Food Security Bill Explained -Part -2

Food Security Bill:

Overview:

1. Grain procurement is already around 60M tonnes and it has been going up steadily in the last 20 years at about 5% per year
2. Carrying costs of grain is double the cost of their production (costs INR 5 to transfer the worth of benefit INR 1)
3. 1990-2007 : Population growth at 1.9% ; Food grain production at 1.2%; But with recent initiatives, rate of growth  in production surpassed the rate of growth in population

Estimates:

1. Grain availability
1. Food Production in India = 200 M tonnes (Last year 236 M tonnes)
2. Marketing surplus after Self-consumption of small farmers = 140 M tonnes
3. Commission of Agricultural costs and prices estimates of Requirements to Food Security Bill = 60 M tonnes (30% of the total production) - Half of the world's trade
4. Available to private market = 80 M tonnes
5. Crisis of Plenty : As per the requirements of the bill, by the end of July Govt stocks need to be 52MT ; But the actual stocks are expected to be around 88MT in which case, 38MT will be sitting as a dead weight; Total economic cost of 38MT is projected as Rs 75,000 Crore ; In a way food inflation is created by government; Year-on-Year inflation : Rice 17% and Wheat 20% (Gross Failure in Food Management); Shows that we are very tolerant of inaction and delays;
2. Subsidy Burden (According to official govt. estimates)
1. Existing burden to cover 45% of the population = 95,000 crore (1,09,000 crores in reality)
2. Extra burden to cover 67% of the population = 35000 crore if it manages a revamped delivery system with minimum leakages.
3. Existing PDS : Major cost component is into storage of the grain; with the roll-out of FSB these costs can be drastically cut.
4. Higher taxes of the states distorting markets Eg: PJ,HR,AP; Punjab taxes as high as 14.5%; Subsidy of 95000 crore in total food security, atleast 8000-10000 crore are taxes in the name of poor;
5. The foodgrains to be allocated to the PDS under the Act will be 54.9 million (mn) tonnes; Further,about 6.5 mntonnes are now allocated for other welfare schemes
6. Assuming a subsidy of Rs 21.5 per kg, then for 61.4 mntonnes, this comes to about Rs 1.32 lakh crore a year or about 1.3% of the gross domestic product (GDP) at current market prices
7. Other estimates:
1. Bhalla's estimations : Rs 3 lakh crore or 3% of GDP
2. CACP : 6.8 lakh crore over three years (roughly Rs 2.3 lakh crore a year)
3. Prachi Mishra from the finance ministry :annual incremental cost of the NFSA will be anywhere between Rs 44,411 crore to Rs 76,486 crore in 2013-14
3. Beneficiaries:
1. 35% of the national wide might be excluded (current beneficiaries of Dalits and Backward sections in certain western areas like Punjab, W.UP will be excluded with this criteria)
2. coverage under NFSA has been delinked from poverty estimates and therefore the hitherto followed system of APL and BPL beneficiaries would no more be relevant.
4. Storage: (total Central procurement & Storage (doesn't include PDS))
1. Present Storage capacity(Public Sector) : 82 M tonnes (2009-10 : 55M tonnes); the warehousing capacity available in India in public, cooperative and private sectors is about 109 mt and an additional 35 mt of are housing capacity is estimated to be required during the Twelfth Plan for the storage of major crops.
2. Upgrading our storage structures(wastage of only 0.02%) by involving Private players(72 Lakh tonnes in last 2 years with their help) in big way : April-June, 2013- 1Lakh tonnes of food grains worth INR 236.32 crore were lost in "Transit, Storage and due to theft". Private Entrepreneurs Guarantee (PEG) scheme to create storage facilities
3. we are also thinking of going beyond traditional Godown structures by introducing 'Silos'
5. Need to stabilise production and distribution systems when you are committing Food supply as a right ; In 2002-03 itself, production fell by 38MT in a single year;
1. Storage and Railway wagons
2. Agricultural Min says that 100,000 crore in agriculture to stabilise production and it has to done in the first 3 years of FSB
3. CACP estimates it as 200,000 crore/year
6. State Coverage :
1. Assam, Bihar and Jharkhand will have coverage of about 85% of the population in rural a reas under the NFSA
2. UP, Odisha and Madhya Pradesh around 80-82%

Beneficiary Identification:

1. based on socio-economic and caste census.
2. Automatic exclusion and Inclusion (some proposed parameters) {It is opinion, not Saxena cmt parameters}
1. Urban : 3 types based on the vulnerabilities
1. Residential : Homeless-obviously poor; Slum-dwellers : High chances of being poor
2. Occupational : Rickshaw pullers, Construction Labour, Domestic help, Beggars
3. Social : households with no able-bodied male aged 18 to 60
2. Rural : some socio-economic categories : Single Women, Disabled people, old people,.
3. Complexities involved in the identification of beneficiaries based on caste survey
4. Exclusion criteria should be state specific; Eg: "pacca house" as an exclusion criteria : It is a sign of wealth in in plain, not necessarily in hills

Features:

1. Upto 75% of the rural population and upto 50% of the urban population will have uniform entitlement of 5 kg foodgrains per month per person at highly subsidized prices of Rs. 3, Rs. 2, Rs. 1 per kg.for rice, wheat, coarse grains respectively . These are national coverage ratios to be adjusted state-wise so that the coverage is higher in poorer states.
2. The poorest of poor households would continue to receive 35 Kg foodgrains per household under AAY
3. Eldest Women of the household above 18 years to be head of the household for the purpose of issue of ration cards.
4. special focus on the needs of poorest of the poor, women and children.(Lactating mother will also receive maternity benefit of at least of Rs. 6000/-(INR 1000 for 6 months). Children in the age group of 6 months to 14 years will be entitled to take home ration or hot cooked food as per prescribed nutritional norms.)
5. In case of non-supply of foodgrains now people will get Food Security Allowance.
6. States to get assistance for intra-State transportation and handling of foodgrains
7. Eldest women is recognised as the head of the household
8. Grievance redressal
1. Increased role of PRIs, Women's SHGs
2. District Grievance redressal officers, State Food commission - provides for grievance redressal mechanism(at the district level) and penalty for non compliance by public servant or authority
3. Social audits and vigilance committees
4. PDS related records to be placed in public domain
5. Call centres& Helplines
9. Doorstep delivery of foodgrains to the TPDS outlets;
10. Application of information and communication technology tools including end-to-end computerisation in order to ensure transparent recording of transactions at all levels, and to prevent diversion;
11. Leveraging “aadhaar” for unique identification, with biometric information of entitled beneficiaries for proper targeting of benefits under this Ordinance.
12. Full transparency of records;
13. Diversification of commodities distributed under the Public Distribution System over a period of time;
14. Support to local public distribution models and grains banks.
15. The Center has proposed a committee of State Food Secretaries under the chairmanship of Union Food Secretaries to sort out issues of sharing expenditure towards intra-State transportation and handling of foodgrains, margins to fair price shop dealers and other implementation issues to ensure speedy implementation of National Food Security Act(NFSA).

Challenges:

1. Can we still uphold the right in the case of weak monsoon and subsequent fall in food production?
2. Need to streamline the PDS system and plugin the leakages and pilferage before making the food supply universal.
3. If the approach still is identification of a beneficiary, how will it be different from current scenario? Rigid targetting may only lead to exclusion of genuine BPL families and vulnerable APL families
4. Already some states are believed to have well developed PDS, this bill may seem retrograde.
5. Direct Benefit transfer - how will it adjust for the price fluctuations and the delay in payments will not be in sync with current inflation scenario.
6. Storage, Transport(planning to bring rail infra into the supply chain); Expansion of decentralised procurement.
7. Danger of over-centralisation of the PDS under the bill, at a time when many state governments are making good progress with reforming the PDS on their own
8. Better existing models:
1. TN already has universal PDS
1. FSB - Targetted coverage ; TN Model - Universal coverage
2. FSB - Rural population(75%), Urban Population(50%); TN - Rice free of cost to 1.8Crore families
3. FSB - Rice(INR 3/kg), Wheat(3/Kg), Millets(3/Kg); TN - Rice entitlements 12kg/month(min) - 20kg/month(max)
4. FSB - AAY beneficiaries to get 35kg/month; TN - AAY to get 35kgs/month
5. FSB - Food security allowance to be provided in case of non-supply; TN - Sugar to rice-drawing holders 500gms to max 2kg, edible oil and pulses at subsidised rates under special PDS
2. TN has 50% of the population in Urban areas => under FSB 25% of TN population will not be eligible for food entitlements.
9. India need to convince WTO that it is not violating AoA(Agreement on Agriculture) by this bill
10. Moving from household based entitlements(25kg/household) to percapita entitlements (5kg/person) . Could be disruptive if it is imposed overnight from the top. Could face resistance from the public.
1. AP and TN already has put in use Per-capita entitlements model
2. Population totals are better defined and better known than household counts and therefore better suited for determining state-wise allocations.
3. only 10% of the rural families have more than 7 members.// But this scheme of per-capita entitlements is done at a lower price than earlier, so it is more equitable
4. Adding a name to the ration card when a child is born tends to be difficult and enrollment is an issue even in the better governed states.
5. Could be disruptive in the states where per-household model works well (Chattisgarh, Odisha, HP,RJ)
6. Opinion:
1. Equity can be ensured without forcing states to adopt per-capita approach; Eg: by considering every nuclear family as a separate household(as in NREGA)
2. Central govt. could allocate grains on the basis of entitled population, and let states decide which approach to use.
11. The percentage of beneficiaries may vary from state to state(This would be based on caste & Socio-economic census) .Southern states' PDS will be affected b/c of this bill, since their existing quota will have to be diverted to other states unless our export of food grains to Europe to feed their cattle are curtailed or we import food grains from Vietnam or Thailand
1. Estimation of 18 states losing and 17 states and UTs gaining the quota (since it is based on population figures) - Losing states : TN, Kerala, Tripura; Gaining States: UP,Bihar, Gujarat
2. Estimated cut of 31.24L tonne to losing states and higher out-go of 110.28L tonnes to gaining states at subsidised rates (CIP)
3. Provision of additional grains at MSP
12. Leakages need to be plugged through (9-point strategy)
1. de-privatisation of ration shops (Community ownership of FPS – SHGs )
2. end-to-end computerization - also a proposal of new independent agency manned by professionals to computerize PDS.
3. Aadhar - biometrics (authentication, portability)
4. Social audit
5. Leakages are minimum in AAY category, but high in APL category b/c APL is not a fixed quota.
13. No clarity on cost-sharing formula b/n Centre and states.
14. Political consensus on these issues:
1. Cash transfers in lieu of food grains
2. Protection of present grain allocations to states
3. Framing of rules and guidelines
4. Ready-to-eat meals and fortified foods('energy dense' foods).
5. Role of Contractors and Manufacturers in ICDS
15. Demands of amendments on these issues
1. Raising the percapita entitlement from 5kg to 7kg
2. Inclusion of Pulses and Edible oil in PDS basket
3. Removing caps on percentage of eligible beneficiaries.

Dimensions:

1. the implementation of the legislation promises economy-wide benefits.
1. the guarantee of subsidised food grains, which constitutes a significant proportion of the consumption basket for most people, will have the immediate effect of increasing their disposable income. This is not trivial, given that the growth of consumption expenditure has doubled between 2009 and 2012
2. the provision can play the role of an economic stabiliser because food prices determine the floor wage level, which is why they are termed a wage good. The guarantee would thus not only help in controlling food prices but also stabilise wages. Indeed, it is perplexing that industry lobbies are attacking the provision of an enhanced social wage, from which they stand to benefit significantly.
3. if the fiscal deficit is run in an imaginative way, even more can be achieved. For instance, coupling the food guarantee to the MGNREGA can help in the construction of a countrywide network of godowns for the Food Corporation of India
2. a cash transfer scheme would negate much of the potential economy-wide benefits that would accrue from the implementation of the food security legislation.
3. Greater dependency of Centre on states to procure on their behalf ; High time centre and states rationalise tax structure (GST ); States monopoly in grain trade; 1972 : Centre tried to take over the grain trade, but political set up didn't allow this to happen;

Direct Benefit Transfer:

Prerequisites:

1. Financial inclusion with each beneficiary to have a bank or post office account
2. each bank and PO in India to have Internet Connectivity
3. to have an Aadhar number
4. each bank/PO account to be seeded with the Aadhar number

Benefits:

1. provides range of options. But vulnerable become more prone to market fluctuations ; So need to link DBT with nutritional outcomes (ie Conditional cash transfers), or food stamps (to buy Veg, Fruits, Micronutrients), or Mixed transfers.
2. Our strategy of DBT is essentially an attempt to streamline PDS. It talks about cash transfer of subsidy, not the total food grainieWhen centre issues food grain to states at CIP, it bears food subsidy which is to be transferred to beneficiaries rather than to states directly and states are supplied grains at Economic cost. Beneficiary has to pay For Eg: Rs 3+ subsidy transferred to buy one Kg of Rice. It is qualitatively different from subsidy in cash given in-lieu of food grain. (Analyse its impact in terms of range of real choices(not spurious ones) it offers and transparency )

written by - A Sunil Kumar