. Thomas admits that the biggest challenge before him is to build a consensus on the proposed law. The first test will be on February 13 when food ministers from all the states meet in New Delhi. What emerges from the meeting will determine just how the UPA government fulfills its promise on food security.

Published on: Feb 13, 2013, 12:00 AM IST
Posted by: Navneeta N, Feb 13, 2013, 12:00 AM IST