|What food security?|
|Friday, 14 January 2011 00:00|
The debate on the food security Bill between the National Advisory Council (NAC) and the Prime Minister’s Economic Advisory Council (PMEAC), at one level, is being seen as a fight between those with a heart and those without one. While the NAC wants to give vastly subsidised foodgrains (Rs 2 per kg of wheat and Rs 3 per kg of rice to the poor, and at half the minimum support price to the rest) to 75% of the population, the PMEAC wants to restrict this to 46% of rural population and 28% of the urban population. In terms of subsidies, while the government spends Rs 56,000 crore right now, the NAC estimates its plan will take this up to Rs 80,000 crore by 2013-14 (the PMEAC reckons the actual NAC bill will be more than Rs 92,000 crore and that its whittled-down scheme will cost Rs 82,000 crore). What is really relevant, however, are two other factors. One, what will this do to inflation since this is at the core of the fight—if the fight was only about food security for the poor, you wouldn’t need to have such a large programme. Two, will the scheme work?
Take prices. Since the free-market price is around 8-10 times the price proposed by the NAC, it is clear the NAC scheme will lower inflation. By how much? Since these two grains have a weight of just 3% in the WPI, keeping their price rise at zero or even negative, will not impact the WPI too much—the current WPI of 7.48% will perhaps come down to 7.47%. Obviously, the impact will be greater in the CPI since consumption goods have a greater weight, but even here, the CPI will fall from around 11.2% right now to around 10.7% or so.
The other issue that the NAC does not address is whether a 2.5 time hike in the PDS is even possible—while it wants the creaky PDS to handle 74 million tonnes by 2013-14, just 29.7 million tonnes were lifted by states in 2009-10—as against 45.4 million tonnes allocated for the PDS. Another reason for worry is the larger leakages, especially after the introduction of the lower prices for the BPL category. The NSSO numbers on the purchase and consumption of PDS rice and wheat show that the overall quantity of PDS rice and wheat reaching the beneficiaries has come down from 9.28 kg per person per month in 1999-00 to 8.6 kg in 2004-05, with most of the decline happening in the urban sector. And if the PDS prices to the poorest are further lowered, as suggested by the NAC, the leakages will only increase as the price difference between the open market and the PDS will increase even more. Perhaps having a calculator instead of a heart isn’t a bad idea.