National Food Security Bill'13

NATIONAL FOOD SECURITY BILL, 2013 Discussion on various aspects of the Bill

YASH LADHA

NATIONAL FOOD SECURITY BILL, 2013 2013

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INTRODUCTION:

India’s high economic growth in past decade is not reflected in the health status of its

people. With 22% population undernourished, India is ranked at 67th in total 122 countries

in term of Global Hunger index. Food insecurity at micro-level has always remained a

formidable problem for Indian Government. National Food Security Bill, 2013(called NFSB

henceforth) is a tool which can address this food-insecurity problem by a paradigm shift

from Welfare based approach to Rights based approach. NFSB is perhaps world’s greatest

experiment for providing food security to the entire population of a country by subsidising

grains to achieve food and nutritional security. If executed efficiently and effectively it can

change lives of millions of people. A carefully analysed debate on NFSB is required in

Nation’s interest to understand its long-term feasibility as it implies massive procurement,

heavy investment in storage infrastructure and establishing a very large distributive

network.

The salient features of the NFSB proposed by the NAC are:

• Legal entitlement to subsidized food grains to be extended to at least 75% of the country’s

population - 90% in rural areas and 50% in urban areas

• The priority households (46% in rural areas and 28% in urban areas) to have a monthly

entitlement of 35 Kgs (equivalent to 7 Kgs per person) at a subsidized price of Rs. 1 per Kg

for millets, Rs. 2 per Kg for wheat and Rs. 3 per Kg for rice

• The general households (39% rural and 12% urban in phase 1 and 44% rural and 22%

urban in final phase) to have a monthly entitlement of 20Kgs (equivalent to 4Kgs per person)

at a price not exceeding 50% of the current Minimum Support Price for millets, wheat and

rice

• The minimum coverage, entitlement and price to remain unchanged until the end of the

XII five year plan

• Government of India to specify the criteria for categorization of population into priority

and general households

• Legal entitlements for child and maternal nutrition, destitute and other vulnerable groups

• Reform of the Public Distribution System (Called PDS henceforth).

It is essential to understand that food security doesn’t necessarily imply nutritional security.

Making food available is an important aspect but others like economic access to food, its

nourishment value and its adsorption by people is equally important.


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IRREGULARITIES AND MAJOR ISSUES IN THE BILL:

1. FOOD AT THE TIME OF NATURAL CALAMITIES :

The Bill provides for a Force Majeure clause (Clause 52) that “the Central

Government, or the State Governments, shall not be liable for any claim by persons

belonging to the priority households or general households or other groups entitled

under this Act for loss/damage/compensation, arising out of failure of supply of food

grains or meals when such failure of supply is due to conditions such as, war, flood,

drought, fire, cyclone, earthquake or any act of God.” It provides immunity to both

the Centre and the States against any claim by beneficiaries entitled under this Act

for loss, damage, or compensation arising out of failure of supply of food grains or

meals in force majeure conditions which have been defined widely, including

droughts and floods etc. It is worthwhile to note that precisely in these conditions a

failure of market forces, volatility in prices and resultant distress is expected and at

times like this the poor and vulnerable would depend on government to ensure their

food security. While there can be exceptional cases in which any transport by

Government is barred, but drought and flood do not qualify under these conditions

and should be removed from the clause.

2. NFSB IMPOSES A HIGHLY CENTRALIZED MODEL, DISCOURAGING CUSTOMIZED

STATE LEVEL INITIATIVES : The draft bill in the current shape gives a legal sanction to a highly centralized procurement and distribution model. It leaves no room for experimentation/customization for the States suited to their specific choices, institutional strengths and weakness. Once the Act comes into effect the existing schemes pursued by the states will suffer considerably. For example, Tamil Nadu (TN) follows a "Universal PDS" system with no BPL/APL classifications – which is different from TPDS. But under NFSB, TN would have to put an end to this system. Section 40 of the NFSB allows State Governments to design their own schemes but it is rendered practically ineffective as it essentially imposes an obligation on the State Government to procure food grains from FCI only for TPDS and procure for its own system separately- for which literally there would be not much grain left. It would also additionally impose a financial burden on the states. India is diverse country and one size fit all approach may not work here.


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3. CENTRALIZED PROCUREMENT:

NFSB mandates Central Government to procure for the Central Pool. State Governments are responsible for further distribution. Decentralized Procurement System (DCP) was introduced in 1997-98 in view of the practical difficulties faced by the Central Government/FCI to procure on its own. Under DCP, States were invited to assist in the procurement and distribution of food grains under the TPDS. This experiment has been quite successful in Madhya Pradesh & Chhattisgarh as far as augmenting the level of procurement is concerned. NFSB seems to be suggesting a retrogressive step of going back to centralized procurement model which was found unsustainable in the first place.

4. REINFORCING CURRENT INEFFECTIVE FRAMEWORK: For fulfilling its goal of food security, NFSB heavily relies on the current institutions which already have had a chequered history of failure. The estimated leakages from the TPDS go as high as 40.4%.

5. FOOD SECURITY ALLOWANCE (FSA): UNCLEAR PROVISIONS In case of non-supply of the entitled quantities of food grains or meals to entitled persons under the bill, such persons shall be entitled to receive such food security allowance from the concerned State Government in such time and manner as stipulated by the Central Government. The amount payable would depend entirely on the rules framed in respect of the same. The statute does not mandate that the allowance has to be suitable to enable the relevant entitled persons to obtain the food grains from the market. Since the entitlement is essentially to obtain the identified food grains at the subsidized prices specified in Schedule–I, if FSA is according to these prices (much lower than market prices) the person will be grossly unable to purchase adequate amount of food grains from the market.

6. CEREAL-CENTRIC APPROACH Though cereals are central to the issue of food security, diversifying demand patterns to protein rich items also needs to be appreciated. NFSB deals only with supply of cereals ignoring the demand side of food consumption.


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MAJOR OPERATIONAL ISSUES:

PRODUCTION, PROCUREMENT AND STORAGE:

Indian Agriculture is highly dependent on climatic condition. Near about 60% production is

dependent on monsoon. According to projections made by Department of Agriculture Net

production of wheat and rice for year 2013-14 is about 192 million tonnes. The food grain

requirement for NFSB as calculated by Expert Committee is 83.98 million tonnes1.

Government has been procuring round 26.6% of total food grain production but after

enacting the NFSB the procurement works out to be 38.5%. Such a huge procurement will

have a distorting effect on market price of food grains. Since the entitled groups will be

purchasing 25-30 % 2 of their food requirement from the market, market price are also

extremely relevant.

Current storage capacities is of about 42.5 million tonnes providing 83.98 million tonnes will

be implying extensive scaling up of procurement centres, warehousing and supply chains.

The central pool stores around 80 million tonnes of food grain compared to 32 million

tonnes as the norms dictate, which leads to spoilage.

As Indian agriculture is highly monsoon dependent, less production is possible. Import

clearly is not an option as market expectations about India’s huge demand will have a price

raising effect. So India has to depend on Domestic production only.

SUGGESTIONS

Indian Agriculture has not witnessed any major breakthrough since green revolution which

focussed on two cereals and was concentrated in north-western states like Punjab and

Haryana. Most of the procurement is done from these states. A gradual shift from North-

western states to Eastern states like Bihar, West Bengal, M.P, Odisha, Assam etc is required,

as it makes procurement cheaper from logistic point of view. Due to BGREI, the grain

production from these states have been promising but lack of procurement centres and

marketing infrastructure has caused dismissal to farmers(Unlike Punjab and Haryana, which

has well laid network of Mandis/Procurement centres, these states lack in adequate

procurement centres and storage facilities).

India has been the greatest producer of wheat and rice in world, but its production

productivity is below world average. So Investments in Productivity enhancing technologies

in irrigation, power, fertiliser, seeds etc should be made Nodal point of NFSB. Also

increasing decentralized storage facilities like FPS-cum-godowns, transport facilities like rail

lines, bulk wagon etc has to be insured.


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1 NAC estimated the food grain requirement to be 55.59 million tonnes taking into consideration the

population projection of National Commission of Population for October, 2010 and an assumption of 90 % off-

take of food grains. If we use the population projection for October, 2013 and also the off-take is likely to be

100% at this price, the final food grain requirement works out to be 73.98 million tonnes. Also we must add 8

million tonnes for other welfare programmes like midday meal, ICDS etc. A buffer of 2 million tonnes must also

be maintained in case of emergency.

2 According to 2004-05 NSSO consumption expenditure survey the average monthly per capita rural

consumption of wheat and rice for the lowest MPCE classes constituting 49.9% of the rural population was

10.11 kgs while the urban consumption for the lowest MPCE classes constituting 30.2% of the urban

population was 9.35 kgs.


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PUBLIC DISTRIBUTION SERVICES:

PDS with is half million network of Fair Price Shop (FPS henceforth) should be most obvious

choice for distribution of entitled food grains under NFSB. But, poor identification of

beneficiaries, massive leakage (~ 40%) in APL allocations, low margins for FPS creating

perverse incentives for diversion of PDS and general lack of accountability had rendered it

useless for such a revolutionary Bill. The PDS has virtually collapsed in several states in India

due to weak governance and lack of accountability. There are, however, exceptions like

Kerala and Tamil Nadu.

SUGGESTIONS

In 2006, in response to a PIL on the PDS the Supreme Court had appointed a Central

Vigilance Committee, headed by Justice D.P. Wadhwa who has given a number of reports on

the reform of the distribution system. Moreover in July 2010, in a conference the state food

secretaries passed a resolution on the best practices and reform of the PDS. Some of the

suggestions that are common to both are:

• Precise identification of beneficiaries

• Timely delivery of food grains to FPS. States to strive to make doorstep delivery to FPS

• Rapid roll out of IT in PDS on priority. End to end computerization of the TPDS network,

digitized allocation of food grains starting from the FCI/State government, smart card based

delivery of food grains, issue of ration cards with biometric identification and iris technology

• Creation of additional storage capacity both at central and state level. States to create

decentralized storage facilities at block/village/ panchayat levels by construction of Fair

Price Shop-cum-godowns using funds available under various schemes

• Better monitoring of distribution of food grains by using technology (GPS tracking, SMS

alerts to beneficiaries, CCTV monitoring of FPS and creation of public awareness through

campaigns in the media) and social audit by local bodies / community groups / NGOs

• Better governance - administrative action, recovery of financial losses and fixing criminal

liability

•In the case of FPS, Justice Wadhwa suggests that the state civil supplies organizations

should take over the FPS network to deal with the large scale corruption. However the state

food secretaries suggest allotment of FPS to community based organizations like co-

operatives/SHG’s and measures to improve the viability of the FPS by rationalizing

commissions, extending credit and encouraging sale of non PDS items.


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A large number of states have undertaken large scale reforms and one excellent example is

Chhattisgarh which is in the process of turning around the PDS system with the help of

improved practices, governance and technology. At present there are a number of initiatives

for computerizing the PDS operations which range from use of smart cards for beneficiaries

in an experimental way in Haryana and Chandigarh, use of Global Positioning System in

Tamil Nadu, Chhattisgarh and Delhi, bar coded bags in Gujarat and SMS alerts on grain

availability in UP and MP.

Most of the current problems with the current PDS can be tackled with Condition Cash

Transfer facility. Since the average market price is currently around Rs 20 per kg, a subsidy

of Rs 17 will need to be provided. Currently the Economic Cost of procurement also works

out to Rs 20.43 per kg, which implies a subsidy of Rs17.43 per kg. In other words, the

subsidy under the current system and the subsidy given under the smart card system will be

virtually the same. However given that under the smart card system there will be virtually

no leakage. Moreover, under the smart card based system, since a lot of subsidized grain

will go through the normal market channels it will also reduce the burden on the

government procurement and PDS network.

IDENTIFICATION OF BENEFICIARIES

Smt. Sonia Gandhi supported the idea that rather than states conducting the BPL survey,

there should be socio-economic survey conducted by Registrar General of India and Census

Commission who have expertise in these matters.

But it is advisable that since State Government is the closet to the field and are aware of the

various local issues and realities they are best to carry out actual identification. So the socio-

economic survey to be entrusted to the state government. However to ensure that no. of

people identified by state government are genuine, each state must be allotted a cut-off no.

of rural and urban Population. A scheme that provides universal coverage would not be

prone to such errors, but could have significantly higher costs


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MICROECONOMIC IMPACT OF NFSB:

SUBSIDIES vs. INVESTMENTS:

NFSB would require huge funds and thereby huge subsidies by the Central Government. The

source for these subsidies should not be made via shift from investment to subsidies. Green

Revolution was not an outcome of subsidies but rather of enhanced investments in

Technology, Institutions (R&D), communication and physical infrastructure. Given fiscal

constraints, there is always a trade-off between allocating money through subsidies and

increasing investments. Ample research shows that investment option is always preferable

to subsidies to sustain long-term growth in agricultural production and also to reduce

poverty faster. So the focus of public expenditure for agriculture needs to shift towards

investments to boost productivity rather than subsidies. In contrast, NFSB is likely to shift

the nature of resource allocation more towards subsidies rather than investments. This will

be retrogressive from long term agro-growth and sustainable food security point of view.

FORCIBLE LOW-LEVEL EQUILIBRIUM TRAP FOR INDIAN AGRICULTURE:

Faster growth in per capita incomes and urbanization are triggering shift towards high value

commodities like fruits, vegetables, fats and oils, and animal products such as dairy, poultry

and eggs. Share of expenditure on cereals in total food expenditure has declined from 41%

in 1987-88 to 29.1% in 2009-10 in rural areas and from 26.5% in 1987-88 to 22.4% in 2009-

10 in urban areas. The Bill's focus on rice and wheat goes against the trend for many Indians

who are gradually diversifying their diet to protein-rich foods such as dairy, eggs and

poultry, as well as fruit and vegetables. There is a need for a more nuanced food security

strategy which is not obsessed with macro-level food grain availability. But at the policy

level, the Government is still focused on food grains and with NFSB is clearly reversing the

movement of Indian agriculture from high value items to food grains. This will trap the

Indian agricultural sector in a low level equilibrium trap as returns are generally higher in

high value agriculture. But a faster movement towards high value agriculture needs large

investments in infrastructure and risk mitigating strategies. The NFSB is likely to slow down

this natural process, and at places even reverse this trend.


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RESTRICTED PRIVATE INITIATIVE IN AGRICULTURE:

In pursuit of the food sufficiency regime a regulatory framework has been created with

massive government intervention in terms of policing powers under the APMC Act and

Essential Commodities Act, interstate movement restrictions, regular but unpredictable

export bans on food grains, banning of forwards trading on commodity exchanges etc. This

will be even further tightened to enable government to carry out its procurement functions

now. A combination of the quantum of public procurement and a stringent regulatory

framework would drive the private sector out of the food grains sector.

PUNJAB vs. GUJARAT

Punjab experienced an increasing rate of growth for about 25 years, but from 1997-98,

Punjab has experienced a deceleration in its rate of growth. Cultivation of high-yielding

varieties of paddy, particularly under assured tube well irrigation has resulted in an alarming

depletion of the underground water table, decline in soil fertility, an increased incidence of

insect pests, weeds, and increased resistance towards use of chemical inputs, and

decelerating rates of growth in yields. Further, almost complete takeover by state of the

food grain markets caused much of the private sector to withdraw and there was not much

modernization and scaling up of its agro processing (mills etc) and storage infrastructure.

Gujarat, in contrast, has focused on commercial crops and diversified into non-farm

activities like milk, along with a strong focus on investments in value adding infrastructure.

This holds the key to the stupendous growth in agriculture of more than 9% per annum

witnessed during the decade of 2000. Gujarat remained almost free from any large scale

government intervention and regulation, and leveraged its private entrepreneurs to drive

growth. Through incentives to attract private sector by providing a favourable investment

climate, several non-farm income generating employment opportunities have been created

in rural areas supplementing rural income.


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SOME NEW IDEAS FOR NFSB:

EXPLORING CCTS AS AN ALTERNATIVE MODEL:

For decades, India has largely followed a ‘price policy’ approach to achieve essentially what

are equity ends. It has subsidized food (rice and wheat) and agricultural inputs (fertilizers,

power, canal waters, etc.) so that poor consumers and small farmers can have economic

access to these. But the ground evidence suggests that this may not be the best way to

achieve equity objectives. It has led to major distortions in grain markets, high costs in

handling grain and large scale diversions of wheat & rice to non-targeted groups. These

have resulted in large ‘efficiency losses’ without achieving commensurate results on equity

front. Literature on best practices around the world shows that ‘income policy’ approach

rather than ‘price policy’ is more efficient in achieving equity ends and this has been

adopted successfully by many countries across the world

Specific criticisms on untargeted subsidies arise from the fact that (i) the benefits from

general subsidies are often regressive; (ii) the administrative costs of subsidy schemes can

be high; (iii) subsidy schemes are particularly open to corruption and mismanagement; (iv)

subsidies can distort the market through crowding out private traders and distorting the

incentives for producers (v) subsidies, especially those that benefit the non-poor, can be

popular and difficult to eliminate, given large constituencies opposed to change; and (vi)

subsidies can pose an increasingly heavy burden on the government budget when placed on

items (e.g., food or fuel) in times of increasing domestic or international prices.

Arguments in favour of CCTs stress that they contribute to economic growth and make it

more inclusive in many ways as it increases the bargaining power of entitled group since

they are paying the same amount as paid by the general public, also ensures that they get

quality food as they can buy their requirement from the open market also. There is no open

market price distortion due to the same fact and private sector investments are ensured as

Government is not procuring large quantities.

Brazil is a classic example of this - the Bolsa Familia programme, world’s largest conditional

cash transfer program, has lifted more than 20 million Brazilians out of acute poverty and

also promotes education & health care. These types of social protection systems are now

being adopted nearer home too as in Indonesia & Philippines with immense success.

As India is a vast country, it may be left to individual states to devise their own systems of

provision of food security. States which are surplus in terms of production of cereals could

move straightaway to cash transfers. Cities with a population of 1 million or more (currently


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33 as per 2011 census) can also shift to cash transfers. States which are grain deficit may

continue with the physical handling of food grains. Only an optimum level of buffer stock

needs to be maintained by FCI for contingencies. This would go a long way in pruning the

food subsidy and more importantly help in achieving the welfare objectives efficiently.

NUTRITION SECURITY

‘Nutrition Security’, in principle is more important than food security and can be defined as

adequate nutritional status in terms of protein, energy, vitamins, and minerals for all

household members at all times .The necessity to include nutrition into food security

evolved over time as it was realized that the ability of the human body to ‘Utilize/Absorb’

food requires not only an adequate diet, but also a healthy physical environment, including

safe drinking water and adequate sanitary facilities (so as to avoid disease) and an

understanding of proper health care, food preparation and storage processes. From the

present cereal based approach the government should also focus on pulses and other

protein rich sources, oil seeds, eggs, milk etc so as to ensure not just food security but FOOD

AND NUTRITIONAL SECURITY.

CONCLUDING REMARKS:

It is quite evident that NFSB is a revolutionary bill with a power to positively impact lives of

million, if planned immaculately and executed effectively. Failing to do so will have terrible

consequences on Indian economics, reducing the policy to be merely a meretricious political

tool. Therefore, the Government is prudently advised to have a proper and well laid

discussion on NFSB and not to view it as a tool for vote bank politics.

National Food Security Bill'13

Economy & Finance

Transcript of National Food Security Bill'13