Five questions govt needs to answer on food security

 sonia-maino-la-fidanzata-italiana-di-rajiv-gandhi-29-gennaio-1968-ap2Vivek Kaul 
Sonia Gandhi wants the chief ministers of fourteen states in which the Congress party is in power to role out the food security scheme in letter and spirit, and in quick time. Some media reports suggest that the scheme will be rolled out on August 20, which also happens to be the birth anniversary of Sonia’s late husband Rajiv.
While there seems to be a great hurry to launch the scheme there are some basic questions that the government needs to answer.

a) It has been pointed out time and again that the right to food security is likely to benefit 82 crore Indians. It seeks to cover 50% of the urban population and 75% of the rural population. The trouble is that no clear eligibility criteria for identifying the intended beneficiaries has been specified. It has been left to the state governments. As Jean Drèze wrote in a recent column in the Business Standard “For instance, the identification of eligible households is left to the discretion of the government. In the absence of clear eligibility criteria, no one is really entitled to anything as a matter of right; this defeats the law’s purpose.”
So the question is how will be the intended beneficiaries be identified.? The lack of a mechanism already seems to be causing problems. A report in the Daily News and Analysis points out that a presentation being made Sheila Dikshit, the chief minister of Delhi, was cut short by food minister KV Thomas. As the report points out “Dikshit’s presentation was cut short by food minister, when she mentioned that 32  lakh beneficiaries of existing schemes would be covered by the food security ordinance. She was reminded that in Delhi 72 lakh people are estimated to gain from the food security scheme. She had mentioned that Delhi had 2.62 lakh BPL card holders and 2.21 lakh are in the rehabilitation colonies and other 40,500 are in slums. Even these figures made just 26 lakh persons. Delhi CM then added another 10 lakh beneficiaries covered under the Antyodaya Ann Yojana and Anna Shri Yojana. She was told to undertake a fresh survey and draw the list of beneficiaries.”
Haryana Chief Minister Bhupinder Singh Hooda was in a similar situation. “Similarly, Hooda also come out with a figure of just 39 lakh beneficiaries.  He was also told that as per the population of his state, he needs to draw a list of not less than 1.69 crore,” the DNA reports.
So the calculations of the Delhi chief minister tell her that there should be 36 lakh beneficiaries(26 lakh + 10 lakh beneficiaries under the Antyodaya Ann Yojana and Anna Shri Yojana) of the food security scheme in Delhi. The food minister feels that there are 72 lakh estimated beneficiaries. Dixit has been asked to do a fresh survey and draw up a list of beneficiaries. The gap of 36 lakh (72 lakh minus 36 lakh) need to be filled.
Hooda needs to fill in an even bigger gap of 1.3 crore (1.69 crore minus 39 lakh). Both Hooda and Dixit want to launch the scheme on August 20, which is a little over a month away. How are so many people going to be identified in such a short period of time? And the bigger question is why has no method for identification of intended beneficiaries be prescribed? Sheila Dikshit plans to distribute food security cards to those eligible for the scheme. 

b)What is the food security scheme going to cost every year? The finance minister P Chidambaram in the budget speech he made earlier this year said “I have set apart Rs 10,000 crore, over and above the normal provision for food subsidy, towards the incremental cost that is likely under the Act.” The total food subsidy in the government budget for 2013-2014(i.e. The period between April 1, 2013 and March 31, 2014) is set at Rs90,000 crore. Chidambaram’s estimate will be lower for this year simply because the scheme will be launched in large parts of the country only during the second half of the year.
Economist Surjit S Bhalla writing in a column in The Indian Express puts the cost of the food security scheme at Rs 3,14, 000 crore. Bhalla’s calculations are fairly simple and straightforward to understand and put across the likely cost of the scheme more than clearly.
The Commission for Agricultural Costs and Prices of the Ministry of Agriculture in a research paper titled 
National Food Security Bill – Challenges and Options puts the cost of the food security scheme over a three year period to Rs 6,82,163 crore. During the first year the cost to the government has been estimated at Rs 2,41,263 crore. Andy Mukherjee, a columnist for the Reuters, puts the total cost of food security at $25 billion or Rs 1,50,000 crore (assuming $1 equals Rs 60).
And if all these numbers aren’t enough there is the original estimate of Rs 27,000 crore when the idea of the Right to Food Security was first mooted in the National Food Security Bill tabled in the Parliament in December 2011. As Jean Drèze and Amartya Sen write in 
An Uncertain Glory – India and Its Contradictions “The additional resources required to implement the Bill were officially estimated, at that time, at Rs 27,000 crores per year.”
So how much is the food security scheme eventually going to cost the government and in turn the taxpayers? The estimates as one can see vary anywhere from Rs 27,000 crore to Rs3,14,000 crore. Can the government at least provide us a clear estimate of that? Or would that even be possible for the government to do, given that it has specified no method to identify the intended beneficiaries. Hence, it has no idea of how many people it will eventually end up covering under the scheme. So how does it calculate the cost? 

c) The food security scheme aims to provide subsidised wheat and rice to nearly 82 crore people. In order to procure the required rice and wheat the government already has an elaborate procurement system in place. It uses the Food Corporation of India and various other state agencies to buy rice and wheat directly from the farmers. The rice and wheat thus bought will be later sold at a subsidised price by the government.
What does the government plan to do in bad years when the production and/or procurement of rice and wheat are hit? In the current year the procurement of wheat by the government has declined by 33 per cent to 25.08 million tonnes. This has been attributed to aggressive buying by private traders. As of now this is not a reason for worry for the government primarily because of the excess wheat that it had bought during the previous years.
But what happens in a year during which production of rice or wheat is hit. As the CACP research paper cited earlier points out “With 60 percent of India’s farmland dependent on monsoon rains, drought years can slash production and force the country to import large quantities. The government already procures one-third of the cereals production and any increase in procurement will have enormous ramifications on the cereal economy/markets and would crowd out private sector operations with a consequent effect on open market prices.”
The government has the option of importing grains. But that is easier said than done, specially in case of rice. “Rice is a very thinly traded commodity, with only about 7 per cent of world production being traded and five countries cornering three-fourths of the rice exports. The thinness and concentration of world rice markets imply that changes in production or consumption in major rice-trading countries have an amplified effect on world prices,” the CACP paper points out.
Andy Mukherjee of the Reuters explained the consequences of what would happen during a year of bad harvest, a lot more clearly, in a recent column. “When the domestic Indian crop is insufficient, the programme may destabilize a thin global rice market…Once the bulk of Indian consumption bypasses the local open market – where prices can and do rise in years of bad harvest – the full brunt of the country’s demand will have to be met by supply from Thailand, Vietnam, Pakistan and the United States. That will in turn cause prices to surge for countries dependent on imports, such as Nigeria, Senegal, Bangladesh, Indonesia and the Philippines,” he writes. Not only is the price of rice going to go up in India, the world prices will go up as well. We will start exporting food inflation in the years to come.

d) Are the states really ready to launch the food security scheme? Of the fourteen Congress governments in the country only two have committed to launch the scheme on August 20, 2013, the birth anniversary of Rajiv Gandhi.
The government plans to use the public distribution system (PDS) to distribute rice and wheat. Estimates made by CACP suggest that the currently the system has a leakage of 40.4%. “In 2009-10, 25.3 million tonnes was received by the people under PDS while the offtake by states was 42.4 million tonnes- indicating a leakage of 40.4 percent,” the research paper points out. This is a marked improvement from 2004-05 when the leakage was around 54.1%.
Drèze and Sen in their book An Uncertain Glory – India and Its Contradictions divide the PDS into ‘old-style’ PDS and ‘new-style’ PDS. “Basic features of the old-style PDS include narrow coverage, large exclusion errors, erratic supply of food and massive corruption. The new-style PDS is based on a focused effort to tackle these interrelated problems, and to achieve broad coverage, low exclusion errors, regular supply, and relatively small leakages,” write the authors.
States like Tamil Nadu, Chattisgarh, Andhra Pradesh, Himachal Pradesh, Odisha and Rajasthan, are a part of the new style PDS, Drèze and Sen point out. But large states like Uttar Pradesh and Bihar are still on the old style PDS. This will ensure a tremendous leakage of rice and wheat that is distributed at a subsidised price in these and other states which still have old style PDS. 

e) The government ultimately plans to move food security onto the cash transfer system from the current PDS. So beneficiaries will be paid in cash which they can use to buy rice and wheat from the open market. But what will happen to the elaborate grain procurement system that the government has built through the Food Corporation of India in that case? As Drèze and Sen write “If the PDS were to be replaced with cash transfers, the government would have to devise good ways of using all the rice and wheat it procures every year. The procurement system has a momentum of its own, and is unlikely to be dismantled any time soon. Upbeat estimates of massive ‘food subsidy’ savings in the event of a transition to cash transfers effectively assume a discontinuation (or at least a sharp reduction) of foodgrain procurement, but this assumption is rarely discussed. Nor is the political feasibility of discontinuing food procurement given any room in these calculations.”
These are important questions for which the government needs to answer or they will comeback to haunt us in the time to come.
The article appeared on on July 15, 2013

(Vivek Kaul is a writer. He tweets @kaul_vivek)

The Rs 80,000 crore food grain scam no one is talking about

Vivek Kaul

That the food grains management policy of the Congress led United Progressive Alliance (UPA) government is in a mess, we all know. But the tragedy is that the mess is getting messier.
A new report titled
Buffer Stocking Policy in Wake of NFSB (National Food Securities Bill) authored by Ashok Gulati and Surbhi Jain of the Commission for Agricultural Costs and Prices (CACP), Ministry of Agriculture, provides more information on the issue.
The Food Corporation of India (FCI) directly and through other state government affiliates procures rice and wheat from farmers at the minimum support price(MSP) set by the government. These food grains are then distributed by the government through the various programmes that it runs, using the public distribution system. As per the current norms FCI buys all the rice and wheat that farmers bring to it, as long as it meets a certain quality.
Over an above the grains required for distribution, the government also maintains a “strategic reserve”. This reserve is kept for bad times like a drought or any other unforeseen shock, when production of food grains tends to drop or their free movement is restricted. In such circumstances, the price of rice and wheat tends to shoot up. The government can utilise these strategic reserves, release them into the open market and ensure that the prices stabilise.
As per the prevailing norms the government needs to maintain a total food grain stock of 31.9 million tonnes as on July 1, of every year. But the actual amount of food grain stock is much higher than this number. As the CACP report points out “T
he country is currently loaded with large stocks. On July 1, 2012, e.g., it had 80.2 million tonnes, and is likely to have similar or even higher amount this year, despite emerging as the largest exporter of rice (around 10 million tonnes in calendar year 2012) and exporting about 5.6 million tonnes of wheat in FY 2012‐13.”
The situation seems to have continued this year as well. The food grain stock as on April 1, 2013, stood at 59.8 million tonnes against the norm of 21.2 million tonnes, that the government needs to maintain as on April1, of every year. The situation is expected to continue even after the current wheat procurement season ends. The government procures more than 90% of the wheat, during the months of April and May.
After the procurement of wheat ends CACP expects that the total food grain stock will touch around 82.2 million tonnes, as on July 1, 2013. This is way more than the total stock of 31.9 million tonnes that the government needs to maintain as on July 1, of every year.
What is interesting nonetheless is that the wheat procurement has been way less than what was originally projected. “In 2013‐14, the procurement of wheat was initially estimated to be 44 million tonnes by the government after due consultation with state governments, before the procurement season began in March‐April, 2013. Gradually, it was realised by the end of April that it may not touch 44 million tonnes, but stop at around 40 million tonnes. With each week passing in May 2013, the estimate is being reduced and by the middle of May, it was being realised that total procurement of wheat may not cross 32 million tonnes. Such a drop in procurement estimate from 44 million tonnes to 32 million tonnes within less than two months is a cause of concern, and indicates the challenges in honouring the commitments under NFSB,” the report points out.
But even with this lesser procurement the food grain stock is way more than the requirement of 31.9 million tonnes. One explanation for the excess stock is that the government is preparing to introduce the right to food security, which will lead to an increase in the total amount of rice and wheat being distributed by the government. And hence, the greater stock.
Even taking that into account, the total food grain stock is much more than required. As the report points out “Anywhere between 41 million tonnes to say 47 million tonnes, would be a comfortable level of buffer stocks, covering both the operational needs of the NFSB as well as strategic reserves to take care of any drought or other exigency.”
So around 41-47 million tonnes of food grain stock would work well. But as on July 1, 2013, the government of India is likely to have around 82.2 million tonnes of rice and wheat. This means that the government will have 30-40 million tonnes of excess stocks of food grains. This is food grain for which the government has paid the farmer but hasn’t released it into the market, leading to inflation.
As the CACP report points out “The value locked in these “excess stocks”, evaluated at their economic cost, ranges from Rs 70,000 crore to Rs 92,000 crore. This infusion of “excess” money into the economy without corresponding flow of goods is evident in the paradox of rising prices of rice & wheat amidst overflowing stocks in government godowns.”
What is ironical is that the government doesn’t even have enough space to stock all the food grain that it has been buying. The total storage capacity available is around 71.9 million tonnes. Now compare this to the total expected food grain stock of 82.2 million tonnes as on July 1, 2013. What this means is that more than 10 million tonnes of food grain will be rotting out there in the open. And while that happens, food grain prices will continue to go up. Cereal inflation in April 2013 was at
16.65%. In comparison it was at 4.62% in March 2012.
The government has been buying up more and more of rice and wheat being produced in the country over the years. In 2006-2007, the government bought 32% of the total rice paddy produced. In 2011-2012, this had shot up to a massive 54%. In case of wheat, in 2006-2007, the government bought 18% of the total wheat produced. By 2011-2012, this had nearly doubled to 35% This has led to the government stocking up much more food grain than it actually requires.
As a recent report
brought out by the Comptroller and the Auditor (CAG) General of India pointed out “The total food grains stock in the Central Pool recorded an increase of 45.8 million tonnes between 2006-07 and 2011-12.”
This has meant that the amount of food grain available in the open market has gone down and leading to higher prices. It has also more or less killed the private trade in the sector. As the CACP report points out “
In recent years, the government has procured more than one‐thirds of the total production and more than half of the marketed surplus of rice and wheat. Such large scale public procurement has strangulated the private trade (as has been the case in Punjab, Haryana and now Madhya Pradesh & Chhattisgarh). Of the total market arrivals of wheat and rice in these states, more than 80‐90 percent is bought by the government, indicating a defacto state take‐over of grain trade. This reminds one of the failed experiment of wheat trade take‐over in 1973‐74.”
And any monopsony (a market where one buyer faces many sellers) be it the government or the private sector, is not good. This takeover of the grain trade in the country, by the government has come at a huge cost. The government has excess stocks of around 30-40 million tonnes of food grain with an economic cost of Rs 70,000-92,000 crore or lets take the midpoint of around Rs 80,000 crore. More than 10 million tonnes of this grain is rotting in the open i.e. around Rs 20,000 crore of public money gone down the drain. And this is a government which is struggling to control its burgeoning expenditure. India currently has one of the highest fiscal deficits in the world. Fiscal deficit is the difference between what a government earns and what it spends.
As the CACP report points out “It is creditable that India is currently in a state of ‘plenty’ but holding excessive stocks in godowns, which serve no worthwhile purpose, begs the question of economic efficiency in public expenditure. It will be much rational policy choice to liquidate these “excessive” stocks. The money, i.e., around Rs 80,000 crore under the most likely scenario, would certainly come in handy in the current times of high fiscal deficit and the increased availability of wheat and rice in the markets would rein in high food inflation, especially cereal inflation.”
Now that’s something worth thinking about.

The article originally appeared on on May 28,2013
(Vivek Kaul is a writer. He tweets @kaul_vivek) 

Food Security Act is another opportunity for Rahul to say I don't want to be PM


 rahul gandhi
Vivek Kaul
The Congress led United Progressive Alliance (UPA) government is in a hurry to somehow introduce the right to food security during the course of this year. Media reports suggest that a special session of the Parliament may be convened to get the bill passed.
But there are several major questions that the Congress led UPA government hasn’t answered with regard to the right to food security. This has writer has discussed some of these questions in the past. (You can read them 
hereherehere and here).
Here are some more important questions that need to be answered before the right to food security can move from being just a Bill to an Act.
1. The current plan is to sell subsidised wheat and rice to nearly two thirds of India’s population through the public distribution system. This system comprises of around 5 lakh fair price shops. Estimates suggest that nearly 60% of the food that is supposed to be distributed through this system is either siphoned off or is simply wasted. Given that, the eventual plan is to move the right to food security to a cash transfer system.
In this those entitled to food subsidy will have to buy rice and wheat directly from the market, at the market price, and the subsidy will be directly paid into their bank accounts or will be given to them through business correspondents hired by banks.
So what happens to the public distribution system in this case? Will it be dismantled? And if that is done, imagine the kind of unemployment it will lead to. Are political parties (even those within the UPA) which are so opposed to foreign direct investment in retail, thinking about this? And these shops are largely located in rural areas.
2. If right to food security eventually does move to a cash transfer kind of system, where the subsidy is direct paid out to those entitled to it, what happens to the elaborate procurement system for rice and wheat that the government has put in place? Currently the government declares a minimum support price for wheat and rice. At this price the Food Corporation of India (FCI) and other state government agencies, operating on behalf of the government, buy wheat and rice from the farmer., which then stocked and distributed through the public distribution system. This system is expected to continue for implementing the right to food security as well.
But what happens once the right to food security moves onto the system of cash transfers? Those entitled to the right to food security will have to buy wheat and rice directly from the open market. And that being the case the government need not maintain the humongous stocks of food grains that it currently does. The government will have to just buy as much of rice and wheat as might be needed to maintain a buffer stock, which currently amounts to somewhere between 14 million tonnes to 22 million tonnes of rice and wheat.
In 2006-2007, 169.1 million tonnes of rice and wheat was produced in the country. Of this, 43.8 million tonnes or around 26% was procured by the government. In 2011-2012, 198.2 million tonnes of rice and wheat was produced. Of this 88.5 million tonnes or nearly 45% was procured by the government.
So procurement rice and wheat by the government directly from the farmers has gone up tremendously over the last few years. And this has happened primarily because of the fact that the minimum support price has been increased consistently over the years. Farmers have been encouraged to sell to the government. If right to food security moves onto a cash transfer based system, what happens to the farmers who have become now used to selling at a fixed price to the government,which they know off well in advance? How fair is it on them? Are these things even being thought about?
While the current system of procuring more and more rice and wheat directly from the farmer has led to severe distortions, but doing away with it suddenly, will have its own severe repercussions.
3. What happens in a drought like situation? In a situation where the production of rice and wheat will come down, how will the government procure the amount that will be needed to be distributed to those entitled to the right to food security? The easy answer is that rice and wheat will be imported. But as this writer has pointed out in the past “Rice is a very thinly traded commodity, with only about 7 per cent of world production being traded and five countries cornering three-fourths of the rice exports. The thinness and concentration of world rice markets imply that changes in production or consumption in major rice-trading countries have an amplified effect on world prices.” (Source: 
National Food Security Bill Challenges and Options, Ashok Gulati, Jyoti Gujral, T.Nandakumar, Commission for Agricultural Costs and Prices (CACP), Ministry of Agriculture)
What is interesting is that there is a Force Majeure clause in the Right to Food Security Bill using which the government can shirk any responsibility to provide rice and wheat at a subsidised rate.
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 foodgrains or meals when such failure of supply is due to conditions such as, war, flood, drought, fire, cyclone, earthquake or any act of God.
But it is precisely at this point of time that the right to food security, if there has to be one, should be working. As CACP report points out “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.” 

4. Also, what is the basic goal of selling rice and wheat at subsidised prices. Who is it supposed to help? As a recent article in the Mint points out “Apart from the extremely poor, who form a small fraction of the population, nearly everyone else can afford the rice and wheat they require, as Bouis points out. A February report of the National Sample Survey Office (NSSO) shows the proportion of people not getting two square meals a day dropped to about 1% in rural India and 0.4% in urban India in 2009-10. Interestingly, the average cereal consumption of families who reported that they went hungry in some months of the year (in the month preceding the survey) was roughly equal to the average cereal consumption of those who reported receiving adequate meals throughout the year.”
So the point is that government’s own data clearly points out that the number of those who cannot even afford to buy rice and wheat for their daily meals is less than 1% of the total population. Doesn’t it make sense to target this section properly than doling out subsidised rice and wheat to all and sundry? But then targeting just them really won’t help the Congress party led UPA to get the votes in the 2014 Lok Sabha election. And if that does not happen how will Rahul Gandhi, get another opportunity to say, I do not want to be Prime Minister?
5. One of the goals of the right to food security is to improve nutrition. How does selling rice and wheat at a subsidised price help improve nutrition? The NSSO data quoted above clearly shows that most Indians can afford the rice and wheat they need to buy. To improve nutrition more consumption of vitamins and minerals is required. Howarth Bouis , director of HarvestPlus, International Food Policy Research Institute (IFPRI), made a very interesting point in an interview to the Mint a few months back. “ Food prices have been going up over time but we have to make a careful distinction in the Indian case between cereal and milk prices on the one hand, and all other foods on the other hand. After the green revolution, yields of rice and wheat shot up, and prices actually came down. Maybe prices have risen in the past couple of years but over the past 40 years, prices have fallen. The story is similar for milk. But if you look at all the other food groups such as fruits, vegetables, lentils, and animal products other than milk, you will find a steady increase in prices over the past 40 years. So it has become more difficult for the poor to afford food that is dense in minerals and vitamins.”
This explains the real reason behind poor nutrition in India. And no amount of selling of rice and wheat at subsidised prices can cure that. If nutrition needs to be improved food inflation which has gone through the roof needs to be controlled.
There are other factors as well. As the CACP report points out “studies have shown that the challenge of improving absorption lies in linking nutrition with health, education and agriculture interventions. Access to sanitation facilities and women’s literacy in particular are found to be strong factors affecting malnutrition.”
These are some more questions regarding the right to food security which need to be answered. In its current form the Right to Food Security Bill is nothing but a vote gathering ploy for Rahul Gandhi and nothing else, the bleeding hearts of 
jholawalas notwithstanding.
The article originally appeared on on May 16, 2013

(Vivek Kaul is a writer. He tweets @kaul_vivek) 

10 reasons why Amartya Sen is wrong about the food security bill

Vivek Kaul
Amartya Sen, who won the Nobel Prize for economics, in 1998, has been a big votary of the Food Security Bill being passed. “The case for passing this Bill is overwhelming…I would prefer this Bill to not having a Bill at all,” Sen said at a press conference yesterday.
The bill envisages to distribute highly subsidised rice and wheat to almost two-thirds of India’s population of 1.2 billion. In terms of its sheer size, this would be perhaps the biggest ever programme to distribute subsidised food grain to citizens of any country. And given this it is more than likely to have consequences, which the government of the day is either not thinking about or is simply not bothered about.
Given these consequences, Sen’s support for the Bill seems more ideological than logical. This conclusion can be easily drawn after a quick reading of a report titled National Food Security Bill: Challenges and Options authored by Ashok Gulati, Jyoti Gujral and T.Nandakumar (with Surbhi Jain, Sourabh Anand, Siddharth Rath, and Piyush Joshi) belonging to the Commission for Agricultural Costs and Prices (CACP), which is a part of the Ministry of Agriculture. This report was released in December 2012.
The report highlights many reasons on why the Bill in its current form is a recipe for sheer disaster and is not desirable at all, and should be junked at the earliest opportunity.

1. The expenditure behind the food security bill is stated to be at Rs 1,20,000 crore. But this the CACP report feels is just the tip of the iceberg. This expenditure does not take into account “additional expenditure (that) is needed for the envisaged administrative set up, scaling up of operations, enhancement of production, investments for storage, movement, processing and market infrastructure etc.”
So what is the likely cost of the food security bill going to be? “The total financial expenditure entailed will be around Rs 682,163 crore over a three year period,” the report estimates. This is much higher than the Rs 1,20,000 crore per year estimate being made by the government. The question is where is this money going to come from? The government is already reeling under a very high fiscal deficit and is under pressure from international rating agencies to cut down on flab. A high fiscal deficit also means higher interest rates as the government will have to borrow more. It will also lead to higher inflation.
2. Estimates made by CACP suggest that over the next three years the cost of distributing rice and wheat at a subsidised price is going to come to Rs 5,12,428 crore. This calculation does not include other costs of creating the required infrastructure to run the scheme. Of this, the leakage is expected to be at 40.4%. So, nearly Rs 2,07,000 crore will be siphoned off by middlemen.
What is ironical is that the government wants to introduce the right to food security through its public distribution network rather than use a cash transfer system like Aadhar, which it has been creating parallely. The government’s public distribution system is perhaps the biggest distribution system of its kind in the world. But it has virtually collapsed in several states leading to huge leakages.
“It may be noted that this Bill is being brought in the Parliament to enact an Act when internationally, conditional cash transfers (CCTs), rather than physical distribution of subsidised food, have been found to be more efficient in achieving food and nutritional security,” the report points out.
3. The food security bill in its current forms works with the assumption that cereals like rice and wheat are central to the issue of food security. Rice and wheat will be made available at extremely subsidised prices as a part of right to food security. But the irony is that more and more Indians have moved away from cereals towards a protein based diet in the recent years.
As the report points out “As economic growth picks up, it is common to observe a change in dietary patterns wherein people substitute cereals with high-value foodShare 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.”
4. A nuanced strategy is also needed because the right to food security also aims at improving the nutritional status of the population especially of women and children. But just ensuring that women and children have access to subsidised wheat and rice is not going to take care of this. As the report points out “Women’s education, access to clean drinking water, availability of hygienic sanitation facilities are the prime prerequisites for improved nutrition. It needs to be recognised that malnutrition is a multi-dimensional problem and needs a multi-pronged strategy.”
5. The right to food security creates a legal obligation for the government to distribute rice and wheat to those who are entitled. In order to fulfil this obligation the government will have to procure rice and wheat from the farmers. It currently does that through the Food Corporation of India(FCI) at a minimum support price(MSP). The MSP is declared in advance and the farmer knows what price he is going to get for the rice and wheat that he sells to the government.
The way the current system works is that FCI is obligated to buy all the rice or wheat that the farmer wants to sell as long as a certain quality standard is met. This has led to a situation where farmers find it favourable to produce rice and wheat because they have a ready buyer for all their produce, at a price they know in advance.
This has led to a severe imbalance in the production of oil seeds as well as pulses. As the report points out “India imported a whopping US$ 9.7 billion (Rs 46,242 crore) worth of edible oils in 2011-12 – a 47.5 percent jump from last year and pulses worth US$ 1.8 billion (Rs 8767 crore) during 2011-12- an increase of 16.4 percent as compared to last year.”
To distribute rice and wheat under the right to food security the government will continue using FCI and keep declaring a minimum support price. This means farmers will continue to get assured procurement when it comes to wheat and rice. And this will have several consequences. As the report points out “Assured procurement gives an incentive for farmers to produce cereals rather than diversify the production-basket…Vegetable production too may be affected – pushing food inflation further.”
6. Indian agriculture is still highly dependent on rainfall with 50% of area under cultivation still at the mercy of good monsoons. Irrigation wherever its available is also dependent on rainfall. So what happens in a situation of drought? As the report points out “A case in point is the drought year 2002-03 where the production of wheat and rice fell by 28.5 million tonnes over the previous year (overall food-grain production dropped by 38 million tonnes). It took 3 years to make up and it was only in 2006-07 that the production exceeded the 2001-02 level.”
If a drought situation crops up, will the government resort to imports? Is it a feasible option? Turns out it is not. “Rice is a very thinly traded commodity, with only about 7 per cent of world production being traded and five countries cornering three-fourths of the rice exports. The thinness and concentration of world rice markets imply that changes in production or consumption in major rice-trading countries have an amplified effect on world prices..This is especially true in the case of rice, as global markets are much smaller. India’s entry into the international market as a large buyer could exert significant upward pressure on prices,” the CACP report points out. Hence, any shortage of rice in India, is going to send world prices of rice through the roof. Also if the government continues procuring as much in a drought year as it has in previous years, it will leave very little of rice and wheat available for the open market, sending their prices through the roof.
7. The right to food security will mean that the government will use its public distribution system to distribute rice and wheat throughout the country. The trouble is that FCI, currently procures a major portion of rice and wheat from a few selective states. “70% of rice procurement is done from Punjab, AP, Chhattisgarh and UP while 80% of wheat procurement is done from Punjab, Haryana and MP alone,” the report points out. This will need infrastructure to be created and that will cost money.
As the report points out “From a logistics point of view it could be cheaper to procure food-grains from states like MP, Bihar, Gujarat etc and deliver the food-grains to neighbouring deficit states in central, eastern and western India rather than procure from a handful of surplus states in North and South and distribute food-grains across the deficit states in India. But such a system would need ramping up of procurement efforts in emerging surplus or self-sufficient states in cereals, such as Uttar Pradesh, Bihar, West Bengal, Assam, and Orissa.” And that is easier said than done.
8. In many such states where the operations of FCI are huge, the government has become the number one procurer of rice and wheat. With right to food security coming in, this procurement is only going to go up. And that will create its own share of problems. “In several states like Punjab, Haryana, Andhra Pradesh, Madhya Pradesh, and Chhattisgarh, one observes that the state is overwhelmingly dominant in procuring rice and/or wheat, leading to almost a situation of monopsony. Any further increase in procurement by the state would crowd out private sector operations with an adverse effect on overall efficiency of procurement and storage operations, as well as on magnitude of food subsidies and open market prices,” the CACP report points out.
9. What has also been observed that FCI does not have economies of scale. As it procures more, its cost of procurement goes up. As the CACP report points out “The economic cost of procurement to Food Corporation of India (FCI) has been increasing over time with rising procurement levels – demonstrating that it suffers from diseconomies of scale with increasing levels of procurement. Currently, the economic cost of FCI for acquiring, storing and distributing foodgrains is about 40 percent more than the procurement price.” If right to food security becomes an Act, FCI’s procurement of rice and wheat will go up, and so will its cost of procurement. This will mean a higher expenditure on part of the government.
10. The government will also have to keep increasing the MSP it offers on rice and wheat. This will have to be done to incentivise farmers to produce more rice and wheat to help the government distribute it to the entitled beneficiaries. The farm labour costs have been on their way up. As the report points out “There is an acute shortage of labour in agriculture that has suddenly cropped up in these three years. In some states, labour costs have gone up by more than 100% over the same period. Due to these rising costs, the margins of production for farmers have been declining both for paddy and wheat . Therefore, the government may have to raise procurement prices for rice and wheat to encourage farmers to increase production of these staples. As the cost of production of crops is rising, MSP can’t be kept frozen.” This means that the government expenditure on right to food subsidy will keep going up.
To conclude, its time Amartya Sen read this report and made himself aware of the problems the right to food security can create for India.
The article originally appeared on on May 7,2013

(Vivek Kaul is a writer. He tweets @kaul_vivek) 

Memo to Sonia: NREGA wasn’t game-changer, growth was


Vivek Kaul 
Perception is reality,” goes the old saying. And the perception among the jhollawallas who belong to the Congress party led United Progressive Alliance (UPA)is that the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) has been a swashbuckling success, which has led to a tremendous increase in rural incomes. So free doles have led to higher income and that in turn has created economic growth, is a conclusion that is often drawn.
A new working paper titled 
Rising Farm Wages in India – The ‘Pull’ and ‘Push’ Factors written by Ashok Gulati, Surbhi Jain and Nidhi Satija of the Commission for Agricultural Costs and Prices(CACP), Ministry of Agriculture, goes a long way in busting this perception.
The real farm wages (i.e. rise in wages adjusted for inflation) grew by 3.7% during the 1990s. The growth fell to 2.1% in 2000s. “So, if real wages had followed the same trend of 1990s in 2000s, the current level of real farm wages would have been higher than what it is today with MGNREGA,” the authors point out.
What is interesting nonetheless is that the data in the 2000s can be divided into two very different parts. Between 2000-01 and 2006-2007, the farm wages declined by 1.8% per year whereas they grew by 6.8% between 2007-2008 and 2011-2012.
On February 2, 2006, MGNREGA was launched in 200 of the most backward districts of the country. The coverage of the scheme was
to all the rural districts from April 1, 2008. The scheme aims at providing at least 100 days of guaranteed employment in a financial year to every household whose adults are willing to do unskilled manual work.
Payments under MGNREGA vary from Rs 120 to Rs 179 per day, depending on the state. “At the national level, with the average nominal wage paid under the scheme increasing from Rs 65 in FY 2006‐07 to Rs 115 in FY 2011‐12… It has set a base price for labour in rural areas, improved the bargaining power of labourers and has led to a widespread increase in the cost of unskilled and temporary labour including agricultural labour,” write the authors of the CACP report.
Guaranteed wages under MGNREGA have increased the wage expectations, although the employment generated under MGNREGA has been less than 10% of the total rural employment in most of the states, during most of the years. And this has led to an increase in farm wages of 6.8% between 2007-2008 and 2011-2012. Or so goes the logic, at least among the 
But causation is not so easy to establish, even though prima facie that might seem to be the case. There are factors other than MGNREGA at work as well. Take the construction sector for example, which competes with agriculture for labour. The share of workforce that is engaged in construction has increased from 3.1% in 1993-94 to 9.6% in 2009-2010. During the same period the share of work force engaged in Indian agriculture declined from 65% to 53%.
As the CACP authors point out “According to 64thround of National Sample Survey (Migration in India), 2007‐08, nearly 57 per cent of urban migrant households migrated from rural areas and mostly for employment related reasons. For rural males, around 20 percent were employed as casual labour after migration…Thus, construction activity certainly competes for rural labour and would act as a pull on farm wages.”
So taking these arguments into account, the CACP authors constructed a statistical model to test what really impacts farm wages. And this throws up some interesting results. A growth of 10% in construction pushes up the farm wages by 2.8%. A 10% increase in overall economic growth (measured through growth in the Gross Domestic Product) pushes up farm wages by 2.4%.
And what about MGNREGA? “Impact of MGNREGA is also significant with 10 percent increase in employment generated leading to around 0.3 – 0.5% increase in farm wages,” write the authors. While, the impact of MGNREGA on farm wages is significant, it is nowhere near the impact that a rise in real economic activity, which is measured through an increase in construction GDP or overall GDP, has had on farm wages. As the authors point out “The impact of growth variables (GDP (overall) or GDP (agri) or GDP(construction)) is almost 4‐6 times higher than the MGNREGA impact.”
The impact that MGNREGA has varies across states. In states like Andhra Pradesh, Assam, Madhya Pradesh, Punjab, Tamil Nadu and West Bengal the impact of MGNREGA is better in comparison to other states. But even in this case the impact of real economic activity on farm wages is much greater. Also, the impact that MGNREGA is not significant in states like Bihar, Uttar Pradesh and Odisha, which are among the poorest states in India.
So what is the conclusion that one can draw from this? Simply put, real economic activity has a greater impact on real income than free doles given out by the government. And farm wage would have grown at a much faster rate if the government had taken steps to increase real economic activity.
As the authors point out “These results raise a pertinent policy issue: given fiscal constraints and high food inflation, if there was a trade‐off between allocating resources for welfare schemes and increasing investments with a view to raise farm wages, could the money spent on MGNREGA (more than Rs 2 lakh crore) not be better used if it was for investment in say rural‐urban construction, or for overall growth, or for agrigrowth? These investments would have raised the growth rates in these sectors, and thereby ‘pulled’ the real farm wages through a natural process of development, whereby wages increase broadly in line with rising labour productivity…making the whole process much more economically efficient and sustainable.”
There have been reports of gross irregularities in the NREGA scheme. As the authors write “with the current…Minister of Rural Development himself asking for a CAG probeand the former Minister of Rural Development also alleging lack of effective monitoring. This has serious implications on the overall investment/resource allocation strategy.”
But then who is bothered about leakages and sustainable economic growth. It is all about winning the next Lok Sabha election.

Read the full research paper here
The article originally appeared on on April 29, 2013
 (Vivek Kaul is a writer. He tweets @kaul_vivek)