Fisc versus food security PDF Print E-mail
Thursday, 21 March 2013 00:23
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Costs could double and FCI system can’t deliver


Even if you accept that it is all right for a poor country to provide unaffordable but legally enforceable rights to its citizens—right to education, right to jobs, right to homesteads (being planned) and right to food (passed by Cabinet)—you’d think the government would look for the most efficient way to do this. More so since that is precisely what the government is planning in the case of other subsidies through what’s called the direct benefit transfer (DBT) using Aadhaar numbers. A look at the maths makes it clear DBT can reduce costs of the Food Security Bill, which was passed by Cabinet on Wednesday, by around half, but the more serious issue is the plethora of operational problems that need to be dealt with.

The way the government has calculated the costs of the FSB, if a total of 62 million tonnes of foodgrains has to be distributed at a price that is around R20 per kg below the costs of procurement/storage/distribution, this adds up to around R1,25,000 crore. So given it will take a while for Parliament to pass the FSB and for states to be ready to implement it, FSB will need to be funded only for half the financial year—that means this year’s food subsidy bill may not overshoot. But since the full costs will have to be paid in FY15, it’s important to look at the real costs. After all, if 62 million tonnes is the legal entitlement, a buffer of 25-30 million tonnes will have to be kept for contingencies like a drop in production and normal buffers. The R1,25,000 crore calculations, however, assume this additional grain is ready for accessing, godowns ready for storage and railway wagons available in plenty to move 60-80 million tonnes of grain to different parts of the country. Given that grain yield growth fell from 2.4% in the 1990s to 1.3% in the 2000s, this also means new irrigation facilities will have to be created and high yielding varieties of seeds be made available in states other than Punjab and Haryana which have a serious water crisis. Achieving India’s full irrigation potential requires an investment of R4-5 lakh crore, though only a part of this can be attributed to the need to raise grain production for the FSB. If 80-90 million tonnes of grain has to be stored, keep in mind FCI only has storage capacity for 53 million tonnes, so new capacity needs to be created. Once you take all of this into account, the Commission for Agricultural Costs and Prices (CACP) reckons FSB will cost R6,82,000 crore in the first three years. So just distributing the money through DBT will reduce government costs by around half.

There are other issues in terms of whether FCI is even capable of delivering the grain—costs of FCI’s loaders are 7-8 times those for contract labour but the larger issue is a 40%-plus leakage in grain supplies calculated by looking at the grain the PDS system claims it has delivered to the grain the NSS captures as having been delivered. Apart from the huge operational issues, the philosophical question is about why the government is looking at DBT for delivering other subsidies while planning the FSB for delivering foodgrains.


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